Ain’t No Pleasing You
Key takeaways
Nvidia’s announcement of their impressive quarterly earnings (+154% from a year ago) was swiftly followed by a decline of -8% in share price. This, and many other instances, shows that market prices can react to news (both good and bad) in ways that we cannot expect.
2 common mistakes that investors make time and again are:
Choosing the Best Time to Buy or Sell
Relying On Past Performance To Decide What Is Good For You
Research has shown that avoiding these common mistakes can greatly improve your investment experience and make your journey towards your goals a whole lot smoother.
Bull markets are born on pessimism, grow on scepticism, mature on optimism and die of euphoria
— John Templeton
Chas & Dave, an English pop rock duo, had a hit song in the early 80’s titled ‘Aint no pleasing you’ whose lyrics was about a man wanting to leave his wife after he realised that she never cared for him in the first place.
Perhaps this can also be said of fickle investors as well. For instance, Nvidia announced their results for the second quarter of FY2025 on 28 of August. It was a blockbuster announcement; record quarterly revenue of $30.0 billion, up 15% from Q1 and up 122% from a year ago and record quarterly Data Center revenue of $26.3 billion, up 16% from Q1 and up 154% from a year ago.
With such positive news, you would expect the share price to sky-rocket. Instead, it declined -8% after the announcement. It currently sits around -14% from the announcement date.
It seems like a strange reaction. Maybe investors disliked that forecasts for the current quarter weren’t raised much higher or wanted to hear more exciting developments like when the the company’s next-generation Blackwell chip will roll out. So like the song, it appears that whatever Nvidia did or will do, was not pleasing enough for investors.
Prior to the earnings call, the vast majority of broker reports recommended overweighting the shares due to the high expected revenue growth. The revenue growth happened, but the movement in share price did not pan out.
The reaction to this news could suggest that AI excitement may be peaking, or has peaked, as google search trends seems to suggest.
So short of a sudden change in investor behaviour, we may not see the explosive growth of the share price in the future.
This highlights a simple premise that has rung true for as long as the stock market has been around — that it is quite impossible to accurately predict the movement of broad markets over the short term, let alone individual stocks. It is logical to assume that bad news would lead to declining stock prices. But as we have seen from this example (and many others), good news can also make share prices go down as well.
The early August sharp sell-off in markets is barely a month old, but it feels like it happened a long time ago. Recession fears and the unwinding of a lot of leveraged speculative positions pushed the markets down, but the rebound has been swift and has surprised many. Is there a concrete reason why this has happened? It is unlikely that anyone can pinpoint the exact cause for this outcome.
As such, bear in mind that the movement of market prices is not only determined by you, but by millions of other investors around the world who trade the same stocks, bonds, and other asset classes. How they view certain news events and their reaction, can be the polar opposite of what you have in mind.
In order not to get waylaid by the volatility in short-term prices, keep in mind these 2 common mistakes when investing especially if your plan is for the long-term.
1. Choosing the Best Time to Buy or Sell
You may be tempted to cash out of the stock market to avoid a downturn. The problems that surfaced in the beginning of August seemed quite worrying and real. But accurately forecasting the market’s direction in order time when to buy and sell is a guessing game.
For example, global stocks (represented by one of our core equity funds — United G Strategic Fund) underwent a V-shaped recovery during the recent August sell off. If you had cashed out during this period, you would have locked in a loss and missed out the recovery. Granted markets have not gone back to their mid-July peaks yet, but missing out on even a brief period of strong market performance can drastically affect your lifetime wealth.
We would also caveat that as we are still in a seasonally weak period for markets, we could see more market volatility over the next few weeks.
Conversely, if you had been waiting on the sidelines for the eventual correction to take advantage of the sell-off, the speed of the rally may have surprised you and prevented you from taking any meaningful action.
So if your investment goal and outcome is going to be measured in decades, then these small market movements (in relation to your timeframe) is not going to make much of a difference.
2. Relying On Past Performance To Decide What Is Good For You
You might be inclined to select investments based on past returns, expecting top-ranked funds or high momentum stocks like Nvidia to continue delivering on its stellar performance. However, high flyers eventually come crashing down. A whole host of research (Morningstar: This Year’s Top-Performing Growth Funds Can’t Erase Longer-Term Losses) shows that high performing funds of the past very often do not stay high performing over the longer term. In fact, only about one in five equity funds stayed in the top-performing group, and only about a third of bond funds did.
Top performing stocks, stocks which get included into indices, or stocks which rise to being the largest capitalisation in the world also tend to exhibit underperformance after being at the top of investors attention. (GYC Insights: Chasing Blue Chips)
Ensuring Pleasing Outcomes
Avoiding some of these common mistakes can improve your long-term investment outcome. If you like to do-it-yourself, you’ll have to manage the challenge alone. If you currently work with a fiduciary and qualified advisor, then he or she should point out these behavioural problems and set you on the path to better financial and investment habits.
An advisor can design a diversified, research-backed investment strategy based on your long-term goals and comfort level with risk. Equally important, you can look to a seasoned professional for guidance through different market environments. By walking together with you on the journey, you can be assured that there is someone who is there to help build your wealth and knowledge over time.
