Tech Hits a Wall & Netflix Plunges

**Travis Hoium** (0:02)
A new AI model is crashing the market. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium. Joined today by Lou Whiteman and Emily Flippen. And guys, we gotta talk about the topic of the market, at least over the past 48 hours or so, that is tech stocks dropping like a rock. This is everything that was on fire, Emily, over the past six months, over the past, you know, maybe 18 months. And now they've suddenly fallen back to earth. We're talking about memory. We're talking about equipment makers. There's a number of different catalysts here. This could be the AI model Kimi that has come out of China. It could also be earnings season. So when you're seeing these stocks fall, what is in your mind as an investor?

**Emily Flippen** (0:52)
Well, the first thing that comes to mind is trying to understand what is the core driving principles that's resulting in a sell-off that we're seeing across the board. And trying to reconcile Netflix and Micron, you're probably scratching your head thinking to yourself, what do these companies have in common? And the short answer is, they're very popular with retail investors. In fact, if you look across the board, a lot of the stocks that are down massively are very popular with retail investors. And we've seen a lot of people kind of flood into companies, whether that be for fear of missing out, whether that be just part of the hype cycle. And as we start to get earnings from these businesses, as people's fear starts to grow, then you have people who never really had a thesis in the first place for buying in, start to panic. And when you buy into a company without a real thesis for why you're holding that business, hopefully for the long term, then it's really easy to panic whenever the market starts to sell off. So I think the cross the board selling off that we're seeing, it can be a result for Micron, a memory shortages for Netflix as a result of earnings, for IBM, good Lord, who knows as a result of IBM, whether it be internal struggles or a sell off in the software industry in general. But all of these things are different dynamics, all being driven by the same core principles, which is, I'm an investor and I'm afraid. And I'll tell you what, the market is made up of humans. It's made up of people who make emotional decision. And I think I see personally a lot of emotional decision making happening this week.

**Lou Whiteman** (2:07)
Yeah. And it's funny, we never noticed it on the way up, right? I mean, Micron is down, what, how much percent, but they're also trading where they did in early June. IBM is back at its worst day in history, and it fell back to where it was in May. We kind of take it for granted on the way up, and then we panic about it on the way down.
It's not healthy investing, it's not fun, it's why I don't have any hair, but I think, yeah, it kind of, this is, it's sort of separate to the core principles of find good companies and stick with them. This is just the market, marketing. This is day-to-day fluctuation. Like I say, it's a ton of fun on the way up, and it's a ton of despair on the way down. Trying to normalize and maybe not get too caught up in it on the way up, and not get too caught up in it on the way down is probably the way to go. But hey, you tell my emotions that because that's not easy.

**Emily Flippen** (3:00)
Yeah, and there's actually a lot of good psychological evidence to your point, Lou, that shows investors feel losses twice as worse as they benefit from gain. So if a stock goes up 20 percent, that's great. You feel good about that. But you actually feel twice on average worse when a stock goes down 20 percent. So you feel those losses a lot more. It's understandable if a lot of people are listening to us today, feeling really afraid, feeling literal pain from what's happening in their portfolios.

**Lou Whiteman** (3:23)
If you think about it, by definition, if I buy a stock and the stock goes up, I'm not really affected by that. Like, yeah, duh, that's why I bought it.
But then when it goes down, so yeah, I think on a deep psychological level, we are wired to notice fear more, but also just common sense. It's like, this isn't going to script, we are now having a moment where things aren't going to script.