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Investing lessons from an Nvidiot

Lex Hall  |  22 Aug 2020Text size  Decrease  Increase  |  
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There’s one thing worse than seeing the price of a stock you hold fall. And that’s seeing the price of a stock you sold climb. I’ve endured that pain acutely this week.

The share price chart showing the 133 per cent of chipmaker Nvidia since I sold out in November last year is something I can’t unsee. This week it reached a new high of US$485. Headlines like this do nothing to ease my grief: “Nvidia will surge 24pc and become the first US$500 billion semiconductor company as processor dominance widens, Bank of America says”.

Fear not, I did make a gain by selling out; and that is the only tonic for me. Knowing that the proceeds helped me with another investment, in this case a humble one-bedroom flat. And that’s the point, I suppose. Focus not on the fact you got out too soon—pity the colleague who bailed on Amazon too early—and instead think about the profit you made and how it helped you.

I take solace in the words of Morningstar personal finance director Christine Benz. “If you encounter market volatility and you expect to need money within the next, say, two to five years, it's probably not too late to reduce your equity allocation,” Benz says. “Yes, in a lot of ways, you're locking in losses, but the idea is that you're de-risking that money that you expect to spend soon. On the other hand, for funds that you won't need for a while, say, five or 10 years or even more, you probably want to leave those invested in stocks, let more of your portfolio heal, and grow for the future.”

And then there are more practical measures. Morningstar head of behavioural finance Steve Wendel suggests the following: First, write out your goals, write out your rules, "I trade under this price to fair value," etc. Second, show these rules to someone such as a spouse or an adviser. And third, set a cool-down period before making any major changes to your portfolio. Say, a three-day window after which it's OK to make a change but you have to wait those three days to think clearly about the changes you want to make. To set a goal and calculate the return needed to achieve it, click here.

And for the record, Morningstar analyst Abhinav Davuluri has a fair value estimate of US$250 for Nvidia, which means it is overvalued by about 94 per cent. “We remain concerned Nvidia generates the majority of its sales from gaming,” he says. Thanks Abhinav. That helps.



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In Firstlinks this week, Graham Hand tackles the debate about early access to super. Cracking the piggy bank is fine, provided it’s done to address emergency expenses rather than go to funding discretionary spending. The "‘it's your money’ argument flies in the face of the strict access rules we have lived by since 1992,” Hand writes, “and many are compromising their future in exchange for current consumption.” And crucially, covid is just one test of the system. There will be others, Hand warns.

On a similar note, Nicki Bourlioufas examines the other debate swirling around, that of dividend payouts. Some companies say retirees need payouts more than ever, while others argue it’s not their job to provide welfare. Read Bourlioufas’s examination of the arguments here.

We catch up with DNR Capital's chief investment officer Jamie Nicol, who profiles some of the top ten holdings in his Australian Equities High Conviction fund, which carries a Morningstar Silver rating.

The earnings season calendar bulged with some interesting results. Prashant Mehra catches up with Mathew Hodge to discuss the BHP result, and how iron ore helped boost earnings.

Mehra also weighs up the results from CSL and Santos.

Emma Rapaport looks at wide-moat hearing implant maker Cochlear. The company was less affected by coronavirus elective surgery restrictions than analysts expected. Morningstar this week began coverage of Bega Cheese, which Rapaport degusts here.

We look at the surge in the WiseTech share price and ask Morningstar analyst Gareth James why the logistics software company remains at a hefty premium to his fair value estimate.

As expected, funeral home operator InvoCare has had a tough time of it as covid restricts the number of mourners allowed at funeral services. But it’s only a short-term drag for the wide-moat company, says Morningstar Angus Hewitt, who argues the owner of brands such as White Lady Funerals is poised to boost its already strong market share.

And finally, in Your Money Weekly, Peter Warnes taps into the thinking of Louis Vincent Gave of Gavekal Research, about the consequences of a potential decoupling of the world’s two major economies, the US and China. It’s an interesting hypothesis, Warnes says, with a conclusion that is not very positive for the US dollar.

Visit Morningstar's Reporting Season 2020 coverage. The calendar will be updated daily to connect you with our equity analysts' take on the financial results.

Morningstar's Global Best Ideas list is out now. Morningstar Premium subscribers can view the list here.

is senior editor for Morningstar Australia

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