The Deep Cyclical Strategy
Micron is a textbook example of a high-quality cyclical business. If you look at their historical earnings (represented by the green areas in most charts), you’ll notice that every few years, earnings drop significantly—sometimes even going negative—but they eventually recover, often to new highs.
That’s the key pattern I look for. I’ve written about Micron several times on Seeking Alpha—10 articles in total, starting back in 2018. My first buy was in October 2018. I published a "hold" article on December 31, 2019, but it was actually a sell in practice—I took profits around then for about a 45-50% gain.
I didn’t buy again until 2022, when the stock had fallen around 50% from its highs. I sold again in March of last year after a ~90-100% return.
So, if someone started with $100, they would’ve made $45 on the first trade, reinvested that $145, and nearly doubled it again. That’s roughly a 185% cumulative return since 2018 using this cyclical strategy—about triple what a simple buy-and-hold approach would’ve earned over the same period.
Why Not Just Buy and Hold?
That’s a question I get often: “Why not just buy and hold Micron?” And the answer is simple—because this medium-term, cyclical strategy has produced better returns. Plus, it can help avoid the worst parts of downturns. For example, Micron is currently down 55%. If you took profits ahead of that, you sidestepped a big drawdown.
After I sold last year, the stock jumped another 50% in just a few months. I got a lot of comments telling me I was wrong—but now those people are underwater. That’s the nature of this game.
Earnings for a cyclical business are unpredictable, but the pattern—the cyclical nature—is consistent. So instead of guessing where earnings will go, I use history to guide me: I look at previous highs, how far the stock fell during past cycles, and how long it took to recover.
Using History as a Guide
Micron’s last peak was around $97. During downturns, I look to buy when the stock is about 50% off its highs—so around the $48-$50 range. When I sold last year, it was just before it hit that $97 mark again, which was close to a 100% gain.
I don’t try to predict new highs. I just assume the market may be willing to pay around the previous high again, and I base my expected returns on that. If the stock recovers within three years—as it often does—great. If it takes five years due to a recession, that’s still a 15% annual return. That’s a win.
If you’re patient and strategic, even a 300% return over five years is possible, especially if you’re buying during deep downturns (like 80% off highs). That’s how you can turn $100 into $400–500.
But You Have to Be Careful
It’s not just about the chart or technicals. This is not a technical strategy—it’s fundamentally based. I use fundamental analysis to filter out low-quality businesses. Not all cyclicals are created equal. Some go bankrupt. I only want to buy the ones that recover and thrive.
Cyclical businesses can be dangerous, which is why they often trade cheaply. But with the right analysis and a solid plan, they offer amazing opportunities.
I don’t go all-in either. I scale in. Micron is a half-percent position right now. At most, I’ll let it get to 2%, because I’ve also bought two other semiconductor stocks this week. So, I’ll have a diversified basket within the sector.
This diversification protects against company-specific risks and weird outcomes from things like tariffs. I'm not just betting on Micron—or Nvidia—or any one company.
Watch Out for Super Cycles
I’ve got a bunch of rules I follow, and one of the big ones is watching out for super cycles. These can be boom-bust scenarios, like what we saw with AI or during the COVID stimulus era. This could end up resembling the early 2000s dot-com bubble. So when something like this starts to unfold—and stocks are falling fast—you sometimes have to make quick decisions.
Adapt Your Plan as News Hits
That said, you also reassess as you go. For example, let’s say Micron is down almost 60% from its highs and you’ve taken your first position. You were maybe thinking, “If it drops 70%, I’ll add more.” Then, boom—China tariffs hit, which will likely hurt Micron even more. So maybe now you adjust and wait for a 75% drawdown before adding.
Keep a Buyer’s Mindset
But the key is to keep a buyer’s mindset. Things can and will change—sometimes quickly, sometimes over years. Say there’s another election cycle or people’s electronics start wearing out and demand picks back up. You might have to wait, but these turnarounds do happen.
Be Cautiously Optimistic Even if it takes 3–5 years, there can be light at the end of the tunnel. Maybe it gets worse before it gets better—but that’s investing. I think it’s smart to stay cautiously optimistic.
Your System > Your Emotions
If you ask me what I think is going to happen, well… I’d say it probably goes lower. But I thought that last time, too. I bought Micron and AMD in 2022 knowing they might drop more. In fact, I titled the AMD article “Buy It Even Though It’s Going Lower.” You need a system that overrides your emotions, because your thoughts will change with the news, and companies adapt too.
Understand the Historical Drawdowns
Looking at Micron’s history, we’ve had drawdowns as steep as 85%, and more recently in the 70–75% range. Lately, drawdowns have been around 50%, which is where I’ve bought both times. You don’t want your parameters to be too strict, or you’ll be holding cash for a decade waiting on one stock. That’s why I track dozens of names—I wait for opportunities to come to me.
A Two-Part Buying Strategy
The dual-system approach I use is:
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Buy the first piece at 50% off the highs.
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Be prepared to average down if the drop continues.
If it keeps falling and eventually recovers, you’re still looking at 15%+ annualized returns over 5 years—even if the stock drops more after your initial purchase.
Expect Deeper Drops—And Understand the Math But keep in mind, a stock falling from $100 to $50, and then from $50 to $25—that’s another 50% drawdown, not just 25%. So it’s possible, even normal, for that to happen. You just have to believe the recovery is eventually coming—not by accident, but because there are real, necessary products Micron produces that support global tech infrastructure.
Semis Need Caution, But Micron’s a Buy
If the economy stays weak for a few years, yeah, Micron might fall 85% off the highs. You need to be mentally and financially prepared for that possibility. I don’t always hammer that point in the first videos because some people think it sounds crazy—even when I show the historical data. People say, “This time is different.” Sure. Maybe. But probably not.
Micron is at around $65 right now. I think it’s reasonable to take a 1% portfolio position here. I personally have about 0.5%, which I picked up when it dropped 50% from its highs earlier this week. I’ll likely add again soon—maybe at a 75% drawdown—but I won’t go above 2% total weighting, especially with semis, since there are several names that look attractive right now. I’ll spread my exposure across multiple companies to reduce single-stock risk.
Final Thoughts
When stocks are down 50% or more in a short time, it can be scary. But if you’ve done your homework, you’ve built a system, and you understand the nature of cyclicals, it’s possible to stay rational and stick to your plan. Funny enough, a bunch of people who didn’t say anything before the tariffs are now echoing what I said—talking about a possible depression.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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