You Asked, So We’ll Answer

FOQ: What’s going on with Nvidia? It’s all you hear about these days.

Short: Nothing of consequence

Long: It’s a tech stock that’s fresh off a stock split and a wild ride in value that made it the biggest public company on the planet (until Microsoft took back the crown). Here’s the last 20 months:

FOQ: Is a stock split good?

Short: Doesn’t matter

Long: A stock split is done to increase liquidity. In this case, each stockholder received 10 shares for every 1 they owned. Consequently, the price was also adjusted by the same ratio. On one day, you had 1 share for $1200, and on the next, you had 10 shares at $120. Same value – no free money. But the lower price makes it easier for people to buy shares. That is, they are more liquid.

Contrary to what many believe, a stock split is meaningless for shareholders. Before the split, it was worth $3 trillion. After, the same. (Well, technically, it dropped by $26 billion that next day, but what’s a few billion between friends, eh?)

FOQ: Everyone’s buying it. Should I?

Short: Nope

Long: First, it’s not everybody. Remember: when you buy a stock, someone else is selling it to you. Ponder that.

Second, buying individual stocks implies that one knows what will happen in the future. You’ve heard this a thousand times from us: no one knows. To believe any given stock will do better than any other is to suggest that your reasoning is greater than the collective wisdom of the millions of market participants. Your odds are slim, to put it nicely.

Third, in the spirit of “Buy Low, Sell High”, looking at that chart we’d argue that “Buy Low” has gone bye-bye.

Lastly, Nvidia had a great run. Here’s what’s happened – on average – after such a run:

You want the left side of the graph. It already happened. While anything can certainly happen next, you’re probably going to get the right side.

Stay diversified.

Cheers,

Your Team at Great Oak