Most investors know how to find attractive stocks to buy. But when should you sell a stock? In this article I’ll teach you everything you need to know.
in furtherance to my texts on Thursday, let me quote the old saying: "If you give a man a fish, you feed him for a day. If you TEACH a man to fish, you feed him for a lifetime." With the metaphor in mind, I am convinced that you are turning all of us into fine fishermen!
Thank you for yet another amazing article! Have a wonderful weekend! I am off to the lake to catch some trout! : )
THANK YOU so much for this article. I've been investing for 3 yrs only and am in my 50s. This article validates most of my sells. I now understand why Pabrai sold Ali Baba and bought Tencent instead. Also reminds me of my bad sells. I had been waiting for this one. Regarding Coke, any articles on dividend investing coming up? Does it make sense to have KO to face recessions?
Ugh. The whole reason NVDA sells for 221x current EPS is next year’s EPS is about 6-8x higher. I sold it too, but only because it turned into a momentum play, which meant switching from being long shares to long call options. And now it seems undecided so I’m on the sidelines.
Nvidia currently trades at a forward PE of 55.1x. It's way less than the current PE, but still very expensive. As a result there is no margin of safety for investors in my opinion.
Yes, the forward PE is reasonable for a company in the position Nvidia sits. Comes to a 1.3-2.0 PEG. Growth rate seems difficult to assess beyond next couple years. Certainly no margin of safety although also not egregiously overvalued like the old dot-com names.
As an investor, you always need to do your homework and it seems that you are convinced for your Nvidia case. Congratulations on that! I wish you all the best with it and hope it works out well!
Can you explain this "Nvidia is a clear market leader in AI. However, the company trades at 221x (!) earnings today. This means that even when Nvidia can grow its EPS with 20% per year for 10 years, the stock would trade at a PE of 30x in 2033. And this while you would have generated no return at all as an investor."
How eps would become 30x if it grows by 20% per year for 10 years in depth?
Please correct me if I am wrong. I interpreted it as follows:
Considering current price 221
And Current eps 1
Therefore, P/E 221
Now, if eps grows by 20% per annum, then eps would be ~6.2 after 10 years. And at that point we consider that stock price remains almost same so 221/6.2 = 35 P/E
I am not an expert in the Indian Stock Market so I'm afraid I can't give you stock tips there. Gautam Baid (author from The Joys of Compounding) is doing a great job in India so I would closely follow him.
My dear friend CQ,
in furtherance to my texts on Thursday, let me quote the old saying: "If you give a man a fish, you feed him for a day. If you TEACH a man to fish, you feed him for a lifetime." With the metaphor in mind, I am convinced that you are turning all of us into fine fishermen!
Thank you for yet another amazing article! Have a wonderful weekend! I am off to the lake to catch some trout! : )
Go catch them, Pavel!
Some articles which will be published soon:
- The best of Compounding Quality
- 15 Quality stocks you've never heard of
- My 100 favorite (investing) books
- How to think about dividends
- How to think about ROIIC
- ...
The summer will be great!
I look forward to reading them all.
🙏
Thanks! the article was very educational for me. So accurate.
It's an honor to help you, Valentin!
Thanks for the article..
It's an honor to have you, Tom!
A good summary of a vexing dilemma we all face. Thanks!
Thank you, Six Bravo!
Any topics you want to see covered in the future?
THANK YOU so much for this article. I've been investing for 3 yrs only and am in my 50s. This article validates most of my sells. I now understand why Pabrai sold Ali Baba and bought Tencent instead. Also reminds me of my bad sells. I had been waiting for this one. Regarding Coke, any articles on dividend investing coming up? Does it make sense to have KO to face recessions?
Hi Jose,
Thank you very much for your kind message. I'll write an article about dividends very soon. Thank you for the great suggestion!
Ugh. The whole reason NVDA sells for 221x current EPS is next year’s EPS is about 6-8x higher. I sold it too, but only because it turned into a momentum play, which meant switching from being long shares to long call options. And now it seems undecided so I’m on the sidelines.
Hi Jay,
Nvidia currently trades at a forward PE of 55.1x. It's way less than the current PE, but still very expensive. As a result there is no margin of safety for investors in my opinion.
Yes, the forward PE is reasonable for a company in the position Nvidia sits. Comes to a 1.3-2.0 PEG. Growth rate seems difficult to assess beyond next couple years. Certainly no margin of safety although also not egregiously overvalued like the old dot-com names.
Hi Jay,
As an investor, you always need to do your homework and it seems that you are convinced for your Nvidia case. Congratulations on that! I wish you all the best with it and hope it works out well!
Can you explain this "Nvidia is a clear market leader in AI. However, the company trades at 221x (!) earnings today. This means that even when Nvidia can grow its EPS with 20% per year for 10 years, the stock would trade at a PE of 30x in 2033. And this while you would have generated no return at all as an investor."
How eps would become 30x if it grows by 20% per year for 10 years in depth?
Well... When the valuation is really expensive it can be a disappointing investment even if the company keeps growing at attractive rates. :)
Please correct me if I am wrong. I interpreted it as follows:
Considering current price 221
And Current eps 1
Therefore, P/E 221
Now, if eps grows by 20% per annum, then eps would be ~6.2 after 10 years. And at that point we consider that stock price remains almost same so 221/6.2 = 35 P/E
Is this what the message was from that extract?
Correct!
want your views on India's stocks too
Dear Yash,
I am not an expert in the Indian Stock Market so I'm afraid I can't give you stock tips there. Gautam Baid (author from The Joys of Compounding) is doing a great job in India so I would closely follow him.