Investing: It's Okay to Split the Difference

Nvidia is a great growth company well positioned to profit from AI. A lot of people don't have awareness of Nvidia but it is now almost the same size as Amazon.

It has grown 235% this in 2023 and today announced stellar earnings with earnings per share up 429% in the last year.

I started 2023 with a personal investment holding in Nvidia but by Mid May after achieving 100% gains I decided that I wanted to sell my Nvidia holding and buy into another company. I felt that the Nvidia stock price was getting ahead of itself. Too much too soon.

In hindsight this was clearly a mistake, but in May it seeemed like the right thing to do. Fortunately I have been in this situation before, and made similar expensive mistakes, and my learning from these mistakes is that if I want to swap a good company for another good company, take small steps, or better still, just split the difference.

So learning from past painful mistakes, that help me to realise there is is a good chance that my opinion is wrong, I retained a 50% holding in Nvidia, and sold 50% to invest elsewhere. It would have been better in hindsight to just own 100% Nvidia all the way, but this "split the difference" approach at least allowed me to stay invested in a great company when my analysis led me to the wrong conclusion.

This approach can work very well in other aspects of financial planning and life in general. I have clients moving large sums of money from UK to New Zealand and wondering when the best time will be to get the best FX rate. My advice is to split the difference, and move the money in equal instalments. You won't get the best FX rate but you won't get the worst either. It takes the emotion out of the situation which is a very good thing.

I recently had clients wondering if they should put a large lump sum against the mortgage or to invest the money into funds. My view after understanding their personal sitiuation more deeply was to put 50% of the lump sum against the mortgage, and 50% into investments. As they continue to invest more each month, and overpay the mortgage each month I doubt they will regret that they took a 50/50 approach.

Investing in individual companies, or making big FX decisions is very hard to do well, and the approach described above is just one of many things you can do to manage risk and prevent future regret.

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