The Next NVIDIA Is…
Welcome to issue #25 of The Davem Dish. Every two weeks I share what actually works in investing based on my 20 years of wins, losses and expensive lessons. You’ll also get my thoughts on solopreneurship and life in general because the same principles apply — keep it simple, stay consistent and focus on what matters.
Everyone wants to find the next NVIDIA.
The next under-the-radar tech company that goes to the moon. The next beaten-down turnaround that triples. The next small-cap nobody’s heard of that quietly becomes a household name.
The hunt for the multi-bagger is the most popular activity in investing, and it’s easy to see why. One life-changing winner and you’re set.
Meanwhile, the largest, most established companies in the market — the ones hiding in plain sight — keep handing out opportunities. And most investors walk right past them.
There are two beliefs doing the damage here. The first is that the real money is in finding the obscure rocket ship. The second is that large caps are a dead end — everyone follows them, all the information is known, so there’s no edge.
Both beliefs are misguided, and together they push people toward exactly the risk they should be avoiding. These beliefs assume the edge in investing is informational — that the game is about knowing something other people don’t. One belief says go where information is scarce and the other says avoid where information is abundant, but the edge was never informational and once you see that, both beliefs collapse at the same time.
The Lottery Ticket Problem
Let’s start with why the “next NVIDIA” hunt is so seductive.
Researchers who study investor behavior call these lottery stocks. Low-priced, highly volatile companies with a small chance of an enormous payoff. They attract investor money the same way a Powerball jackpot attracts ticket buyers. The outcome is improbable, but the prize is big enough that people don’t pay attention to the math.
The same researchers have also measured how lottery stocks perform as a group. They underperform. There’s actually a documented “lottery premium” — a penalty, despite the name — because investor demand bids these stocks above what they’re worth. The very thing people buy for the chance at outsized returns delivers below-average returns on average.
You’re taking more risk for less return. That’s the opposite of how risk is supposed to work. You’re not being compensated for the risk you’re taking. In fact, you’re being penalized for it, because you’re buying the same dream everyone else is buying, at the same inflated price.
That doesn’t mean nobody ever hits one. People win the lottery too. It means building a strategy around it is, mathematically, building a strategy around losing slowly while you wait to win big.
Nobody Knew
The other half of the trap is the belief that you can’t make money in large caps because there’s no edge.
Let’s use NVIDIA itself, since it’s the stock everyone points to.
If you bought NVIDIA in 2015 and held through today, you’d be sitting on returns north of 23,000%. Generational wealth from a single position. That’s the story that gets told. And it’s true. But look at what it leaves out.
In 2015, NVIDIA was the fourth best-performing stock in the entire S&P 500, up +67% on the year. It was a solid GPU company that made chips for gamers and data centers. Nobody — not the analysts, not the fund managers, not the financial media — knew it would become the backbone of the AI revolution. That knowledge wasn’t available. It hadn’t happened yet.
What breaks the whole “find the next one” project is that it’s a phrase that can only exist in the past tense. NVIDIA wasn’t “the next” anything in 2015. It was just a good company having a strong year. It became NVIDIA-the-legend through ten years of events nobody could see coming. You can only ever buy a present tense company. “The next NVIDIA” is a pattern you can recognize looking backward, projected onto a future you can’t read. You’re being told to go find something that, by definition, doesn’t exist yet at the moment you’d need to act on it.
So the 23,000% story isn’t a story about analysis. It’s survivorship bias. NVIDIA is one of the rare few — research shows only about 4% of stocks account for nearly all of the market’s wealth creation over the long run. For every NVIDIA, there were dozens of stocks that looked just as promising in 2015 and went nowhere. And that’s within the S&P 500 — already the 500 strongest companies in the market, not the speculative fringe.
Of the top ten performing S&P 500 stocks of 2015, only three — Amazon, Netflix, and NVIDIA — turned out to be genuine long-term buy and hold winners a decade later. The rest were acquired, stagnated, or collapsed. That’s a 30% success rate on a list that was already cherry-picked to include only the year’s biggest winners.
So when someone says “nobody knew NVIDIA would do this” — they’re right. And that’s exactly the point. The people telling you to find the next one are asking you to do something they’ve just admitted is impossible.
Efficient Doesn’t Mean Priced Correctly
Here’s the belief I really want to take apart, because it’s the one that keeps people away from the best risk-adjusted opportunities in the market.
“Large caps are too efficient. Microsoft has 66 analysts covering it. Everyone has the same information. There’s no edge.”
