One question I’m regularly fielding from family and friends these days is whether to keep investing or wait for a stock market crash to really load up.
But I don’t think that’s the most important thing to ask. Let me explain.
All priced in?
Some markets — and specific sectors within those markets — definitely look frothy. The US is an easy target, especially with giants like Nvidia (NASDAQ: NVDA) in its arsenal. The latter’s shares are up 150% in 2024 alone.
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It’s not like this performance is unjustified. The company has proven itself adept at regularly beating analyst forecasts. In fact, investment bank Goldman Sachs has already said it expects this to happen again when the chip maker reports in August.
The conclusion? Betting against Nvidia — and the artificial intelligence (AI) story — doesn’t seem to be working.
But a little voice suggests there has to be a big ol’ pullback at some point. That’s what happened to the (overvalued) tech titans in 2022. And if I’d bought some or all of the Magnificent Seven back then, I’d probably be one happy bunny in 2024.
So I totally understand the reluctance to put new money to work today, either in Nvidia, or markets generally. It’s all just got a bit too… comfortable.
Better to accumulate a nice cash pile for when things head south, right?
Keep calm, carry on
The problem is that no-one truly knows when that will happen. Not finance professors, not city traders and not everyday Fools like me.
In such a situation, logic dictates that we shouldn’t try to call the top (or bottom). If I believe in the long-term outlook for stocks, it’s arguably better just to keep on keeping on.
As it happens, I’m sure those who had the courage to buy (and hold) Nvidia at any point in recent years are probably glad they did. That’s despite the company constantly looking expensive on any traditional valuation metric.
It’s also worth remembering that sentiment isn’t solely driven by earnings reports and company fundamentals. Regardless of current valuations, a fall in interest rates may be sufficient to push markets (and Nvidia) even higher in the second half of 2024.
Know thyself
Instead of engaging in energy-sapping speculation, I can think of a better question to ponder with regard to my portfolio. Is my investment strategy one I can stick to, regardless of what happens next?
If the very thought of my ISA dropping in value by a double-digit percentage gives me the jitters, I’ve possibly misjudged my risk tolerance. This explains my ‘on-the-fence’ response earlier on. It would also apply to any individual company stock.
In such a situation, some adjustment might be in order. And soon. This might involve buying assets that tend to be uncorrelated with stocks, such as bonds.
Here’s what I’m doing
Personally, I’m happy to continue buying shares on a regular basis. I’m also content to keep my exposure to Nvidia via several funds including Scottish Mortgage Investment Trust.
Why? Because I plan to stay invested for at least a few more decades. And research regularly shows that stocks outperform everything else over that sort of period.
If I do get the chance to add shares at a cheaper price in the near future, so be it!
