Pound Cost Averaging + Time = Profits

I feel incredibly liberated. I have stopped paying attention to charts. My new mantra, courtesy of Bitcoin uber-fan, Michael Saylor, is the passage of time.

It is not an absolute rule, but it often works that the more exciting the share, the more volatile the share price. Arm reported great results on 31 July. The company is performing way ahead of expectations during the IPO.

Just one quote gives the flavour of what is going on at Arm.

Grace Blackwell [the new chip from Nvidia] is a custom chip that goes into a custom blade, into a custom rack, into a custom system. It is a full system design with incredible complexity and also very unique in terms of its power savings.

We expect to see a similar trend with other accelerators that use Arm because the ultimate benefit of using Arm for an AI data centre is the customization, i.e., being able to build something that’s very, very custom in terms of the interconnect, custom in terms of memory, custom in terms of the overall network and at the same time, will be the most power-efficient CPU architecture out there.

So early days still is the short answer in terms of being able to count what the units are in terms of CPU and AI data centre, but it’s going to be growing rapidly, we expect. And the most obvious indicator of that is Grace Blackwell.

Rene Haas, Arm Holdings, Q1 2025, 31 July 2024

This bullish earnings report from Arm did not stop the shares from plummeting. In four days after the results Arm shares fell from $144 to $96. I guess there were two reasons for this. The free float in Arm shares is small and buying has driven them to an incredible valuation. Arm is the share equivalent of a Hermes bag – expensive. The second reason is a bull position ahead of the results unravelling into an unwilling market.

Let Volatility Be Your Friend

The question for Arm investors is whether this is bad news or good news. Warren Buffett would say that the opportunity to buy shares more cheaply is good news for a long-term bull. What Arm needs to be a successful investment is the passage of time; if you can reduce your entry price so much the better.

Like Bitcoin, the ideal equity investment may be super-exciting and super-volatile, characteristics that often go together.

This is why I have stopped adding prices when I alert shares. Once a share is alerted, the strategy is to keep buying so your average price is low. Then wait for time to work its magic. This is relaxing because I can forget about charts and stop pretending to know something I don’t. All we need to know is that the share and the company are HOT!

Grammarly is amazing. I had no idea I was such a waffler until I started changing all the things to which it takes exception.

Microstrategy is like Arm. Its holdings of Bitcoin are worth around $14bn but the company is valued at $24bn. Why? It is not that gap which will determine how Microstrategy performs as an investment. The key is Bitcoin. If Bitcoin goes through the roof, MSTR shares will explode. If Bitcoin collapses MSTR shares will crash and burn.

Maybe the short seller who hammered MSTR before ( in a paired trade selling Microstrategy and buying Bitcoin) will re-emerge but who cares? If he makes MSTR crash buy some more. The investment case for MSTR (and Bitcoin) is the possibility that Saylor is even vaguely right in his aggressive Bitcoin price predictions. The minutiae of the relationship between the MSTR price and Bitcoin is neither here nor there.

Strategy – The Longer You Hold The Better You Do

It is not quite that simple, nothing ever is but it is a good rule that shares, no matter how exciting, are up and down like March hares. The trick is to choose shares in companies that get there in the end.

Two old favourites which are in great shape are GoDaddy and MercadoLibre. One of the amazing things about GoDaddy is the phenomenal rate of share buybacks.

Through April 30, we repurchased 2.8m shares year-to-date, totaling $346m. This brings the cumulative shares repurchased under our current authorizations to $2.9bn and 37m shares, reducing gross shares outstanding since the inception of these authorizations by 22pc, ahead of our three-year targeted reduction of 20pc. Fully diluted shares outstanding at the end of the quarter were 146m shares. Our successful share repurchase program continues to drive impressive ROI [return on investment] for our free cash flow deployment. We have $1.1bn remaining under our current authorization, and we plan to be in the market every quarter subject to market conditions and other factors, with a minimum offset to share-based compensation dilution.

Mark McCaffray, CFO, GoDaddy, Q1 2024, 2 May 2024

South American e-commerce superstar, MercadoLibre, is hitting the ball out of the park.

We delivered a great financial and operational performance in Q2’24, with growth in GMV [gross merchandise volume], Acquiring TPV [TPV = total payments volume; not sure what Acquiring means but it is growing strongly] and the Credits portfolio accelerating in all three major geographies on a YoY FX-neutral basis. Unique buyer growth also accelerated and Fintech MAU [monthly average users] surpassed 50m for the first time. Our ecosystem is gaining more traction, and our investments in product, technology and service levels are extending our position as the region’s leading ecommerce and fintech platform. At the same time, we are delivering strong financial results both at the top line – with Q2’24 revenue growth of 42pc YoY (of which 14ppts relates to the shipping reporting updates outlined in Q1’24) – and at the bottom line, with net income rising 103pc YoY to $531m. Our net income margin reached 10.5pc in Q2’24, up 3ppts YoY and at the highest level since Q1’17.

MercadoLibre shareholders’ letter, Q2 2024, 1 August 2024

Share Recommendations (15 August)

Arm Holdings. ARM

GoDaddy GDDY

MercadoLibre MELI