Key Points
Warren Buffett emphasized the importance of value in investing in his 1992 letter to Berkshire Hathaway shareholders. He argued that pursuing value is fundamental to successful investing. Many investors, however, often misjudge potential stocks, such as Nvidia (NASDAQ: NVDA), which has been the best-performing large-cap stock over the past decade.
In 2019, Nvidia had a market cap of approximately $100 billion and an average price-to-earnings (P/E) ratio of 35. While traditional value investors typically seek stocks with lower P/E ratios, Nvidia’s remarkable price growth since then, with a nearly 3,000% increase in stock price and substantial earnings growth, illustrates the pitfalls of strictly adhering to traditional value metrics.
As of now, Nvidia has earned $100 billion in net income over the past year, demonstrating that past financial results do not always indicate future performance. The trend illustrates the need for investors to balance historical valuation metrics with forward-looking growth potential when identifying promising investment opportunities.
