Why investors should avoid trendy trades

The Mag 7 trade is a bust. The red-hot chip trade is cooling. And nobody tells you one when hot trade ends and another begins.

If you’re a buy-and-hold investor—as most of us should be—this is a moment of vindication.

The stock market is very frothy, with sharp selloffs in hot sectors such as semiconductors fueling worries that an artificial-intelligence bubble is bursting and ugly times are nigh, akin to the dot-com bust of 2000.

Nobody knows where stocks are heading, but the current turmoil presents a good opportunity to look at a couple of the trendy trades of recent years. If you get in and out of these trades at more or less the right times, you’ll be fat and happy. But timing is everything, and even the pros struggle to consistently buy low and sell high.

Let’s look first at the semiconductor sector, where the gains have been breathtaking but the recent selloff has brought the whole market lower.