02 Feb Nvidia’s massive run reminds me of the tech bubble
Nvidia has been one of the best-performing stocks in recent years, soaring triple digits in the last 12 months alone.
However, a breather is long overdue.
Consider these astronomical gains as the company is set to report quarterly earnings next week. After an 850 percent rally from its February 2016 lows and a 1,150 percent in the last three years, long-term investors may want to consider taking some small profits in the stock.
The stock’s rally has been so strong over such a short period of time that it is now trading at a premium of more than 250 percent to its 200-day moving average; this is extreme, and reminiscent of what we saw for several tech stocks near the top of the tech bubble. Remember, Apple had a near-identical premium at the market top in 2000.
Indeed, it is difficult to time the market. Still, there is a difference between attempting to “time the market” and “managing your investments in a responsible way.”
We can think of Nvidia’s rise in another way. If you bought Nvidia two years ago, you can sell just 11 percent of your investment and get back 100 percent of what you put into the stock, but you’ll still be able to take advantage of almost 90 percent of any further upside movement!
Investors do not have to sell all at once, particularly when they have fabulous gains.
They don’t have to try to wring every last penny of profit out of the investment; peeling off small amounts after moves like these is simply a prudent way to manage one’s investments properly … and feel a lot better when the stock sees an inevitable correction.