Should we hold for the long haul?
Free crypto is not out of the question with this update…
How AI can address traffic and fuel consumption
Welcome to our weekly mailbag edition of The Bleeding Edge. All week, you submitted your questions about the biggest trends in technology. Today, I’ll do my best to answer them.
If you have a question you’d like answered next week, be sure you submit it right here.
Should we hold for the long term?
Jeff, I have read your advice about selling Nvidia. My plans are to hold for an additional 10–15 yrs. to help my granddaughter buy her first home. Would you still recommend selling any of your recommended stocks if we have a long horizon and understand the volatility? Thanks.
– Lorraine J.
Hi, Lorraine. As you likely know, I can’t give individualized advice. But I can speak generally about this question. It’s a fair one. And the answer will depend on several factors:
The prospects of the individual investment
An investor’s tolerance for risk and near-term volatility
Our time horizons as investors
An individual’s personal circumstances
Tax optimization for the current year
I can certainly speak about the current market conditions, my analysis on a particular company, and the industry that it serves.
But as a publisher of investment research, I do not – and cannot – know the individual circumstances of all my readers (points 2–5). All I can do is provide general guidance that will be valuable to all subscribers. And readers can use this research to make decisions that work for their own investing goals and personal circumstances.
But as for your question, it is possible to make incredible returns over long periods of time with great companies. Yet despite what we might think, it’s far from a guarantee.
Below we’ll see a 20-year chart with two companies I’m sure we all know: Intel (INTC) and Amazon (AMZN). We would think that over such a long period of time, we’d see incredible returns from both. But that simply hasn’t been the case…
Since 2002, Amazon has returned close to 17,000%. Intel, which is still a blue chip tech company, on the other hand, has returned 222%, even when we account for dividends.
Now, more than tripling our investment with one stock is nothing to sneeze at, but 20 years is an awfully long time to wait. And Intel drastically underperformed the S&P 500 during that time.
Admittedly, that’s a dramatic example. Amazon has been one of the best-performing stocks of the past 20 years. Meanwhile, Intel has been a constant disappointment.
I only share this example to make the point that holding a stock for decades is not necessarily a guarantee of incredible returns. Sometimes, there are very good reasons to sell a stock and never look back. When there is something fundamentally wrong with the business, these investments will be a black hole for our capital for decades.
That wasn’t the case for NVIDIA (NVDA).
We sold NVIDIA in July after holding the stock for just over three years. And we were able to realize an incredible 397% return by selling.
The reason for selling wasn’t because anything had gone wrong at the company… My concern was that NVIDIA would continue to be unfairly punished by the broader market volatility.
Even with the market downturn, it was carrying a high valuation, one that I was concerned would be punished by the current volatility and economic conditions. And that’s what has been happening.
The share price had nearly quintupled from where we invested, and I felt it was best for subscribers to secure a great win, raise cash, and wait for the stock to fall back to an attractive valuation.
Will NVIDIA trade higher in the next 10 or 15 years? I believe so, but I can’t have as strong of an opinion about NVIDIA as I do in a shorter timeframe.
What I mean is that I can see NVIDIA’s product roadmap over the next three years or so… It’s strong, and I know that NVIDIA will be strong as well when the bull market comes roaring back – and it will.
But in the world of semiconductors and high tech, especially now, a 10-to-15-year time horizon feels like an eternity. I believe that NVIDIA will do well, especially if the current CEO stays at the helm; but there are major shifts happening in the semiconductor industry right now.
NVIDIA exploded as artificial intelligence needed a workhorse semiconductor to run AI software. That’s NVIDIA’s GPUs.
But the industry has experienced a large number of exciting semiconductor startups that make incredible AI-specific semiconductors, designed not just to be a general workhorse for AI, but optimized for AI and machine learning. And some of these are outperforming NVIDIA’s products.
This is a major shift in the industry underway. Will NVIDIA manage this transition well? We don’t know yet.
