NVIDIA's first quarterly report of 2026 arrives in a market environment vastly different from just three months prior. The stock market is currently influenced by anxieties surrounding artificial intelligence. As a leading company in AI infrastructure, NVIDIA (NVDA) is facing a level of scrutiny that few stocks experience.
With massive capital expenditures continuing, investors are focusing on CEO Jensen Huang's latest comments regarding the highly anticipated Rubin platform, sales to China, and data center revenue.
If you are contemplating purchasing NVIDIA stock, a portfolio manager suggests a strategy: consider buying several dozen similar stocks alongside it.
Here is the reasoning.
**Buying NVIDIA? Purchase a Group of Similar Stocks**
Investing has become a mainstream method for wealth accumulation in the United States, even among middle and low-income households. According to a recent survey by the BlackRock Foundation and the Federal Group, over half (54%) of such families report participating in capital market investments.
However, the survey also highlights a significant challenge for new investors: uncertainty about what to invest in and concerns about risk.
David Kracauer, Vice President of Portfolio Management at Mercer, advises that investors should identify high-quality stocks like NVIDIA—and then invest in them as a group.
"I think you first have to decide what you believe drives long-term stock returns," Kracauer stated in an interview. "If you believe it's profitability, value (such as price-to-book ratio), momentum, or other metrics you prioritize when selecting stocks, and you believe these factors determine future prospects, then why limit yourself to just a few stocks?"
He argues that investors can mitigate risk by screening for a basket of stocks with similar fundamental characteristics that align with their investment philosophy.
"We can debate all day which fundamentals to look at, but let's assume the investor knows what they're doing," he added. "Why buy just one? Why not buy 10, 20, 30, 40, 50, or even 100 stocks that exhibit strong momentum or profitability?"
**Higher Concentration Leads to Greater Portfolio Volatility**
"For example, is a portfolio holding only 7 stocks riskier compared to a more diversified allocation? If you define risk solely by standard deviation—essentially portfolio volatility—then the answer is absolutely yes," Kracauer said.
"The fewer stocks you hold, the more dramatically the value of your investment portfolio will fluctuate. That is one dimension of risk," he continued. "Systematic risk is the risk of the overall stock market, and you are typically compensated for taking on that risk. You need exposure to the market."
However, Kracauer believes that unsystematic risk—idiosyncratic risk specific to individual stocks—offers no compensation. This is the risk inherent in holding only a small number of stocks. He used Tesla (TSLA) as an example:
"Idiosyncratic risk is like: Elon Musk wakes up tomorrow and makes a crazy decision. It could be an announcement; Musk himself represents a risk. This is the risk you bear by holding Tesla. If you have a heavy concentration in Tesla, that risk does not provide you with extra compensation."
**ETFs Are an Excellent Tool for Achieving Diversification**
Kracauer suggests that the average investor should first focus on financial planning. The construction of an investment portfolio should be approached with the goal of increasing the probability of achieving financial objectives, such as retirement.
For most investors, he states, achieving low-cost, passive, and highly diversified market exposure through Exchange-Traded Funds (ETFs) is the correct approach.
"You can do the most exhaustive research in the world on a single stock. All the fundamentals align with your philosophy, and the technicals look attractive. But no one can predict what a single stock will do over the next month, six months, or year. This is why diversification across multiple stocks is crucial."
**Don't Forget to Consider Tax Implications**
Kracauer noted that one of the biggest challenges in managing a portfolio of individual stocks is taxation, and ETFs can also help minimize tax liabilities, as investors should focus on after-tax portfolio returns.
Unlike mutual funds, ETFs rarely make capital gains distributions. Another advantage of ETFs is the ability to navigate the "wash sale rule" more effectively. This rule disallows a tax loss if a taxpayer buys a "substantially identical" security within 30 days before or after selling it for a loss.
However, an investor can sell one ETF and purchase a different ETF that tracks a separate but similar index, thereby legally realizing the tax loss.
"Therefore, using ETFs, which automatically handle the underlying configuration and portfolio restructuring without creating a taxable event, is essential for this strategy."
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