Nvidia has gone from $30 to $272 in less than three years. It is natural to feel that it's too late to get on board. But as Wayne Himelsein, one of my managers, has said, “the best investments are the ones the rise quickly after you make the purchase even if you didn’t buy at the low.” Just as the best poker players win by reading other player’s “tells,” Wayne evaluates the market’s “tells” to determine when to be aggressive and when to hang back. He says Nvidia is headed higher.
Ken Kam: Nvidia has been a rocket for the past three years. When a stock has such an incredibly powerful multi-year advance, shouldn’t we start considering whether it's time to lighten up?
Wayne Himelsein: For several years now, NVDA has been a winner; making new highs every few months and blasting forward as if propelled by rocket fuel. However, the amazing character of the stock market is that a company like Nvidia can continue advancing for decades, leaving us in the dust if we sell too early.
My experience has taught me to never look out too far ahead, because the further out in the future we try to forecast, the more things can change. To state the obvious, more can change in 2 years than in the next 2 months.
When looking at Nvidia’s steady long term advance, I believe there is no good way to determine if the train is coming to a stop, or as is more often the case, if the train continues.
Kam: Twenty years ago, a popular catchphrase was “don’t get in front of a moving train”. Is that this week’s market “tell.”
Himelsein: It’s not a good idea to step in front of a moving train. Most who try get hit with all that momentum.
With NVDA, there are additional insights that lead me to believe that its strength, and consequent likelihood to continue advancing. One of the key “tells” is how methodically it has advanced this year.
After making a new high in January, it then completely dismissed the February correction in the S&P500 to make yet a new high in February, and again in March, May, June, and most recently, in August. It’s almost a monthly ritual, as if it just can’t help itself.
Kam: Even after running up nearly 10x over the past three years, Nvidia is still making new highs on a regular basis. Is that enough to assure you it is not too late to buy?
Himelsein: There’s more. In addition to the regular new highs, Nvidia gracefully retracts from them in gentle and gradual waves. From January through early May, while repeatedly making new highs, it generally moved sideways in a 40-ish point, or 20% trading range, between 210 and 250.
Kam: Ok, this week’s tell has three components. First, a powerful, multi-year advance. Second, a series of new highs. Third, graceful retreats from those regular new highs. Does it seem to you that the pace of the advance is slowing down?
Himelsein: It may look like that, but I think Nvidia is leaping from one trading range to a new higher one. The stock was in a tight trading range between May and August. The next level is between about 240 and 265, a 25 point, or 10% band.
Like a frog on a giant staircase, it is hopping along each step until it gets to the edge, and then leaps up to the next step, only to hop along it until it reaches the next edge and does the same. Consolidate, leap, consolidate, leap.
Accordingly, Nvidia is not just another high flyer, but one that is taking its time to rest and gather new energy before it takes us to new heights.
Kam: Will it ever get to the top of the staircase, or worse, start tumbling down?
Himelsein: This is not only unknowable as of today, it is the very same risk that spans hundreds of different stocks as a byproduct of the broader market and how overpriced it is, as well as larger economic issues, like unemployment or tariff wars.
But discounting all of that which will likely pull downward on any and all stocks we might chose, the likes of NVDA looks as strong today as it ever has. So if you’re in it, stay in it, and if you’re not, perhaps it’s time to hop on the train.
My Take: Wayne started buying Nvidia at $32 in 2007 and it has been a top 5 holding in his Logica Focus Fund regularly for the past three years.
Wayne’s Logica Focus Fund (LFF) has a 17+ year track record at Marketocracy. Over that period, Wayne's model averaged 13.19% a year which compares well to the S&P 500's 6.00% return for the same period. In August 2012, LFF was made available as an investment option for clients in our separately managed account program. Since then, the composite of our client returns has exceeded the return on the model portfolio.
Because LFF consists of large-cap, liquid stocks, the S&P 500 is an appropriate benchmark. For those who aim for the lowest fees, an index fund is hard to beat. But for those who aim for the highest return after all fees, LFF has been a better choice for years.
For the full Forbes.com article, please click here.