And there will definitely be continued volatility along the way, just as we can see with Amazon in the chart above.
I saw the opportunity for subscribers to take off large capital gains that had passed the one-year holding period – thus long-term capital gains at a lower tax rate. And it’s almost certain that there will be a lower entry point sometime in the coming year to reestablish a position.
But we’ll determine that when the time comes. We’ll take a fresh look at NVIDIA and the competitive landscape, and see if it’s still a good fit for the portfolio.
And one final point, I think it’s incredible that you’re thinking and planning ahead to help your granddaughter. With the state of the world today, and the mess that has been created, current generations have created an unbelievable debt burden for future generations.
What you’re doing is a way for us to help our future generations to offset the terrible and egregious monetary and fiscal policies that are currently in place. What you’re doing is great, and I plan on doing the exact same thing for both my children, and hopefully my future grandchildren as well.
How to make the most of “The Merge”
I read the recent updates “The Roadmap for The Next Month” and I have some urgent questions:
Q1. If Ethereum were to hard fork, I interpret that there is a chance for airdrops on ETH or on all ERC20 tokens.
Q2. Relating to Q1, must we keep ERC20 assets on our own wallets, or can we receive airdrops too if we keep them on centralized exchanges like Coinbase, Crypto.com, Gemini, etc.?
Q3. Relating to Q1, if airdrops do exist, where do we sell airdropped assets? Obviously they are not listed on major exchanges and I believe nobody will provide liquidity on DEXes even if there is.
Thank you and I look forward to your prompt reply. Yours Sincerely,
– Wai L. (Unchained Profits Pro Subscriber, Singapore)
Hi, Wai. It’s great to hear from some of my international subscribers.
I spent a lot of time in Singapore when I was working as a technology executive in Asia. I’ve probably made around 100 business trips there. I had extensive dealings with SingTel, the EDB, the IDA, the SBA, StarHub, Singapore Cable Vision, TCS, the MDA, and Media Corp over the years… Lots of great memories.
For the benefit of all subscribers, this month I put out a comprehensive update on “The Merge” to subscribers of Unchained Profits, my digital asset (crypto) research service.
At a very high level, “The Merge” is a significant update to the Ethereum blockchain. It will transform the blockchain from a proof-of-work (PoW) to a proof-of-stake (PoS) network. What this means is that “miners” will no longer be needed to validate transactions on the network. Instead, transactions will be validated with the help of “validators” who “stake” their ETH.
For a full explanation of the nuances in this technology, I’d encourage Unchained Profits subscribers to catch up right here. For our purposes here, one of the most important things for us to understand is that this upgrade opens the possibility of a “fork” in the network. This is what happened with Bitcoin in August of 2017.
In essence, two camps of developers couldn’t come to terms on a proposed upgrade. And instead of bowing out to the majority, the smaller group of developers acted instead… They essentially “copied” Bitcoin.
The developers then inserted their new code and pushed the network live. This resulted in a second version of Bitcoin called Bitcoin Cash that is still around today.
One of the implications of this is that Bitcoin Cash tokens were “airdropped” into the wallets of anybody holding bitcoin. They were “free” assets. After The Merge, it is possible that the same thing could happen with ETH.
If ETH does fork, it means any investors holding the asset in their digital wallet will receive these new assets… for free.
It’s important to point out that this is not a guarantee. This is a momentous event for Ethereum, and we still don’t know precisely how it will play out. But based on what we know now, here are my best current answers to your questions…
At this point, we can’t say for certain. However, it is possible that any ERC-20 assets would also fork along with Ether. But it’s simply too early to tell.
To receive these airdropped tokens, I expect we will have to hold our assets in a self-custodied wallet. During the bitcoin fork, assets held on centralized exchanges were not awarded Bitcoin Cash.
This will depend entirely on whether or not the airdropped asset gains momentum with investors. If the new asset is received well, I expect all exchanges to race to support it. Bitcoin Cash can still be purchased and sold on Coinbase today.
