Saturday, December 31, 2016

A Quick Victory Lap (and some wisdom from Warren Buffett) NVDA

It's not every year that a stock we incessantly yammer-on about ends up being the best performer in the S&P 500 but that's what happened with NVIDA in 2016. So I'm going to take the VL while I can.

Our first 2016 post on the company was January 5's "Class Act: Nvidia Will Be The Brains Of Your Autonomous Car (NVDA)" which began:
This is one of the very few individual names you'll see us touting out in public on the blog.
As it turned out, in 2015 NVDA was the fourth best performing stock in the S&P 500.
Sometimes you get lucky.
$32.37 Monday close, $36.24 all-time high, August 2007....
We had been posting on the company since May 2015's "Nvidia Wants to Be the Brains Of Your Autonomous Car (NVDA)" but it was that January post, following on November 2015's "'NVIDIA: Expensive and Worth It, Says MKM Partners' (NVDA)" that really began the hard sell:
We don't do much individual stock stuff on the blog but this one is special.
We use it as an example of what Silicon Valley used to be, when high tech meant high technology and not a new app for some (still) mundane task.

Simply put, NVIDIA makes some of the fastest computer chips in the world.
They are used in gaming systems that require graphics that don't  make you (literally) puke. Right now automakers use their chips for graphic displays....
By May the spiel had evolved to:
NVIDIA Sets New All Time High On Pretty Good Numbers, "Sweeping Artificial Intelligence Adoption" (NVDA)
We are fans.
Before we go any further, our NVIDIA boilerplate: we make very few calls on individual names on the blog but this one is special.

They are positioned to be the brains in autonomous vehicles, they will drive virtual reality should it ever catch on, the current businesses include gaming graphics, deep learning/artificial intelligence, and supercharging the world's fastest supercomputers including what will be the world's fastest at Oak Ridge next year.
Not just another pretty face.

Or food delivery app....
And in July's "Nvidia’s Eye-Tracking Tech Could Revolutionize Virtual Reality" (NVDA) I started moaning by adding to the boilerplate:
...While we are long-time fans of this little superstar we've given up posting each time NVIDIA trades at a new all-time high: we'd have something on the blog almost every day and there would be no time to get any actual work done. the stock is down $1.05 (1.95%) at $53.17 and this dropped out of one of the feedreaders....  
All told, we put up something like 100 posts on NVDA. Here's the quick search if interested.
Anyhoo, you probably know how the story ends and are getting impatient wondering "Where's Warren Buffett?"
Here's our second-to-last 2016 post on NVIDIA, yesterday's "Chipmaker Nvidia tops S&P 500 as best performer of the year"

And here's Warren, from his letter to shareholders, 1985:
Our gain in net worth during the year was $613.6 million, or 48.2%. It is fitting that the visit of Halley’s Comet coincided with this percentage gain: neither will be seen again in my lifetime. Our gain in per-share book value over the last twenty- one years (that is, since present management took over) has been from $19.46 to $1643.71, or 23.2% compounded annually, another percentage that will not be repeated....
And that's why we take the lap now, it won't happen again before Halley's big rock returns in 2062.

And as for 2017?

That '85 Berkshire letter continues one of my favorite BRK stories.
First the background, from the 1984 Chairman's Letter:
"...Using my academic voice, I have told you in the past of the drag that a mushrooming capital base exerts upon rates of return. Unfortunately, my academic voice is now giving way to a reportorial voice. Our historical 22% rate is just that - history. To earn even 15% annually over the next decade (assuming we continue to follow our present dividend policy, about which more will be said later in this letter) we would need profits aggregating about $3.9 billion. Accomplishing this will require a few big ideas - small ones just won’t do. Charlie Munger, my partner in general management, and I do not have any such ideas at present, but our experience has been that they pop up occasionally. (How’s that for a strategic plan?)..."
And then, the dénouement in the paragraph which immediately preceded the Halley's bit in the 1985 letter:
...You may remember the wildly upbeat message of last year’s report: nothing much was in the works but our experience had been that something big popped up occasionally. This carefully- crafted corporate strategy paid off in 1985. Later sections of this report discuss (a) our purchase of a major position in Capital Cities/ABC, (b) our acquisition of Scott & Fetzer, (c) our entry into a large, extended term participation in the insurance business of Fireman’s Fund, and (d) our sale of our stock in General Foods....
So for 2017 we think something might turn up but until it does we'll leave you with a post that might be important to remember if you hold NVIDIA: "Big Winners and Big Drawdowns (NVDA; AAPL; AMZN)".

And the final word on Buffett's '84-'85 tale?
Actually Buffett was wrong: the gain thirteen years later, in 1998, was a peg higher, 48.3 percent, with no big rock whizzing by.
So hope springs eternal.

1998 story paraphrased from Tap Dancing to work: Warren Buffet on Just About Everything.