Discipline trumps conviction. These are perhaps the three most important words for Nvidia shareholders who are sitting on a grand slam. After more than tripling last year and more than doubling again so far in 2024, to say that Nvidia and its CEO Jensen Huang are on a roll would be the understatement of the century. Riding the wave of artificial intelligence that is sweeping Wall Street, the electronic chip giant knocked on the door of a market capitalization of $3,000 billion on Tuesday. Since closing on May 22, Nvidia’s three-session post-earnings winning streak has added more than $500 billion to stock market value. This figure is staggering when you consider that it is almost $100 billion more than the combined total market capitalization of competitors Advanced Micro Devices and Intel. Not only was the last quarter incredible, but so were the advice and comments Jensen shared during last week’s earnings conference call, sending clear signals that demand for chips and solutions Nvidia software shows no signs of slowing down. With the next-generation Blackwell chip platform in the near future — and as Jim Cramer said Tuesday, many more iterations to come — it’s easy to get caught up in the price action and let your conviction guide your decision-making. NVDA 5Y mountain Nvidia 5 years This is not our discipline, however. While recognizing that belief can reward you with outsized wins from time to time, we firmly believe that it is discipline that keeps you in the game. It is by staying in the game that you can ultimately realize the power of compound interest over the years. Last week we explored the question: Can investors with little or no stock still buy Nvidia after these records? This week we look at the other side of the coin. We’re not saying run out and sell stocks right now if you’re sitting on huge paper profits. We cannot answer this question for you. However, here are three things to consider and questions to ask when looking at a monster win at Nvidia and trying to assess the appropriate course of action. 1. Have you recently booked a win? With stocks up nearly 130% year-to-date in 2024, following a 239% gain in 2023, it may seem like the gains will continue forever. However, we all know that this is not the case. Over the years, Nvidia shares have seen pockets of turbulence. Knowing that, on the first trading day of 2024, the Club sold some shares of Nvidia – and seven other big winners from the previous year. In our sales alert to members on January 2, we wrote: “To be clear, we have no plans to exit these names completely, which is why we are only making small sales across the board. The group above represents some of the biggest “Can we regret our decision? Of course, in hindsight, we should have banked on Nvidia. But hindsight is 20/20, and it would be dishonest to claim that the gains of the last five months were so obvious at the time We didn’t know that Nvidia would start 2024 with a continued rally or predict a 19% drop from its intraday high on March 25 to its most recent low on the 22nd. April or the resumption of its run at current historical levels Should we blame ourselves for selling our stocks on January 2, when the next peak will be in March? 20. We cannot time the market consistently, so we don’t pretend we can. Instead, we simply seek to apply disciplined decision-making throughout the investment process. Diversification is important. When a stock does what Nvidia did, it can impact your exposure. After the small reduction on January 2 – which was more about the size of the run than the position being too big – Nvidia had a weighting of just over 2%. Adding about 134% since then – which includes the aforementioned 19% – we realize that Nvidia now represents just over 4.5% of the portfolio. It’s #2 – just behind our other “own it, don’t trade it” stock Apple with a 5% weighting. Since we don’t like a position to be much larger than 5%, we may need to sell if Nvidia’s rally continues. If this were to happen, it would not be because anything has changed in our outlook, but rather because it would be smart portfolio management. When thinking about your diversification profile, be sure to also keep in mind the correlation between positions. This run by Nvidia is driven by investments in AI infrastructure. This appears to be sustainable at the moment. But that theme drives many stocks, including club name Broadcom, which has a weighting of nearly 3.3%. That means almost 8% of the portfolio could be at risk of decline if AI spending were to stop – and that’s not counting the less direct exposure we have through names like Eaton. Again, we don’t think this will happen anytime soon. But it is prudent to worry about all eventualities. 3. Ask yourself: If I didn’t own any stocks now, would I buy? This does not resolve the issue of greed or diversification. However, by answering this question as objectively as possible, we can seek to be more honest with ourselves in terms of the current risk/reward offered by the stock. Investing is about estimating risk and reward and managing risk while letting the winners take care of themselves. When looking at Nvidia, try to put aside the gains you see on paper and think about the stock from a new money perspective. After all, it’s the influx of new capital that will drive stocks higher, or the lack of new buyers that will cause stocks to fall. Stocks are currently considered overbought according to the Relative Strength Indicator (RSI), a momentum-focused technical analysis tool, which stands at 78. The threshold for overbought is 70. This does not mean that stocks Stocks will decline imminently. Overbought conditions may last for some time. In fact, the last time we topped 70, Nvidia shares were trading around $540 apiece and climbed $200 to around $740, before dropping sharply to around $663. However, this means that the shares have made a very strong move higher in a very short period of time and the risk/reward ratio is not quite what it was when the shares were at $950 before this move and that a little more caution may be in order. justified when it comes to managing the position. Overbought conditions are generally resolved in one of two ways: they either move back or they trade sideways and consolidate. It’s hard to say when this will happen, but the chances of it happening are higher when we have entered overbought territory. In Conclusion As you look at your position at Nvidia and think about what to do given the incredible journey we’ve seen, keep these three considerations in mind. (1) Are you greedy? (2) Has diversification suffered from this rush? (3) What does the risk/reward look like today, compared to when you initially took your position? The answers should help you determine what decision to make next, as long as you stick to the mantra that discipline trumps conviction. (Jim Cramer’s Charitable Trust is long NVDA, AAPL, AVGO, ETN. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim n ‘performs a transaction. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY OBLIGATION EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
Jensen Huang, co-founder and CEO of Nvidia Corp., during the Nvidia GPU Technology Conference (GTC) in San Jose, California, United States, Tuesday, March 19, 2024.
David Paul Morris | Bloomberg | Getty Images
Discipline trumps conviction. These are perhaps the three most important words for Nvidia shareholders who are sitting on a grand slam.
After more than tripling last year and more than doubling again so far in 2024, to say that Nvidia and its CEO Jensen Huang are on a roll would be the understatement of the century. Riding the wave of artificial intelligence that is sweeping Wall Street, the electronic chip giant knocked on the door of a market capitalization of $3,000 billion on Tuesday. Since closing on May 22, Nvidia’s three-session post-earnings winning streak has added more than $500 billion to stock market value. This figure is staggering when you consider that it is almost $100 billion more than the total combined market capitalization of competitors. Advanced microsystems And Intel.