The important thing to remember is that if any airdropped assets do arrive in the coming months, we should consider them a “bonus” for our investment. After all, we will have paid nothing to receive these assets.
And it’s very likely I will recommend selling these forked tokens into strength if we see an opportunity to close out this risk-free trade.
Will AI end traffic for good?
Jeff, as I’ve been sitting in traffic recently, I’ve been thinking about AI. I’m not sure this is an AI thing – but if anyone knows, it’s you!
It seems to me if we could connect all our traffic signals onto one platform that was controlled by an AI computer, we could move traffic through our cities much more efficiently, so we aren’t sitting and waiting at traffic signals watching no cars go through the intersection.
Not only would it be nicer to move through traffic more quickly, but how many thousands if not millions of gallons of gas could it save? Not to mention helping to move emergency vehicles around faster and possibly track vehicles that may be fleeing from authorities. Any possibilities here?
– Jerry H.
I really enjoyed this question, Jerry. Traffic is a problem that just about anyone, who lives near any major metropolitan area, can relate to. And it is an issue that AI is uniquely qualified to solve.
Today’s traffic systems are largely programmed by humans based on known traffic patterns. Yes, there are sensors under the pavement in many places that are inputs to traffic lights, but these are largely not intelligent systems.
Forms of artificial intelligence are able to ingest real-time data, and effectively “think” and determine the most optimal course of action. Said another way, an AI can be designed in such a way to be optimized for a specific goal in mind – in this case, it would be minimizing traffic congestion.
As readers of my AI-powered trading service, Neural Net Profits, know, a neural network is capable of ingesting massive amounts of data. The neural network can then spot patterns that humans – even entire teams – simply can’t see. And we already have some evidence of what type of benefits this would deliver when applied to traffic congestion.
In 2017, a team at Carnegie Melon deployed AI-powered traffic lights in a limited area in Pittsburgh, PA. And the results were remarkable. The new system delivered:
25% reduction in travel times
40% reduction in idle times
21% reduction in emissions
That’s a remarkable improvement. And you bring up another good point, Jerry. How much fuel would a system like this save every year if it was applied at scale? I was curious myself, so I did a bit of “back of the napkin” analysis on the question.
AAA estimates that American drivers spend about 58 hours a year just idling at traffic lights. And it’s estimated that most cars use one-fifth of a gallon of fuel for every hour of idling. That would come out to 11.6 gallons of fuel used every year just to wait at a red light.
Now, when we consider that there are 238 million American drivers, that would come to 2.7 billion gallons of gasoline used every year just for us to sit at red lights. If those idle times were reduced by 40% – as was demonstrated by Carnegie Melon – that would be more than 1 billion gallons saved every year. And that would be just in the United States.
At a time when we are dealing with multi-decade highs in gas prices, that’s an attractive proposition. And we haven’t even considered the benefits a system like this could deliver to highly congested areas like sporting events or concerts.
But we’ve just explored only one side of the equation, the traffic system itself. When we consider AI as applied to autonomous vehicles, even more gains would follow.
In an environment where the majority of vehicles are autonomous, cars could actually travel more closely together, as if in a peloton. Doing so improves aerodynamics and reduces drag, which also reduces fuel consumption.
And this would also be optimal for avoiding the stops and starts typical of traffic jams so often caused by bad drivers. Furthermore, this kind of artificial intelligence could eliminate almost 100% of road traffic deaths. After all, 94% of all accidents are caused by human error.
Intelligent traffic control infrastructure, combined with autonomous driving technology, would be transformational to address the issues that you’ve raised.
And yes, there are incredible possibilities here… as well as investment opportunities. You can be sure that I’ll be on top of them all, both in The Bleeding Edge and in my investment research.
That’s all the time we have for this week. If you’d like me to answer your question next Friday, feel free to write to me at [email protected]
Have a great weekend.
Editor, The Bleeding Edge
Like what you’re reading? Send your thoughts to [email protected].