Druckenmiller Sold Some Nvidia Stock. Don’t Panic.

In the US stock market, investors have been conditioned to hold onto their winners. The Magnificent Seven were so-named because most of them — both individually and collectively — have delivered consistently extraordinary returns for a decade or so. But when your Nvidia Corp. stake sextuples in just a year and a half, it’s probably worth taking some chips off the table, no matter how much you believe in the company’s story. Just ask billionaire Stanley Druckenmiller.

In Druckenmiller’s telling, he entered his Nvidia position in 2022 and expected to hold it for 2-3 years. He decided it was time to cut the stake in late March after the stock went from around $150 to over $900 a share. Here’s how the former George Soros money-manager put it in an interview on CNBC’s “Squawk Box” (emphasis mine):

"Long-term we’re as bullish on AI as we’ve ever been... If we were all sitting here in 1999 talking about the Internet, or anybody was talking about it, I don’t think anybody would’ve estimated it would be as big as it got in 20 years. We didn’t have the iPhone, we didn’t have Uber, we didn’t have Facebook, yada yada. And yet if you bought the Nasdaq in ’99, it went down 80% before that all came to fruition. That’s not going to happen with AI, but it could rhyme. AI could rhyme with the Internet. As we go through all this capital spending we need to do, the payoff while it’s incrementally coming in by the day, the big payoff might be 4-5 years from now. So AI might be a little overhyped now but underhyped long term."

Yes, yes and yes!

Selling shares of a market juggernaut is often prudent risk management. When a stock outperforms in dramatic fashion, it can end up occupying an unduly large portion of many portfolios. Rebalancing is just logical. It’s also healthy to let adrenaline levels normalize and ensure that our rational brains are still in charge.