Owning the Market Without Chasing Nvidia

Greetings!

Nvidia

There is a lot of talk about AI right now and the performance of Nvidia and I've had several people reach out about this so figured I'd offer some insight.

The stock returned 200%+ in 2023 and is up 170%+ in 2024 already.

It's easy to look at those returns and feel you are missing out on something.

A helpful reminder is that if you own any type of common investment today, you likely already own shares in Nvidia.

For example, it's common to allocate 35% of one's portfolio to a Total US Stock Market Fund. In looking up one of these funds, we can see that fund has about 6% of the fund allocated to Nvidia.

On a $1mil portfolio you would have about $20,000 allocated to Nvidia.

Now is that more exciting than putting $20,000 directly into the stock and watching the ups and downs? Maybe not.

But for me, I get excited about the fact that when I buy an index fund not only do I own Nvidia, but also Apple, Amazon, Google, Tesla, Exxon, Home Depot, along with 1000s of other companies where I don't lose any sleep at night if one of those happens to perform poorly or God forbid outright fail.

You might say these companies are "safe bets" but lets remind ourselves of the story of Enron.

From 1996 - 2001 Fortune magazine called Enron "America's Most Innovative Company" for six consecutive years.

At Enron's peak in 2000 it traded at $90.75 per share. In December 2001, when it declared bankruptcy the shares traded at $0.26.

Let's not forget Amazon dropping 80% in 2000 then another 30% in 2001, then 50% in 2022.

The main points are:

If you want to invest in individual stocks, are you willing to stomach the potential losses as well? Nvidia went down 50% in 2022, 30% in 2018, 76% in 2008, and 82% in 2002.

There is no reason to feel you are missing out on a stock when it is highly likely you are already invested in it.

You should always assume an individual stock can and will go to zero no matter how popular of a company it is.

If you do decide to buy, consider setting a threshold either as a % such as no more than 5% of your net worth or no more than whatever $ amount you are comfortable putting in.

I’m not against individual stocks, but personally I've found them not worth the hassle. Currently, I don't own any.