This post is about falling back on general principles when the near-term waters are muddy–which they always tend to be when a stock has gone up a lot:

–if you don’t own NVDA already, I don’t think there’s any real need to rush into it today. As my boss at my first full-time portfolio management job would tell me at least once a week, “Don’t chase.” …meaning, don’t buy stocks that have already gone up a lot. Instead, she said, try to anticipate the next idea that will move a stock (or group of stocks) up and buy that.

That last is easier said than done. Looking from a slightly different angle, I think a safer alternative than buying NVDA directly at this point in order to get exposure to AI would be to find a mutual fund or ETF that has a reasonable track record, specializing in either AI or semiconductors, and buy that instead. Look at the contents, of course, to see the names and the weightings. Look at the track record vs. an appropriate index, too. 

–if you do own NVDA, as I do, you should have an overall structural plan. Follow that.

For example, I have roughly 80% of my long-term savings in index funds. I manage the other 20% myself. In the latter portion, I have 15 or so names. This means an average position would be around 7% of the total. I have a not-totally-set-in-stone rule that when a position gets to double the average size, or around 15% of the portfolio, I’ll begin to trim. NVDA is there right now. I’ve already sold a small amount. For me, the most sensible place to put the cash is either to build up a smaller position elsewhere in the portfolio or to plop the money into an S&P 500 index fund until you can figure out your next move.

The point of simple mechanical rules like these is to fight the psychological tendency that everyone, other than successful deep value investors (who revel in their contrariness), tends to have: we love stocks when they’re up (arguably expensive) and hate them when they’re down (arguably cheap). The won’t get us the highest high, but it will help with what I think is the more important task, avoiding the lowest low.

I’m not saying anyone else should have my rules. I’m a relatively aggressive growth stock investor, a style it took me close to a decade as a professional to develop from my initial value stock starting point. But we should all have some boundaries that keep us from taking excessive risk.

–count “clones” as part of your biggest positions, too.  I bought a small amount of AMD, for example, when it was having a temporary hard time in 2022. I look at the company as sort of like the child of INTC and NVDA–although INTC is trying to recover from a decade+ of epic bad management by morphing into TSMC. But that boosts my NVDA-ish position up into the 20% (=for me, must sell something) range.