The story of big capital players selling off Nvidia

I recently saw an interview video online about Shaun Maguire, a partner at Sequoia Capital, reminiscing about his past experiences selling Nvidia shares.

Regarding selling Nvidia, I previously read about Masayoshi Son’s story of selling Nvidia. Now, I’ve come across another well-known investor expressing regret over Nvidia, which has given me some additional reflections from a different perspective.

In the interview, Shaun talked about his experience investing in Nvidia:

He bought in during Nvidia’s IPO, at the age of only 13. Because he enjoyed gaming, he was especially optimistic about Nvidia’s future.

He held Nvidia shares continuously until its market cap reached $600 billion.

With Nvidia’s valuation at $600 billion, half of its revenue came from gaming and data center businesses. He thought the valuation was too crazy, so he sold.

As we all know afterward: Nvidia’s market cap soared, surpassing $5 trillion.

Shaun missed Nvidia’s brilliant journey from $600 billion to over $5 trillion.

The reasons for selling early can be summarized into two:

First, he believed he understood the industry too well, to the point of calculating everything very precisely, which led him to underestimate Jensen Huang and the company’s potential.

Shaun’s background is very impressive—he loves gaming but his academic performance was excellent; he holds a Ph.D. in Physics from UC Berkeley, understands chips and investing very well, and is very precise in calculations. However, this very expertise limited his understanding of Jensen Huang.

He thought his intelligence level (which he describes as Level 10) couldn’t comprehend someone like Huang (who he considers Level 15), much like an ant cannot understand how humans build highways.

Second, he believed he missed the market’s potential later on.

Shaun had studied Broadcom, TSMC, and ASML early on, and was very familiar with semiconductors. He considered Nvidia’s aggressive expansion of computing power at that time to be irrational.

But the subsequent development exceeded most people’s expectations—AI’s sudden surge proved Nvidia’s expansion strategy was foresightful.

Among these two reasons for selling early, I think the second is understandable for investors—because it involves too much luck, and such luck cannot be predicted or measured with logic.

Regarding Nvidia’s first appearance with ChatGPT in November 2022, I believe that apart from a few industry insiders, most people couldn’t have foreseen this pivotal moment.

Without that breakthrough or the rapid unexpected development of AI, I believe Nvidia today might still just be a good but not top-tier tech company, hovering around $600 billion to $1 trillion.

So, at that time and within that context, Shaun thought Nvidia’s approach was too aggressive. I see no logical mistake in that.

And the first reason can actually be used by investors to improve their methods and learn lessons. From this, two simple approaches can be derived:

• Investing is about people. If the company’s business model isn’t bad, and you believe in the leadership team, investors should seriously consider investing.

• The best way to earn substantial returns from a good company is increasingly something I now believe in—long-term holding.

Looking back at the books and videos I’ve consumed over the past year or two, some of the greatest investors in history mostly succeeded by choosing to hold their favored companies long-term. As long as the company’s fundamentals don’t change significantly, they tend to hold for the long haul.

Recently, I shared a quote from Zhang Yongping: “What can you buy after selling Moutai?” Today, seeing the regret of this Sequoia partner over Nvidia, I am even more inclined toward this approach.

Following this line of thinking, we can also look at Shaun’s decision to sell Nvidia from another angle:

If he sold Nvidia back then because he found better investment opportunities elsewhere, I believe, regardless of the outcome, his strategy and approach were not flawed. The only issue was his limited perception or failure to correctly predict the future.

Missing an investment opportunity due to limited perception is not really a problem—everyone can’t earn money beyond their understanding. This is normal and nothing to regret.

Failing to recognize a future opportunity because of inaccurate foresight is even less of an issue—no one can predict the future, especially at that time, when AI and other disruptive technologies were about to emerge, creating explosive demand for graphics cards.

However, if he sold Nvidia purely because he thought the stock price was too high, then there’s room for reflection and discussion—some questions to consider:

For example, how high does a company’s stock price have to be before it’s considered “high”?

And another: After selling a stock, how should the cash be allocated? Should it be bought back after the price drops? What if it never drops? Can one accept never being able to buy back?

Actually, I have one very simple view: if you sell early, just accept it—don’t regret. Everyone has had experiences of selling early. The most important thing in investing is that you must always be in the market. “As long as the green mountains remain, there’s no need to worry about firewood shortage.” As long as you are alive, investment opportunities will always be there—always look forward.