Spring is here with the usual trappings of tax filing deadlines, allergies, and Spring Break plans. This spring, we also benefit from a bullish stock market led by everyone’s favorite stock – Nvidia.
As investors continue to add Nvidia to their portfolios some have paused to ask where they can find the next Nvidia. This excellent question got me thinking – what if the next Nvidia is Nvidia?
If you remember the 90s bull market led by the likes of Cisco, Microsoft, and Intel, no new company came to replace these industry leaders. If you continued to invest in them as they rose to prominence, you did pretty well.
For example, if you invested an initial $1,000 in January 1991 and added $250 a month, adjusting for inflation, your wealth grew exceptionally well in these stock market leaders, as shown below. Only Intel failed to outperform the S&P 500 and has only underperformed over the last year. These numbers are impressive, given a total investment of just under $155,000.
Look at another example of well-known non-tech stock leaders in their respective fields - Nike, Home Depot, and McDonald’s. By 1995, each of these brands was the number one option in their industry, and if someone were looking for the “next Nike” or “next Home Depot,” they would have been wasting their time.
Using the same investment setup as the previous example, a $1,000 initial amount and monthly contributions of $250 adjusted for inflation yielded significant gains for investors who bought the industry leader.
Considering that the total investment here has been shy of $126,000 since 1995, these gains are remarkable, with all three investments beating the market handily.
What’s the Lesson?
First, this doesn’t mean we can get lazy and just bet the farm on a stock like Nvidia. Diversification still matters as each of these investments had a decline of 50% or more at least once over the last 20 years.
It’s still the stock market; it’s risky and that will not change.
It also doesn’t mean you shouldn't keep looking for “new” suitable investments. Nike is facing competition from new running shoe entrants. McDonald's has to address the rising trend of healthy fast casual eating. Nvidia will face stiff domestic competition as AI continues to evolve. Staying vigilant about what threats your favorite investment is facing is prudent to long term success.
The lesson is that sometimes, the next big thing to invest in is the big thing you’re already investing in, and instead of trying to find a replacement, consider simply feeding the hot hand until something changes.
Are you building Tax-Free Wealth?
What's better than finding the next Nvidia? Finding out that the gains from owning a great investment such as Nvidia are tax-free.
High income individuals, families, and business owners are best suited to build tax-free wealth, but they are doing the opposite based on outdated advice from the 90s. Times have changed. Contact us to find out how to increase your level of tax-free wealth in the stock market, visit our site and set up a meeting. Contact us to learn more.
Maurice L. Wilson