I have a close friend who is a software engineer. I have known him since we were kids, and I will call him John to protect his identity. Last year we were talking about NVDA and AMD. John owned AMD and I owned NVDA. The date was 6/21/2017. AMD was at $14.00 and NVDA was at $158.95.
I suggested to John that he sell his AMD shares and put the money into NVDA. Being a software engineer, John believed that he had more knowledge about this matter than I did. He was convinced that AMD was a better investment and that AMD was going to do better than NVDA. I said that in 2 years (which would be 6/21/2019) NVDA would outperform AMD. Interestingly, part of what influenced him is the share prices. AMD was trading at $14 and NVDA was trading at about $160 so AMD must be a better deal, right? I’ve tried to explain the concept of market cap and P/E and competitive advantage and financial statements to John. All of this didn’t matter because AMD was at $14 and NVDA was at $160 which was just too expense compared to AMD. And John was a mathematics major in college.
We are not yet one year into the 2-year bet.
AMD is down 12.1%
NVDA is up 61.5%
This 73.6% difference does not include the 3 paid and 1 declared dividends from NVDA.
At this point, I would be willing to double down on this bet of course picking NVDA to outperform for the next two years from today.