Nvidia’s $100 billion AI bet, special dividends and investor psychology show why markets remain full of opportunities
With markets at new highs, all we at 5i Research Inc. hear from investors these days is that now they are likely to decline. Or valuations are too high. Or tariffs are going to cause inflation. Or there are too many wars in the world (which is true). Or, the U.S. Federal Reserve is going to lose its independence. Or artificial intelligence is going to cause job losses and social disruption. Or there is going to be a big crash.
Look, we get it. There’s lots to worry about. There always is. In our long investing careers, we have never seen a time, ever, when there was nothing to worry about.
But our job today is not to discuss risks and worries. Though it is also not to tell you everything is going to be fine. Our goal today is to MIFA — Make Investing Fun Again. While everyone worries, frets and panics, we’re here to discuss five reasons that make investing interesting, if not lucrative.
You can still get rich with stocks
Take a look at those lists of the world’s richest people. Sure, there are always some real estate moguls listed. But the majority of the world’s super rich got that way by owning equities, typically in extreme concentrations of their own company. But lesser, normal people can still get wealthy in the market by consistent investing and compounding over many years or decades. Investors can also do very well in shorter time periods. While some investors might look to “lottery ticket” type of stocks for “get rich quick” hopes, such as risky junior mining stocks, this is a dangerous gamble. You can still achieve gains of 1,000 per cent or more with less gambling, good timing and a little luck. One case in point is Celestica Inc., a company manufacturing products for other tech companies. It has a long history, much of which was not exciting. Its stock hit a low of $4.09 in the COVID-19 panic, and at this week’s price, where it hit an all-time high, it is up about 8,400 per cent in just over five years.
There’s never a dull moment
There is always something interesting going on in the market if you pay attention. Daily, companies can discover a gold deposit, or hit oil, or merge, or acquire another company. Companies pay special dividends, or announce new products or expansions. Companies buy back stock or issue new stock. Monday this week, for example, was a pretty quiet day around noon. Then, Nvidia Corp., the largest company in the world, dropped a bombshell: It was going to invest US$100 billion (with a “B”) into OpenAI Inc., the owner of ChatGPT. Suddenly, the artificial intelligence trade sprang to life instantly. Nvidia itself hit an all-time high. Competitors faded and some stocks surged as investors realized the AI trade may not be dead yet. The afternoon on Monday was filled with new highs on dozens of stocks, and was far more exciting than a typical dull Monday might have been.
The lazy way to make money
When you receive a dividend payment in your investment account, how much work have you actually done? Sure, you might have done a bit of work when you initially bought the stock (though surprisingly, most investors do very little research before they buy). But after that, you can sit on the couch and watch your dividends roll in. You have more money and you have done, well, nothing. And don’t get me started on special dividends, which are announced fairly regularly by cash-rich companies. For example, Pilgrim’s Pride Corp., a large U.S. poultry producer, announced two special dividends this year, totalling US$8.40 per share on an approximately US$40 stock. A special dividend is like getting a big bonus at work but in the investment case you have done nothing to earn that money. When I speak at schools, most students are bored silly by investments until I bring up this point about a “lazy way to riches.” Then they start to pay attention.
Everyone is interested in the market
Nearly everyone beyond a certain age has at least some exposure to the market. There are those who are interested in pitching their own stock ideas or discussing the latest investment trends. There are the braggarts who pretend they bought every great stock, as well as the quiet ones who are slowly getting rich. Anyone with a pension plan is exposed to the market, and most registered retirement savings plan (RRSPs) and tax-free savings accounts (TFSAs) have some market exposure (at least they should). It can be a common ground for people who have just met to talk about the market. Now, I may be an outlier since I work in the business, but simply overhearing people discuss stocks at parties and on planes, I know it is a very popular topic.
There is no need to take a master’s degree in psychology
Everyone knows the market runs on fear and greed. And every day you can get a lesson in human psychology. It is a real-life lab course in human behaviour, whether it is how investors react in a crash, how they react to buying meme stocks with no revenue and no prospects, or how they react to a short seller’s report. An example of the latter this week was alternative lender Goeasy Ltd., whose shares fell after such a report, even though the company refuted claims it is under-reporting credit losses and pointed out the short sellers stand to benefit from a decline in the firm’s stock price. A company can go from loved to hated in a heartbeat. Investors worry about everything, even when they don’t have to. Herd behavior can take over at times, and as the saying goes: Irrational behaviour moves stocks far more than any fundamentals can. There are times when stocks soar on bad news and collapse on good news. When I was working as a young stock broker, the market crash of 1987 was the best psychology course I could ever have imagined. These market psychology lessons are not always fun but they are always interesting.
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