Jun

17

A convex function can be thought of as one where the output (in this case prices) accelerates with time. Case study of NVIDIA stock:

1999 - $0.04 (ipo price)
2022 - $14.64 (366x gain, 23 year holding period)
2026 - $211 (5,275x gain, 4 years extra holding period)

Total overview:
27 year holding period
$1 turns to $5,275
14.8% of the holding period (4/27 years) accounts for 93% of the total gains today ((5,275 -366)/5,275)

If you sold NVDA in 2022 you would have missed out on 93% of the gains — even though you held it for 23 years (from the ipo price). What's even crazier is that, if you just held it for only 4 more years (only 14.8% longer) (2022 to 2026), you would have made $5,275 instead of $366 from a $1 investment.

An interesting reason to consider buy and hold or following the drift. I also found it to be a very good illustration of a convex function applied to thinking about market.

William Huggins comments:

that analysis misses out on the notion that someone buying in 2022 would not have achieved (x5275 less x366 = x4909), instead they would achieve closer to (x5275 divided by x366 = x14.4). the vast majority of the gains on nvda were long gone by the time this most recent order of magnitude came around. there is no way anyone buying in now could achieve a similar x10 on nvda in the next 4 years without them becoming, singularly, more than half of US market cap.

Jeff Watson points out:

Unfortunately, hindsight is 20/20.

Asindu Drileba responds:

that analysis misses out on the notion that someone buying in 2022

You are right in your case. Buying in 2022 would only yield about 14x. But as I described, I was referring to only holding for an extra 4 years, from the IPO.

- holding from IPO price to 2022 - 366x
- holding from IPO price to 2026 - 5,275x

The difference of just holding for 4 extra years from IPO price, is what makes the difference. The idea is that the biggest moves might happen towards the end of the holding period. And that by getting out early, you miss out on more than you think.

Stefan Jovanovich offers:

The doctor-daughter has a husband who does tape outs for Nvidia.

Asindu's narrative is a wonderful story; but it is not the history of how people behaved as owners of NVDA. The SIL aka SEF15 was the oddball in his lab because, unlike the older veterans, he did not immediately convert his incentive shares into cash once they could be sold. The chart [click for full view] is a year-over-year Hi-Lo price history for the stock; it explains why the veterans were not fools, why some of you are smart enough to be able to trade, and why the SIL puts up with me because I told him to keep every share. The years that are omitted are those where stock-splits made the calculations too hard for ChatGPT and me.


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