Most people remember this famous phrase uttered by Donald Trump on Celebrity Apprentice. If you were a contestant on that TV show, it indicated that you were exiled disgracefully due to a failure in results. Similarly, investment decisions can either work out fine or, alternatively, either succeed or fail stupendously; in the latter case often leading to the investment manager getting “fired”!
Case in point is the phenomenal stock performance of Nvidia (NVDA)! This year, NVDA stock has more than “doubled” from a price of $146.12 on December 30, 2022 to $305.38 on May 24, 2023; a +109% increase, not including the 25% intra-day pop on May 25.
Looking through the rearview mirror, it is easy to have “predicted” this performance; the need for advanced computing technology to power artificial intelligence (AI) fits nicely into the NVDA product mix plus the technology is very scalable – something that could lead to increased revenues AND profitability.
But, and there is always a “but”, most observers seem to have forgotten that NVDA stock was DOWN 50% in calendar 2022 and was not the stock “darling” then that it is today. See the chart below for NVDA price performance starting from January 1, 2022, the blue line, versus the S&P 500, the black line, that it lagged during most of this time horizon! Granted, this may have been before the impacts of the pending AI revolution was fully understood, but buying NVDA stock last year was a tough call to make in a difficult market.
Which leads me to the Celebrity Apprentice quote that titles this blog post. D&A Capital Management has a philosophical belief in long term globally-diversified strategic investing tailored to the risk tolerance of its clients to help them achieve their goals. D&A does not manage portfolios of individual stocks, but instead prefers to invest mainly in portfolios of low-cost passive exchange-traded fund (ETFs) of the major asset classes. For example, D&A invests in the S&P 500 (IVV) for large cap U.S. stocks, FTSE Developed index (SCHF) for international developed stocks, and Bloomberg U.S. Aggregate Bonds for core bonds (SCHZ) to make up the core investments of many client portfolios.
The net result of this strategy is that D&A investors will hardly ever dramatically outperform (or underperform) the markets; a characteristic that should be highly regarded given the propensity of active managers to underperform their benchmarks over various time horizons (per well-known SPIVA studies). Certainly, buying NVDA back on January 3, 2022 at $300.88 would have caused many investors to panic as they saw its value plummet to its 2022-low of $112.27 on October 14, 2022, a -63% decline. In fact, there could have been a few investors who said, “You’re Fired”! In fact, that weak NVDA performance WAS captured last year in client portfolios, but in a much-diluted state through its inclusion in the S&P 500; as well as its rally so far this year!
Investing is a risky business and needs to be managed prudently to help clients achieve their goals. Though NVDA has “knocked it out of the park” this year and has helped the broad U.S. equity market perform well as a component of the S&P 500, it didn’t always look that way back in 2022. D&A strives to gain steady portfolio performance aligned with market benchmarks to counterbalance the risks associated with individual stock investments.