Gilloran, a portfolio manager and research analyst at Williams Jones Wealth Management in New York, said he always responds by reminding clients of what their original goals were when they came to him and then explaining how those may not align with a hot growth stock like Nvidia.
"They say, 'I understand what you're saying. Thank you for highlighting that, this is what I came for. I appreciate your discipline. I still want to own Nvidia,'" Gilloran said.
Conversations like these seemingly sparked by FOMO — fear of missing out — have become common in a year in which expectations of falling interest rates have continued to push stocks to all-time highs. The S&P 500 stock index broke its previous record close for the sixth time this year on Wednesday after remarks from Federal Reserve Chairman Jerome Powell suggested long-desired rate cuts may finally be on the way.
The magnificent one
Much of the market gains have been driven by a small handful of stocks. And none more so than Nvidia.
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Its stock is up more than 170% so far this year and was likely to fall just short of another
Gilloran said his clients haven't been oblivious to the headlines. He said Williams Jones, which has $11 billion under management and specializes in building custom portfolios composed mostly of single stocks and bonds, has recommended Nvidia for many clients.
But he now shares the common concern that the company's stock price may be getting too expensive. The company's price-to-earnings ratio — an attempt to measure its shares' cost against the underlying value of the business — is approaching 79. Many analysts see a typical P/E ratio as ranging between 20 and 25.
Gillloran said Williams Jones runs fundamental analyses of the companies it's considering recommending to clients. Gilloran and his colleagues try to gauge investment candidates by looking at aspects of a business such as its free cash flow, capital levels and governance structure.
Gilloran said he thinks Nvidia is without a doubt a solid company. But clients who are now hot-to-trot for Nvidia could pursue the same investing goals through less-expensive means, he said.
He noted that much of the runup in Nvidia's stock has been built on recent enthusiasm for artificial intelligence and similar innovations. Could investors, Gilloran asked, benefit from the same technological developments by putting money into companies that build and cool data centers, or help to maintain the power grid?
"Basically, the conversation goes like this," Gilloran said. "Here's a trend that Nvidia operates in. Here are a few different ways where we can make investments in that trend. Here are some companies that are trading at more reasonable or attractive valuations that are still going to benefit from the trend."
Other hot trades
It's not just Nvidia that's fueling clients' fear of missing out. Edward Snyder, a financial advisor at Oaktree Financial Advisors in Carmel, Indiana, said he hears from many clients who want to buy stock in the drugmaker Eli Lilly.
Many of Oaktree Financial's clients are in fact employees of Lilly, which has its headquarters just down the road in Indianapolis, Snyder said. Most of them have received some compensation in the form of company stock over the years, he said.
For decades, Lilly's stock was stagnant as researchers there struggled to bring profitable pharmaceuticals to market. But its stock is up more than 56% this year, partly driven by sales of its popular diabetes drug, Mounjaro.
Snyder said he talks to many clients who regret their decision to sell Lilly stock during its lackluster years. Some are now eager to buy back in.
Snyder said he doesn't necessarily think Lilly shares are overvalued at the moment. For him, the question of whether clients should own more Lilly comes down to looking at how much they already have.
"If someone has 5% of their money in Lilly, then I don't have a problem with them getting some more," Snyder said. "If they have 35% in Lilly stock and they want to buy more, I'm going to caution them against it."
Another consideration is how much stock Lilly employees are likely to get in coming years through the company's equity awards policies. Whatever the answer is, Snyder said, the point is that he wants to make sure his clients' portfolios are diversified beyond a single company.
"If it's 5% of your portfolio and it goes down, it's not going to wreck you," he said. "But if it's 55%, it's going to have an impact."
How ETFs offer exposure to Nvidia … and a lot more
Other advisors find that a good way to mollify concerns about missing out on a hot trading trend is to have clients invested partly in index funds tracking broad swaths of the market.
As for individual stocks, McMahon said he and his colleagues are for deals beyond Nvidia and other members of the so-called Magnificent Seven — a group that also includes Alphabet (Google), Amazon, Apple, Meta Platforms (Facebook), Microsoft and Tesla.
"We track a group of stocks we call the fabulous 50. And those are 50 stocks below the Mag Seven that we think, regardless of the next season of the market, have the most viable opportunity for gain."
Lessons from the past
John Ingram, a partner and the chief investment officer at Crestwood Advisors in Boston, said his firm has been deliberately avoiding recommending Nvidia to clients. Again, it's because of concerns that the company is overvalued rather than that the business is unsound.
Ingram said he remembers all too well the technology firm Cisco in the years leading up to the bursting of the so-called dot-com bubble in 2000. Cisco was one of many tech companies whose valuations were pushed up wildly in the 1990s only to come crashing down in a historic market correction.
Cisco is still in business today but has never recovered the market capitalization it had in the '90s.
But Ingram can't banish fears that it, too, will eventually suffer a correction.
"They've been around for a while, and probably nobody really had heard of them 10 years ago," Ingram said. "But all of a sudden, they were in the right place at the right time. And they've done exceedingly well. But if it's that durable — whether or not they have a true durable moat — has yet to be determined."
Ingram said he also hears clients expressing fear of missing out on more speculative investments in so-called meme stocks, cryptocurrencies or marijuana producers and retailers. Sometimes the need to tamp down their zeal can lead to slightly difficult discussions. Ingram said he's found the best step is simply to remind clients why they chose Crestwood Advisors in the first place.
Some come after having tried investing on their own and losing money chasing the hot trades of the moment. Now what they want is a partner who will keep them attuned to their long-term investing goals.
"We all need guardrails to prevent us from buying an Nvidia at the top of the market — if this is a top. And I'm not predicting that it is," Ingram said. "But if it is a top, do our guardrails prevent us from buying it at this price and then losing our shirt on the way down?"
Clients showing interest in private markets
Gilloran said he's increasingly hearing investors express interest in
Gilloran predicted that advisors at Williams Jones will soon find themselves having to explain why private markets — which tend to be opaque and can carry high fees — are most likely not good fits for client portfolios.
"Some of the products haven't gone through a whole market cycle, an interest rate cycle," Gilloran said. "They could be great products, absolutely. But we haven't had clients go through a full cycle. So I think it's more of an education piece."
Rather than chasing the newest flashy investment opportunities, Gilloran said, Williams Jones is sticking to its founding mission of building custom portfolios made up of quality stocks and bonds. If an advisor and a client find they can't see eye-to-eye on whether a particular portfolio should contain a bit more or less of a stock like Nvidia, there's always the option of holding some investments through a separate brokerage account.
"What we often say to clients is that, you know, in this portfolio, we want to continue to run the core strategy that we originally set out for you," Gilloran said. "And if one of the securities you like isn't the right fit for this, you know, most of the time a client can own that personally in an unmanaged account."
