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How I Learned to Invest (Part 1)
Let’s start with index investing
I made millions of dollars from being an early employee of NVIDIA, the company that develops the GPUs that are accelerating the current AI revolution. Though it’s now the eighth largest company in the S&P 500 index, with a market cap of about 562 billion dollars (at the time of writing), when I joined we were on the verge of going out of business.
I remember sitting in the office of co-founder and CEO Jensen Huang, in the late 90s, in a little building in Sunnyvale that was owned by the Amdahl Corporation. As we discussed me joining, he told me that, “It’s not every day that you get to make someone into a millionaire.”
And that’s what he did.
I didn’t track my net worth very carefully at that time, but within a few years it was a few million dollars. Before long, I was buying expensive houses and cars with cash and never having to worry about money.
But I did wonder how I could sustain my wealth and help it grow, so I started learning about investing. I started out by reading The Snowball (paid link), an excellent biography of Warren Buffett, and I began to understand the approach of perhaps the most successful investor of all time.
Even though he went from zero to the richest person in the world by investing intensely in a small number of companies, Buffet suggests that if one doesn’t have the time or interest to do the research necessary to invest in this way, then the safest option would be to dollar-cost-average into a fund that tracks the Standard and Poor’s 500 index, such as the SPDR S&P 500 ETF Trust (ticker: SPY). Knowing him as well as I do today, I think he would call this simply “betting on America.” Around that time, I made sure to move my 401(k) money into one of these index funds, to both track the market and to accrue minimal management fees.
Since I didn’t have time to understand what I was investing in and I didn’t know how to buy an asset when it was undervalued nor how to sell an asset when it was overvalued, I hedged against my own ignorance by buying a bit of all the companies in the market. In the case of the S&P 500, that’s a weighted nibble of each of the most valuable 500 public companies in the USA. When I bought some of the index on…
