My Confident, Active Investing Approach to Buying Alphabet Shares
The market is under pressure following the tech giant's earnings, but I have an active philosophy for buying in.
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The market is under pressure again on Thursday morning, with the Magnificent Seven and AI-related stocks leading to the downside.
The Magnificent Seven is down 2.7% as of this writing. Amazon (AMZN) , which reports on Thursday night, is the leading loser, with Alphabet (GOOGL) not far behind.
About 56% of stocks are in negative territory, but the Russell 2000 is exhibiting some relative strength. However, there are more new 12-month lows than highs, and we continue to see extreme pressure on high P/E growth stocks. The IBD50 ETF is down another 2%, hitting its 200-day simple moving average. That is close to bear market territory for the leading growth names.
My game plan is to take advantage of the volatility. This means looking for entry points in stocks that offer good value but are being punished by the market for temporary reasons.
Active vs. Passive Management
Alphabet is a prime example of a name I view as a stellar long-term investment. Many folks holding it for the long haul try to ignore the shorter-term volatility. Even the best names suffer big drops, and investors who emulate Warren Buffett simply shrug them off.
While most investors would benefit from a longer-term approach, I’ve found that I can greatly enhance my results with what I call "active investing." In simple terms, that means actively trading around a long-term core position.
I had a core investment in Alphabet going into the report, but I left room to add. I always want to be in a position to buy when a major news event is on the schedule. I traded the stock in the after-hours session, reducing my position by half when it briefly turned positive. I then added those shares back — and more — near the open on Thursday morning. I’m nicely ahead on those specific trades, even though the core position is currently down.
The CapEx Conundrum
My goal now is to look for more opportunities to add to the position and flip some shorter-term shares. I believe the current negative AI sentiment is causing the selling, and that should shift once we shake out the nervous hands.
The Alphabet report was quite good, but what spooked the market was the massive jump in capital spending. While the company is seeing a nice payoff from its investments, there is widespread concern about the immediate return on investment, and that is what is hurting the entire AI sector.
What Analysts Are Saying
Wall Street analysts seem to disagree with the current market sentiment. Either the analysts are massively incompetent, or investors are being overly emotional about the capex issue. The sheer conviction from these firms gives me the confidence to be a dip buyer and do some flipping if I can catch shares at a good juncture.
The market is getting worse as I write this, so I’m not rushing to buy, but I’m watching closely. In future columns, I’ll have much more on the active investing approach, which melds a long-term "buy and hold" philosophy with aggressive, active trading.
At the time of publication, DePorre was long GOOGL and AMZN.
