Nvidia's blowout earnings; What to do with the stock?; Japan's economy is in a recession, but its stock market just hit an all-time high; Three positive posts about Tesla
1) Nvidia (NVDA) has just made it clear... now is the time to keep our foot on the gas pedal.
The chip giant reported blowout fourth-quarter earnings after Wednesday's close. Revenue soared 265% year over year. Adjusted net income rocketed up a mind-boggling 491%.
Not surprisingly, the stock jumped 16% yesterday – to an all-time high. That move added more than $270 billion in market cap and put the company only a hair away from being worth $2 trillion (it was "only" worth $1 trillion as recently as last October). And earlier this morning, Nvidia was up enough to push it to $2 trillion!
Through yesterday's close, the stock is up a staggering 1,145% since I pounded the table on it on February 5, 2020 back at my former firm Empire Financial Research.
So what should you do if you own this monster stock?
Mostly let it run. Throughout my career, I've had a few of these "10-baggers in just a few years" – like Apple (AAPL) and Amazon (AMZN) at the turn of the century and Netflix (NFLX) in October 2012. And in every case, I sold too much, too soon.
As I've written many times, the key to long-term investment success isn't just being smart – and lucky – enough to own a few huge winners. You have to let your winners run.
There are a handful of reasons why the S&P 500 Index beats nearly all active managers over time – but the single biggest is that it never sells its winners.
After Nvidia, Apple, Amazon, Netflix, Microsoft (MSFT), etc. doubled, it didn't sell.
And it didn't sell after these stocks went up 10 TIMES.
Nor 20 times, nor 50 times, nor even 100 times!
Index funds, with their passive approach to investing, let their winners run and run and run...
If you look at the math behind long-term investment success, take any portfolio of 20 stocks or more, and you'll find that it's not generally driven by a high batting average (e.g., 80% of the stocks go up), but rather a high slugging percentage (a few huge winners).
But this math, of course, doesn't work if you sell those winners – thereby cutting off the long right tail of the distribution.
So, getting back to Nvidia...
As an investor, you could maybe sell 10% if it has become such an oversized position that it's disrupting your sleep at night. And maybe put in stop losses to protect half of your gains – for example, sell 10% if the stock drops 10%, another 10% if it falls another 10%, etc.
There's no "right" answer here – this is more art than science.
But don't make the mistake of taking all your gains just because a stock doubles. Like I said... You have to let your winners run.
2) Of the 87 countries I've been to, Japan is probably the biggest miss...
I'm going to have to rectify that – in part to ski the epic powder in Hokkaido, but also to glean some insights into the economy and stock market.
Japan's economy just slipped into a recession and into fourth place globally – now surpassed by Germany – so you'll probably be shocked to hear that the country's Nikkei 225 Index yesterday surpassed its previous all-time high dating back to 1989.
For more on this, here's an article in CNN Business: Japan's stock market cheers first record high in 34 years. Excerpt:
Strong gains in Japanese semiconductor stocks on the back of Nvidia's blockbuster earnings report late Wednesday helped push the Nikkei index up 2.2% to close at 39,098.68 points on Thursday, topping its previous record high on December 29, 1989.
But the index has been on a tear for more than a year, driven by a combination of stronger corporate earnings, a weaker yen that helps exporters, and an influx of foreign investors looking for an alternative to China's depressed markets.
The Nikkei gained 28% in 2023, making it the best performer in Asia. So far this year, it has jumped more than 17%, putting it out in front of other major global indexes.
And here's the New York Times with more: Japan's Economy Slips Into Recession and to No. 4 in Global Ranking. Excerpt:
Japan's unexpectedly weak economy in the fourth quarter was a result of a slowdown in spending by businesses and consumers who are grappling with inflation at four-decade highs, a weak yen, and climbing food prices...
On an annualized basis, gross domestic product fell 0.4% in October through December after a revised 3.3% decline in the previous three months. Economists had forecast fourth-quarter growth of around 1%.
The figures cloud the outlook for Japan's economy. Corporate profits are at record highs, the stock market is surging, and unemployment rates are low. But consumer spending and business investment – two key drivers for the economy – are lagging.
I don't have an opinion on Japanese stocks in general – I'm certainly not beating myself up for missing the recent move.
But I will note that, as always, Warren Buffett was ahead of the crowd. Back in 2020, he bought a 5% ownership stake (most recently increased to more than 8.5%) in five major Japanese trading houses: Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo.
3) I admit to having an obsession – surpassed only the one I have with Buffett, the late Charlie Munger, and Berkshire Hathaway (BRK-B) – with Elon Musk and two of his companies, SpaceX and Tesla (TSLA)...
So much so, in fact, that I've created a personal e-mail list to share related articles and opinions (to join it, simply send a blank e-mail to: tsla-subscribe@mailer.kasecapital.com).
Unlike Buffett and Munger, who are/were exemplars, Musk has behaved badly in a number of ways in the past couple of years, which I haven't hesitated to call out.
However, I have also continued to acknowledge his extraordinary entrepreneurial achievements, for which I've long said humanity owes him a debt of gratitude.
Because of my critiques, some of my readers think I'm bashing Tesla's stock because I'm short it... but this is nonsense. It may be overvalued, but even if it is, it's a bad short – as I've been warning all of my short-selling friends for more than eight years.
It's simply too dangerous, at any price, to be short the stock of a company that crushes every other electric-vehicle maker on almost every financial metric. For example, this post on X (formerly Twitter) discusses Tesla's cumulative free cash flow and includes an incredible chart:
Here's another post on X along the same lines:
Lastly, I loved this video on Instagram of someone who put snowcat tracks on a Cybertruck!
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.