HomeTrading TipsPalantir: Down 80%, Time to Diversify?

Palantir: Down 80%, Time to Diversify?

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Palantir (NYSE:PLTR) has fallen over 80% since its all-time high. To be more specific, PLTR is down 81%, but what’s 1% among friends? Nonetheless, we were in the midst of a Wall Street betting frenzy. And in early 2021, the key was that PLTR was riding high on sentiment and retail. At the time, few people were thinking about “macro”: Retail trading is altering the way markets work, but what truly appears to matter is that for the first time since the dot-com boom, we suddenly have a stock picker’s market. As a result, equities may be less sensitive to the larger economy than previously. At the same time, professionals must pay attention to a new generation of investors who entered the market with the development of commission-free trading. Instead of following many of Wall Street’s upgrades and downgrades, they’re conducting their research on sites like Seeking Alpha, ushering in a new era of DIY investing.

Of all, even the most basic charts show that retail has gone bad and macro has taken over for the time being: interest rates, inflation, and war, to mention a few elements that have taken hold. In May 2022, I was very clear about this.

The largest macro narrative from last year to this year was the transition from growth to value. Of course, PLTR is a growth stock. However, we are currently seeing a perfect storm of inflation, supply chain challenges, growth that is out of favor, and much more. In the great scheme of things, almost everything is working against PLTR.

Are We Down 80%

This is when things become complicated. Because my cost base exceeds $11, I’m losing around 35%. It’s not difficult to calculate how much an investment has fallen. It’s also not difficult to calculate how much is needed to return to even. The issue is that it is psychologically tough to combine losses with gains. This is what I mean:

The math of profits and losses is one of the more appealing parts of investing. Simply put, a 50% gain will not enable a portfolio to recover from a 50% loss. To repair a 50% loss, a 100% gain is necessary.

Here’s an eye-catching illustration to help you grasp how this works: This is important to note since it also applies to each stock. The formula is the same whether looking at the S&P 500 (SPY) or the PLTR. To put this in context, I’m down 35%. Therefore PLTR has to gain around 54% from here to break even on my investment. As I write this, PLTR is trading at $7.40, so I can multiply it by 1.54 (i.e., 54%) to get back to my cost base of $11.40.

Again, I must emphasize that arithmetic is not difficult. The drop is simple to calculate. And the profit is simple to compute. However, we anchor to our beginning price, making a recovery feel much more unpleasant. The relationship between pain and pleasure is asymmetric. Which would encourage the ordinary individual to act quickly: a tiger hunting you or a bag full of money? Avoiding a certain degree of immediate suffering always triumphs over acquiring instant pleasure. Studies have repeatedly shown that people will do significantly more to prevent short-term pain than to acquire short-term pleasure.

Putting the “Loss” in Context

This is when my little psychology lesson comes in handy. If you feel PLTR is a meme stock, you will consider it a short-term investment. Selling will certainly occur on large dips, and it will be unpleasant.

If, on the other hand, you trust Alex Karp that PLTR is a long-term play, your patience will be greatly rewarded. Regarding Karp’s speech at the World Economic Forum, thanks to Samuel Smith for clarifying this.

PLTR often takes up to 5 years to construct enterprise software solutions because of the needed scale, breadth, and strength. As a result, the real value of PLTR at any given time is frequently underestimated until five years later. The silver side is that because of the time necessary to completely design and execute a new business software product. As a result, they frequently have even longer market lifetimes.

I don’t think I’ve ever truly argued that PLTR was a short play. My minimum is almost often 2-3 years, but it is sometimes considerably longer. If you acquire PLTR, you should intend on keeping it for a long period, or you will almost surely sell. Volatility causes weak hands to tremble, compelling them to sell. That is the fear component of volatility. But bear in mind that instability breeds greed.

Wrap Up

The majority of PLTR investors are carrying a capital loss. The disadvantage is the challenge of returning to even or advancing into the green. We’re all eager to win, right? The advantage is that it’s now a bit simpler to comprehend PLTR’s price behavior concerning volatility. Furthermore, it is a little easier to predict what it will take to break even, at least in terms of finances.

Of course, stock-based pay continues to irritate me. Just look up some of my PLTR articles. It comes up many times. However, I should mention that I expect it will burn down significantly over the next 2-3 years. We’ll see what happens.

While I feel that PLTR’s 30% increase is in jeopardy, I also believe that PLTR is still a Hold. Furthermore, I would not contemplate purchasing unless the price falls below $8, which may not be low enough to entice me to buy. So we’re in trouble right now. But, once again, I believe this is an exceptional firm that will perform well in the long run.

The corporation is not going bankrupt or anything slightly close to that. And we are currently trading below $8. At this point, I’m going to offer a “Buy” recommendation on PLTR for investors wishing to decrease their cost base and those looking to dip their toes into the firm. Take your time. Move slowly. Size adequately, and diversify as needed for your risk tolerance and portfolio makeup.

Featured Image – Megapixl © Rawpixelimages 

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