Much ado about Nvidia
Much ado about Nvidia
It is now "everyone's business," even risk managers like me
I will have a more extensive article (technicals, discussion of leveraged ETFs and options) related to NVDA coming out on Seeking Alpha soon. But this stock is so critical to the market’s psyche, I felt it was a good time to quickly comment on it to our own audience too.
First, some perspective
Avoiding big loss is my top investment rule. After that, it is to make as much as I can, via dividend income and then growth. How much growth? As much as I can get. How do I get it? By sacrificing the peak/valley nature of investment management to chart (literally) as smooth and steady a path as possible.
That’s why I talk incessantly about things like tactical rotation among positions instead of “buy and hold.” I care about taxes, and I love to get on board with the next super stock, which NVDA has become. But never at the expense of losing sleep.
And THIS will lose me some sleep! That is, if I had 6.66% of my portfolio in it, as the S&P 500 did as of last night. Yes, 666, sign of the devil. Make of it what you will LOL.
I will say this: 666 is where the S&P 500 bottomed on March 5, 2009, which was the last day of the 18-month market misery known as the “Great Financial Crisis.” Great for investors who learned how to hedge and exploit down markets like that one, which was more than cut in half over that time.
The chart above is the one less-often shown to investors. This is the one they show you. 3 years, 456%. No devilish issues here, eh? Though I will note that for half of that 3-year time frame shown below, NVDA’s total return was zero.
NVDA’s rise is quite remarkable, and certainly some of its price gain is related to its dominance in AI chip manufacturing. What we don’t know is 2 things.
The less important one is that while AI spending has surged, it remains to be seen how much return on that huge investment the users of NVDA’s products will earn, and how quickly they can have investors/shareholders view it as being realized fast enough.
And that’s why there is a more important issue for NVDA, and by association most of the global equity market, since this stock is as much an emotional leader as I’ve ever seen in 38 years of doing this. That issue: when will investors, particularly big-money investors and index fund investors, decide that the best gains are behind them.
Forget for a moment what NVDA does and how important it could be to our collective future. What I look it more closely is that nearly 7% weighting in the S&P 500, as well as its 8% weighting in the Nasdaq 100 index, second only to AAPL’s 9% position.
Translation: if and when investors collectively run for the exits, the stock that will be sold off the hardest are the ones with the biggest index positions. That will happen at some point, just don’t ask me to guess when.
This is why I always remind my audience about the one thing that IS guaranteed about past performance: YOU CAN’T HAVE IT. It is in the past.
So bravo to those who bought NVDA five years ago at $4.19 split-adjusted, and now own it at $117.60 as of today’s close. I’m not one of those folks. If I had it to do over again, I would have added a 10% slice of QQQ to my Core ETF portfolio a long time ago. Not that anyone could do that on their own. I didn’t, so I have not personally cashed in as some of my fellow Baby Boomers have on the QQQ revolution.
Here’s what CORE alone versus 90% Core + 10% QQQ looks like going back the past 18 months. 15.6% in a year and a half for a risk-averse strategy is pretty competitive. But last I checked, 24% was better. As subscribers paid and free will see going forward, when I talk about my track record and show numbers, I won’t just “cherry-pick” the best time periods. After all, this is a research service, so I could have a pristine record for myself the next few years, but if a subscriber to the full service or the upgraded ETF Yourself service (at $1,200 a year) received all the trade alerts, but sat on some by overthinking it or for any other reason, that will provide a different result (better or worse).
But that was never in the cards for investors like me, which is something our subscribers should be aware of…at least based on the past. Using options and tactical management, I think I’m grabbing as much of the “upside” as I ever have in decades of managing money. That’s a good example of what happens when you have the benefit of being a “serial learner” for decades, immersed in this stuff.
Because risk management often, but not always means your returns in a strong stock market will be less than your neighbor who went all “YOLO” and ended up with NVDA instead of the oddly-named Super Microcomputer. This one, which was an investor love-fest until first gravity, then an accounting concern, led to this:
Another stock I am unlikely to own much of at any point, and missed the boat on. Now that it has fallen off the side of that boat, my sense of market history, drama and “things that rhyme” brings me right back to this from that dot com bubble era. You remember Enron, right?
KEY TAKEAWAYS:
NVDA is “everyone’s business,” as are all of the giant, heavily-weighted stocks in the S&P 500. Because that’s where so much Baby Boomer money has collected over the decades.
My personal approach to investing at this stage of life, other than a few side trading accounts I run for myself, is defined by risk management. Returns will come, but not if they have to come from 50-75 cents on the dollar when it used to be a dollar, so to speak.
Those priorities are what attracts folks to our work and our subscription services. And also what causes others, who are driven more by “how do I make the most when the market is roaring higher?” to unsubscribe. We get it!
I’ll be back with more insights, or what we affectionately call ROBSERVATIONS, soon!