Preparing for Potential Drastic Drop: Nvidia's Possible 66% Decrease Might Follow Historical Trends.
Embracing the path to wealth generation through investing in quality companies and holding onto them for years, if not decades, might sound straightforward. However, execution is anything but simple. Most investors claim they'll stay the course whenever market rollercoasters strike. But these words often ring hollow when shares nosedive, as they inevitably will.
Take Nvidia, the company that skyrocketed 27,000% in a decade, as evidence. The graphics processing unit (GPU) maker transformed the fortunes of early-2000s investors by rewarding their patience with a staggering 274,000% gain on their initial $1,000 investment. Yet, maintaining that commitment to the process in the face of adversity isn't a walk in the park.
Two years ago, for instance, Nvidia's shares plummeted 66% from their record high. Long-term investors, who had their sights set on the stock's brilliant future, were put to a test they couldn't have anticipated at the time. Understanding what triggered this tumble and how to navigate the storm may offer some perspective on holding on when it's tough.
Mastering Emotions
Theoretically, weathering a market downturn shouldn't feel challenging. Investors seem determined to ride out the ups and downs when markets are cruising smoothly. However, the waters get less sheltered when emotions muddle the waters.
November 2021 saw Nvidia fully in its element. The surge in gaming and personal computer (PC) sales during the pandemic sent the tech giant soaring by 525%. But as quickly as the train took off, it plunged beyond the station. Consumer spending habits tightened, and inflation began to bite as economic growth slowed. As a result, Nvidia sales slumped: gaming chips, cloud computing, and even the much-touted graphics cards went unsold.
Between November 2021 and October 2022, the shares dropped a crushing 66%. Fearful investors uncertain of the company's future flooded the exits. Many vowed to buy back at a lower price—but reality soon set in. Doubts took root, potential buying windows were missed, and easier, more appealing options emerged. Before long, Nvidia shares were back in the stratosphere, hurting those who struggled to stomach the higher prices.
This is not Nvidia's first rodeo—market volatility and its accompanying turbulence have been the norm for the GPU king since inception. Case in point: between September 2018 and December 2018, the shares plunged 52% due to the crypto market's collapse. The result? Investors learned a hard lesson. And as the saying goes, those who do not learn from history are doomed to repeat it.
Hindsight is 20/20
History may not always be on our side, but it's not without value. For instance, a young investor who survived the 2008-2009 Great Recession will have a unique lens through which to view market downturns. They've witnessed their entire portfolio shrink by up to 41%, and they've also seen meager $100 investments transform into prime opportunities when the market corrected.
What the investor gained from this experience shed a light on the inescapable reality of bear markets: they happen. And while they can be painful, the silver lining often lies in the low-priced, high-quality stocks that will rise together with the market rebound. Time and time again, this pattern has proven true. The recent bear market has been no exception.
Facing Volatility Head-On
Living with the volatile nature of the market is par for the course for successful investors. At its core, volatility is the essence of every major victory. The art of mastering it is one shared by every wealthy investor who's stood the test of time.
Investors who bucked up against temporary Nvidia price declines of 66% and higher have enjoyed exponential returns while patiently waiting for the market to rebound. However, timing the market is a fool's errand—both the upside and the downside are impossible to predict with certainty.
The most critical takeaway: be prepared for the inevitable market plunge. Knowing that it's coming goes a long way in shaping a winning investment strategy.
[1] Data sourced from Yahoo Finance on February 14, 2023.[2] Data sourced from MarketWatch on February 14, 2023.
Mastering emotional control is crucial during market downturns. November 2021 saw Nvidia's shares surge 525%, but they dropped 66% between November 2021 and October 2022, testing the patience of long-term investors. During this period, fearful investors sold their shares, missing potential buying windows and regretting their missed opportunities when prices increased again.
Investors often underestimate the emotional toll of market volatility. Understanding the importance of staying committed to the investment process, even during difficult times, is essential for long-term success in finance and investing.
