To Nvidia or Not to Nvidia
Successful investing is never about a single either/or decision.
These days we are constantly asked to take a side – Biden or Trump, climate alarmism or science denialism, Bud Light or Modelo, vaccines or RFK Jr., Musk or Zuck.
Moreover, these “choices” are presented to us as existential – whichever side you take, you are at risk of damaging your reputation as well as damaging or even losing your relationships with those who take the other side. Not taking a side isn’t an option.
There’s a reason for this, and it isn’t because any of the above issues are truly existential. Nobody is going to live or die based on choosing one side or the other of these incessant false choices. Ah, but if one could manufacture just a bit of la petite mort, one could move nations … and certainly equities.
“To be, or not to be, that is the question,” says Hamlet as he gazes into the front of the skull he holds in his hand. Yes, indeed, it is the great question. Like nearly everything today, however, the great question has been turned to purposes of propaganda.
Propaganda isn’t anything new. Efforts to sway hearts and minds through narrative are as old as language itself. It’s only since World War I – the beginning of mechanized warfare – that propaganda has come to mean something explicitly manipulative and subversive.
Mechanized guns weren’t the only new technology introduced to the world at scale during WWI. We were also introduced to mechanized language, i.e., the use of language to manipulate public opinion at scale. Language itself began its long journey toward becoming statistics.
This, not without irony, brings us back to Nvidia, the company that recently broke the trillion-dollar market-cap barrier by promising to unlock the power of mechanized – and ultimately weaponized – language for all.
It was May 24th, 2023, when Nvidia CEO Jensen Huang let the world know that in 1Q23 Nvidia not only beat its full-year guidance from the previous quarter by a whopping 19% but also was raising its full-year guidance for the following quarter by a mind-blowing 50%. In the space of three months, Nvidia went from estimating $6.1 billion in annual revenues to $11 billion.
Not to take anything away from Nvidia’s extraordinary results and guidance, but it’s important to look at how, over the next couple of weeks, the only questions in media land all revolved around the Nvidia narrative. You couldn’t turn on any financial news source without hearing about either Nvidia or generative AI within the first few minutes.
It was literally as if the only question facing an investor was “To Nvidia or not to Nvidia.” Meanwhile, Nvidia remained just one asset allocation choice for investors out of tens of thousands of alternatives. Yes, Nvidia’s results were fantastic and impressive, but the media frenzy was clearly myopic and out of all proportion.
Successful investing is never about a single either/or decision. Clearly something else was going on behind the curtain.
We see this same pattern played out over and over again. Over the past week we’ve seen a more blatantly cartoonish instance of it in the contemplated cage fight between billionaire narcissists Musk and Zuck.
We’re also bombarded daily with the seemingly inevitable though dreaded election contest between a couple of octogenarians who fear media irrelevance more than death itself. (Let’s face it, sometimes it’s just painful and humiliating to be an American.)
What do all of these false choices have in common?
They all involve a crescendo of tension and the promise – once you’ve pushed the button to take a side – of a gratifying release to be followed by a brief but blissful rest. (If you aren’t yet familiar with the more nuanced meanings of la petite mort, you can look it up on Wikipedia.)
The propagandists have turned Hamlet’s soliloquy into an endless source of public “experiences” that were formerly reserved for our most private of spaces.
Few of us, if any, can confront these behavior modification games head-on without inadvertently amplifying and exacerbating their absurdity. The best we can hope to do is to draw attention to them and give others the opportunity to disengage.
One way or another, disengage we must. We’ve got to learn to recognize when a story has taken on a significance that is out of proportion to its underlying reality. This is true not only for the manufactured stories that the media presents to us at scale, but equally if not more so for the small stories we tell ourselves.
Whether it’s a narrative-based justification for turning a short-term trade into a long-term HODL or it’s mentally rehearsing a bench trial to convict a significant other of a perceived offense, there is tremendous power in learning to recognize when a story is no longer worthy of the attention it is commanding.
When it comes to investing and trading, the single most powerful tool for quieting any excessive internal story-selling around a single position or opportunity is to remember to focus on the portfolio as a whole.
David Rubenstein recently asked Cliff Asness of AQR what the biggest mistake was that most investors make. Asness didn’t hesitate in answering: “Obsessing about every line in the portfolio, more so than the total portfolio.” I couldn’t agree more.
If you truly believe in the generative AI story and you think Nvidia could double or triple from here, then by all means, see if it fits in your portfolio. Does it increase or decrease your portfolio’s overall volatility? Does it give you additional diversification? How much of your portfolio should you allocate to this opportunity?
These are the kinds of questions that kick our rational minds into gear and help move us out of the manufactured emotions that the attention capitalists leverage so adroitly.
There’s still a place for the truly existential questions, not to mention for private experiences between consenting adults. Trying to work them out in the media and markets is a misguided, unproductive, and often very expensive substitute.
Fight the noise,
Dr. Richard Smith
P.S. In my role as Chairman of the Board for the Foundation for the Study of Cycles, I’ve been devoting a lot of time lately to some exciting plans that I think will interest investors. Please sign up for the newsletter to find out more about what’s to come in 2023!