Nvidia (NVDA) is setting up for a breakout run to $160

Hi Chris — so first I’ll say this. I cannot give individually tailored advice on how one should or shouldn’t manage their own portfolios. All we can really do is outline what we’re doing and why. Take a read here:

https://sam-weiss.com/investment-advice/

Here’s what else I’d say. If our model portfolio were still sitting in cash, we probably wouldn’t trade the breakout mostly because our primary concern is risk to the portfolio. We’re worried about capital preservation first and focus on making money as a secondary goal.

Now when you look at the Samwise Strategy, our first two rules of that strategy are probably among the most important rules. And those are (1) invest on a long-term time horizon; and (2) buy on corrections. See here:

https://sam-weiss.com/samwise/samwise-strategies/

Rule #2 is of particular importance as we’ve illustrated pretty clearly here in Chapter 1.3 of investing basics:

https://sam-weiss.com/investing-basics/time-2/

If we were to buy on a breakout, it drastically increases our risk profile by a lot. That’s because anytime an investor buys on the way up, there’s always the possibility of buying at or near the peak. As we illustrated in 1.3 of investing basics, had an investor bought around MLK day in January 2008, or after the markets pushed to oversold conditions during the financial crisis itself with the markets down 20%, those investors recovered and produced gains substantially faster than an investor buying at the highs.

In fact, going back to at least 2003 (I haven’t done analysis prior 2003 here), if an investor bought into the market broadly or into really strong fundamentally sound companies during a major correction, they were able to fully recover and produce profits within 2-years if the correction turned into a major crash. And that’s without a hedge at all. That’s just allowing time to do the work for them. That is true of the 2001-2003 bear period (excluding unestablished .com’s), that is true of the January 2008 to March 2008 Bear Stearns lead catastrophe, the September 2008 financial crisis, the May 6th flash crash (2010) and ensuing correction, the 2015-2016 tech bear market, the 2018, 2019 and 2020 major corrections and the 2022 bear market. If we applied our strategy and model portofio to those period of time and utilized the same strategy we’re using now, we’d fully recover and produce profits within 1-2 years or sooner really. Buying on corrections has a lot of big advantages.

So while I can’t touch on your particular situation, I’d say that even as our common stock portfolio goes, we wouldn’t buy on a breakout like this just because risk are simply too high for us. When we buy on corrections like the one Nvidia just sustained from $141 down to $90 and again from $130 down to $103, we’re buying on a 30% haircut. The risk at that point is really low for a number of reasons. First, even if Nviida were to continue coming in, it probably doesn’t have that much more downside from $100 a share. Second, there is a consistent trend of the market rebounding big time off of oversold conditions even in bear markets. We saw multiple 20-25% rebounds during every bear market going back to the early 1990’s at least.

So I can tell you from our perspective, we’re going to do our buying on corrections. In fact, we’re launching entirely new portfolios on each correction just to illustrate how we might investor if we were 100% in cash or something. We’ll continue to maintain the current model portfolios. But we will also consistently add new model portfolios over time. This rally that we’re on probably lasts anywhere from 40-100 trading sessions and then we’ll have another major 10% correction on the NASDAQ-100. Nvidia will drop even more in that correction. And we’ll make new trades during that correction. We’ll probably also make trades during each of the 3-4% pull-bask the NASDAQ-100 has every 15-days or so.