Institutional investors – aka, “big money” – make up most of Wall Street’s trading volume, so they need to be careful what they do because it can affect stock prices in the short term.
For proof, look no further than the past few weeks, when many of the big tech stocks have started to slide. The latest data shows that in June, hedge funds and other institutions sold technology stocks at the fastest pace in years. AI chip leader Nvidia (NASDAQ: NVDA) is in between, and its stock is now down more than 16% since its peak in June.
Why are these ultra-rich traders selling, and should Main Street investors follow them?
Why are billionaires selling Nvidia?
Billionaire Stanley Druckenmiller, who runs a $3.7 billion investment firm called the Duquesne Family Office, is a bit ahead of the trend. He sold 70% of his stake in Nvidia in Q1. Now, it appears that others are doing the same. But Nvidia and other tech stocks have soared over the past 18 months, and are still rising — so why sell?
In the competitive hedge fund industry, there is a natural emphasis on short-term results. Hedge funds that bought big tech and AI stocks anywhere in the first six months of 2023 may have made huge unrealized gains. For example, Druckenmiller’s estimated average cost basis in Nvidia stock was less than $20, so he sold the stock at a huge profit.
It looks like his friends have started doing the same thing. That doesn’t mean Nvidia isn’t a leading AI company or that it can’t be a good long-term investment. That’s only if the hedge fund prioritizes short-term gains.
Your profit is more than a billionaire investor
It may seem like billionaires have some unfair advantage in the stock market. Hedge fund managers use cutting-edge technology, employ brilliant analysts, and have access to industry insiders. However, most hedge funds underperform S&P 500 over a long period of time. How is this?
The easiest way to do well in the stock market is to buy stocks of great companies and do nothing but hold them for years. That’s why the Motley Fool emphasizes long-term investment strategies.
Hedge funds don’t follow this pattern – they have to justify their large and one-off costs so that their clients don’t pull their money to choose a different fund. After all, hedge funds are expensive – there are more than 3,800 in the US alone, but less than half stay in business for five years.
Individual investors answer to no one but themselves. In the age of the Internet, anyone can research and learn about large companies. Once they find a winning stock, they can hold it if they believe in the underlying business without the pressure to show monthly, quarterly or annual returns.
What should investors do with Nvidia stock?
No one knows where Nvidia stock will go from here, but its business has grown significantly thanks to its dominant position in the AI ​​chip niche. Companies must continue to invest in AI, but for Nvidia to maintain the growth it has achieved over the past 18 months, it must continue to innovate and protect market share from competitors developing rival chips.
There is nothing wrong with booking some profit by selling some shares when your investment goes up. You can easily sell part of the winning shares and still keep some invested for the future.
Those who want to buy Nvidia in the new dip should consider using the dollar cost averaging strategy, which entails building out the position gradually, investing a set amount at set intervals until you have put as much money as you want to go to the Stock. These methods can help protect you from bad times if stock prices continue to decline, but also give you immediate exposure if they start to rebound.
In other words, investors should do what they think is right. Just don’t base your judgment on what some hedge fund managers do – time often proves them wrong.
Should you invest $1,000 in Nvidia right now?
Before buying shares in Nvidia, consider this:
At Motley Fool Stock Advisor The team of analysts only recognized what they believed it to be 10 best stocks to buy investors now… and Nvidia is not one of them. 10 stocks that made the cut could produce monster returns in the coming years.
Try when Nvidia created this list on April 15, 2005… if you invest $1,000 when you recommend, you have $683,777!*
Stock Advisor gives investors an easy-to-follow blueprint for success, including portfolio-building guidance, regular updates from analysts, and two new stock picks every month. At Stock Advisor service already more than four return of the S&P 500 since 2002*.
View 10 stocks »
* The Stock Advisor returns on July 29, 2024
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Goldman Sachs Group and Nvidia. The Motley Fool has a disclosure policy.
The Top 1 Billionaire Artificial Intelligence (AI) Stocks Selling Today was originally published by The Motley Fool