This confuses two completely different things.
Yes, large-cap companies are informationally efficient. When news breaks about Microsoft, it gets priced in within minutes. You’re not going to out-research a company with 66 analysts watching its every move, and you shouldn’t try.
But informational efficiency doesn’t mean the price is correct. It means the price reflects the current narrative quickly. Those are not the same thing. If they were, those 66 analysts wouldn’t be publishing price targets ranging from $400 to $870 on the same stock — which is exactly what they do.
Your edge in large caps was never going to be informational. It’s the same edge it’s always been: structural and behavioral. You don’t have an investment committee. You don’t have redemption pressure. You don’t have career risk for being early. And you can sit patiently and do nothing while a high-quality company you’ve already analyzed gets temporarily mispriced by a narrative.
That’s what actually happens. Quality large caps don’t get mispriced because the information is wrong. They get mispriced because the story turns. I wrote about this last issue — the SaaSpocalypse drove Salesforce down over 30%. Not because Salesforce stopped making money, but because the AI-replacement narrative took over. The information was efficient. The price was still wrong.
Efficiency compresses the information gap. It does nothing to the behavior gap. And the behavior gap is where you make your money.
Why the Edge Survives
If this behavioral edge is real, and it’s available to everyone watching the most-covered stocks on earth — why doesn’t everyone take it?
Because the edge isn’t knowing. It’s doing.
The crowd watching Microsoft has the exact same information you have. What they don’t have is the temperament to do the analysis ahead of time, decide what the company is worth, and then sit on their hands for six months while they wait for the price to come to them. When the narrative finally turns and the stock drops 30%, that same crowd isn’t buying. They’re panicking, because the story scared them out right when the math got good.
That’s why the edge persists. It was never hidden. It just requires you to behave differently than everyone else, looking at the identical screen.
The Opportunities Are Already in Front of You
Here’s what this looks like in practice. Not hypotheticals — my actual investments.
NVIDIA at $100, and again at $170. Eli Lilly at $645, and again at $926. Microsoft at $359. Arista Networks at $122. Every one of these is a company everyone follows, with no informational secret to uncover. And every one of them, at some point in the last couple of years, pulled back to a price where the math worked.
That’s the whole game. It’s not predictions. It’s pattern recognition. Filter for quality companies — real earnings, sales growth, and free cash flow. Calculate a fair value. Then wait for the price to pull back to a support level where you can earn your required return. It happens far more often than people think, because narratives are always turning, and every narrative turn drags a quality company’s price somewhere it doesn’t belong.
You don’t have to find a company nobody knows. You have to know what a company everybody knows is actually worth — and then have the patience to wait for the market to disagree with itself.
Why Buy and Hold Isn’t the Answer Either
At this point someone always says, well fine, if large caps are the answer, just buy the great ones and hold forever.
But that’s a different mistake, and I’ve devoted whole issues to it. Good companies don’t stay good forever. UnitedHealth, Chipotle, and Lululemon were all considered quality compounders three years ago. Anyone who bought and held them through the last three years has the scars to show for it. UnitedHealth down -20%. Chipotle down -21%, Lululemon down -68%. Meanwhile the S&P 500 has returned +82%.
The answer isn’t “hold forever.” It’s “hold until the price tells you otherwise.” Buy quality at a discount, let the winner run, and use systematic selling tools to protect the position. It’s a recurring opportunity — the same quality companies can cycle in and out of attractive prices, year after year.
The Reframe
The hunt for the next NVIDIA is a hunt for a lottery ticket. And the belief that large caps are a dead end is the same lottery mindset inverted. Both are looking for an information edge that was never the point.
Meanwhile the real opportunities — quality companies, temporarily mispriced by a turning narrative — are sitting in the most-watched corner of the entire market. People skip them because they’ve been told there’s no edge there. But “everyone has the information” was never the same as “everyone has the discipline.”
You don’t need to find what nobody knows.
You need to act correctly on what everybody already knows and that’s a far rarer skill than it sounds.
Cheers,
Andrew
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The content provided are personal opinions and presented for educational purposes only, as of the date published or indicated. Davem Advisors LLC is not a bank, licensed securities dealer, broker or investment advisor. Displayed returns are unaudited. Nothing stated constitutes a recommendation or advice as to whether any investment is suitable for a particular investor. You alone are solely responsible for determining whether any investment, strategy or service is appropriate for your objectives. Past performance is no guarantee of future results. Inherent in any investment is the risk of loss.