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Comment by tptacek | Hacker News Reader

Speaking despite having made a lot of money on ARM Holdings in the '90s: this logic of looking one vertical level below the most-hyped companies is not as clever as he seems to think it is ("I work at a hosting company, I have an iPhone and an iPad, a-hah! ARM Holdings!"). It is a 101% certainty that the pro's trading ARM in the market are every bit as well informed as you are, if not more so. Picking stocks is picking stocks; knowing that an iPhone has an ARM chip in it doesn't constitute an edge.

Similarly, having read the Wikipedia page on Contango wouldn't be enough to get me to go up against professional full time oil traders.

Also, aren't commodity ETFs supposed to maximize the risk of trading uninformed against professional shark traders? I didn't follow the hype cycle on this story, but I know it started with "DO NOT BUY COMMODITY ETFs".

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I agree that the pro's trading ARM will have already figured out its significance ... however (based on no evidence what-so-ever) there is surely many more people that haven't figured this link out. When/If ARM hits the spotlight in years to come, multitudes of people will be there to bull rush the price. And the people who figured the link out early will benefit.

Knowing that an iPhone has an ARM chip does constitute an edge. Not an edge against everybody, but an edge against most.

The insight you're trying to capitalize on has a direct expression in the market already: it's called the price/earnings ratio. At 95, ARMH has roughly 70% of the heat that OpenTable does, and 270% of the heat that SolarWinds does; those are two of the hottest tech IPOs of the last 18 months or so. It may in general be true that basic knowledge of how stuff works gives you an edge, but here you're overplaying your hand: ARMH isn't a dark horse stock.

There is money to be made trading on "multitudes of people" and their awareness of technology. At least there has been in the past. The best example I can think of is when 3com spun off Palm. On the opening day of trading Palm had a larger market cap than 3com even though 3com still owned 80% of Palm.

The market was demonstrably irrational at the end of the 90's and it's unlikely such extreme situations will happen again, but there's still something there.

EDIT: "Markets can remain irrational longer than you can remain solvent." is a famous aphorism and markets are frequently irrational in ways that you can't necessarily profit from. The difference in 1999-2000 was that the market was actually insane. It was fairly easy to find stock prices that were mathematically impossible. Along with trading opportunities that offered large reward with almost no risk. That's the part that won't happen again.

I disagree. A high PE ratio in general is not a direct expression of my 'insight' in general. However in this case it probably is. Thanks for pointing that out, I hadn't looked at ARM's figures previously.

I guess I was 'overplaying', although I still think that the average Joe Blogg would be yet to realize the 'edge', hence it would still be an advantage making ARMH more of a very light gray horse.

A high PE ratio is an expression of the premium the market is paying over and above the cash flows a company is already generating.

Here are the comparables for ARMH:

  AMD	12.41
  INTC	10.36	
  NVDA	69.17	
  ARMH	95.01	
  MIPS	36.06	
  QCOM	26.28	
  AAPL	18.84	
  STM	19.99
  MSFT	12.18	
  IBM	11.58	
  BRCM	28.05

Anyone still think ARMH is a "find"?

I actually agree with the earlier commenter on this thread who lamented that he was probably going to watch ARMH double while he sat on the sidelines. I've recommended against buying AAPL a bunch of times too and been a poor fortune teller. But that doesn't make the methodology being used to pick ARMH sensible. The market knows ARM powers the iPhone.

You're spot on about commodity ETFs. They are required to buy at a certain time and sell at another time. Actually they're windows but they're well published. As you might be able to guess traders have had a field day with these funds. Most don't even closely track the commodity they're supposed to. Many have lost money while the commodity has gone up.

Spot on. I do mention in the article that the price of ARMH probably takes everything I mention into account already. I fully realize that buying ARMH right now is a gamble. It's one I'm willing to take though (even if just for the fun of it). Someone else more rational might want to stick to index funds. :)

Your entire coverage of this point is a single heavily-hedged sentence at the end of your stock-picking section, followed by "they could have said the same about AAPL", as if the success of the iPhone somehow guaranteed that ARMH would track AAPL (it does not). Also, the word "perhaps". No, not "perhaps". Iron certainty.

At a P/E of 95, it's pretty scary. Then again, you'll probably double your money anyway while I sit on the sidelines complaining about the P/E :)

Both "index funds" and "ARM" is a gamble because you're advocating investing in them without regard to price. In both cases you're just buying something based on it being popular, not because it makes a good investment.

If you do the math and you are able to calculate your returns, in advance, with some reasonable accuracy, then you're investing.

If you're just buying something without regard to price because it feels good (including index funds) or fits your emotional state- then you're gambling.

I've got no problem with speculation-- which is informed investing in high risk / high reward situations, but that takes even more analysis, not less.

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