JD Durkin: Cliff Cornell joins us now, making his Taking Stock debut, but a very longtime friend of mine, financial advisor at Bone Fide Wealth. My man.
Cliff Cornell: Indeed we did, dude. We did it. We made it. We made it to the end of this week.
JD Durkin: This was an astronomical week for markets, I think, right?
Cliff Cornell: Yeah, it’s pretty crazy news.
JD Durkin: We’ve got Jensen Huang in some hot water, and I think the term of the week, idiosyncratic risk.
Cliff Cornell: Yeah.
JD Durkin: Okay, so talk to me about this. You tweeted about it, and I don’t exactly know what that means, idiosyncratic risk. Why has that been top of mind for you?
Cliff Cornell: It is essentially risk that pertains to one singular company. There are multiple types of risk: market risk, interest rate risk. Idiosyncratic risk is particular to one singular company. And in this case, Nvidia was a shining example of that throughout the week. So we saw that there was some significant key person risk with Jensen Huang.
JD Durkin: Yeah, there certainly was. But all things considered, yesterday, after the big news broke, you saw kind of stable levels for the S&P 500, given this company is [unclear: “whatever six seven 8% higher S&P”]. Let me get your take on this. We’ve seen a handful of stocks go truly on parabolic runs this year. Cliff Cornell, how should investors be thinking about risk versus reward at some of the levels that we’ve seen this year?
Cliff Cornell: 100%. When you see anything go parabolic like that, and it begins making up more and more of a portfolio, I always come back to the idea of concentration risk, right? When we see a big sell-off, or something like an idiosyncratic risk play out in a company like Nvidia, that might show people what their risk tolerance really is. Risk capacity and risk tolerance are two different things. Days like last Thursday, JD, can show people what their true risk tolerance is.
JD Durkin: How important is diversification right now in these markets? I think year to date, the S&P has probably outperformed at least some people’s expectations. To your point, they’ve got a lot of flashy stuff still in the markets. We’ve got names like Apple trading at all-time highs. What lessons have we learned about the importance of staying diversified in our portfolios?
Cliff Cornell: I think this week is a great example of it, right? Over the past couple of years, we’ve seen people overweight to the Mag 7 trade, right? And we’re seeing some dispersion amongst that. JD mentions Apple trading at all-time highs. Well, Nvidia’s faltering right now. So I think that goes back to the point of finding diversification and understanding the risk tolerance that you feel comfortable with.
JD Durkin: You think investors may be getting a little bit too comfortable with volatility? We talk about the VIX down to an 18 handle. We had little spikes from time to time. Or is all this just kind of a part of a broader, healthy bull market, Cliff?
Cliff Cornell: You know, that’s a really good question. And I don’t want to make any comments as to whether this bull market continues or whether it falters here. I think that volatility, especially in some of these bigger names that have gone on parabolic runs, we’re no strangers to it. A couple of years ago, JD, we were looking in 2022 at a 67% drawdown on a company like Nvidia, right? We’re no strangers to that. That’s risk and reward playing out.
JD Durkin: What are some of the biggest mistakes, in your professional opinion, Cliff, that you see investors make whenever a high-flying stock suddenly starts to turn lower? What happens then?
Cliff Cornell: Great question. People are prone to making rash decisions, right? And they can move really quickly, especially when a stock starts working against them, one that has given them almost that immediate gratification. Over the past couple of years, you could have bought Nvidia and you’ve done incredibly well. And when that starts moving the opposite way, people can get shaken out. They can get nervous. But that’s where we try to remember our time horizons. Are we investing for tomorrow, or are we investing for the next ten years, into retirement and so on?
JD Durkin: There we go. All right, Cliff Cornell, financial advisor at Bone Fide Wealth. Idiosyncratic risk, term of the week, by the way. What’s on your radar for next week? Obviously we’ve got Nvidia earnings on Tuesday, Anthropic IPO on Thursday.
Cliff Cornell: [unclear: “We thought this week was a lot worse.”] Wait and see. This market’s got a lot to digest. I’m looking forward to next week. It’s going to be a good one.
JD Durkin: Cliff Cornell, first time on the broadcast, will not be the last time. Absolutely crushed it, brother. Thank you so much.
