- Nvidia's steep loss yesterday sparked panic among investors.
- Those who bought in late this year, are now sitting on losses.
- This is a stark reminder of how patience and strategy can be crucial when investing in the market.
- For less than $8 a month, InvestingPro's Fair Value tool helps you find which stocks to hold and which to dump at the click of a button.
Warren Buffett once said,
"The stock market is a device for transferring money from the impatient to the patient."
Being patient sounds straightforward, but putting it into practice can actually be pretty challenging
Take the recent drop in Nvidia (NASDAQ:NVDA) as an example. The stock, which has been all the rage, saw a significant dip.
Investors flocked to it as the price went parabolic over the past year, only to panic and sell at the first sign of trouble, fearing a bubble. This behavior echoes another of Buffett’s famous quotes.
"Price is what you pay. Value is what you get."
Imagine a store that quadruples its prices in a year - most would look elsewhere for better deals. But in the stock market, it's often the opposite.
As prices rise, so does greed, leading people to chase ever higher returns. Buffett's advice here is clear:
"Be fearful when others are greedy and greedy when others are fearful."
This illustrates the emotional nature of markets. Stocks aren't just numbers on a screen; they're tied to companies run by people, and those people experience the same emotions we all do - fear, euphoria, and greed.
Nvidia shares have surged over 115% this year, as shown in the chart. But many investors, judging by comments online, are sitting on losses because they likely bought in after mid-May.
Now, they face two choices: hold onto the stock, believing it's worth more than its current price, or admit they got caught up in the hype and decide whether to sell at a loss or wait patiently for a rebound.
A few months, or even years, isn’t always enough time to judge an investment. Investors must either accept their losses, acknowledge a mistake, or stay patient, understanding the risks of their decisions.
There’s no single correct approach - each investor has unique goals and circumstances.
Even Buffett himself recently lost billions by selling Apple (NASDAQ:AAPL) stock before its latest surge.
Whether this was a mistake, strategy, or necessity, it highlights the importance of being prepared. To avoid getting caught off guard by inflation, central bank decisions, or Nvidia's antitrust investigations, you must have a plan.
Key Learnings From Nvidia's Steep Decline
Start by assessing your financial situation, setting clear goals, defining a timeline, and understanding your risk tolerance and how you'll handle potential losses.
To quote Buffett once more,
"Risk comes from not knowing what you are doing."
If you're buying stocks just because everyone else is, you're gambling. Know what you're investing in, or consider seeking advice from a professional.
As Buffett once advised NBA star LeBron James, it might be wiser to "make monthly investments in low-cost index funds."
In short, unless you’re Warren Buffett, it's wise to believe that you cannot outsmart the market.
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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk is at the investor's own risk. We also do not provide any investment advisory services. We will never contact you to offer investment or advisory services.