Man-on-the-Street Monday Midday Snapshot

PUBLISHED: Jun 17 2013 @ 10:15 | Comments (0) | More info about Lou Gutheil

Last week I wrote an article entitled “Is the Market Driving You Nuts?” I thought that today would be a good day to follow up with the first of a series of articles, not on consecutive days or even consecutive weeks, to help underscore the reasons for always looking for the bigger picture. And there is always a bigger picture.

Let’s take a look at the share price activity of a single company at midday today. ARM Holdings (LSE:ARM), a rather exciting technology company to watch, let alone own shares in, was down 45.00 pence, a 5.22% drop from 862.00 to 817.00. Whilst that might cause some to panic, ignoring any company news that may have been cited as the impetus for the decline today, if you step back and view the last month, your nervousness might actually increase, as it has dropped nearly 26% over that period. In reality, the only people who have a strong reason to be nervous are those who bought shares at the high-water mark – a move that defies the basics of investing. However, if you continue to step back a bit farther, you will discover that 817.00 is 60% higher than the 486.70 that it was a year ago on 15 June 2012. Up close, not so good. From a distance, very good.

So let’s take a few more steps backward and see it in respect to the Technology Hardware and Equipment sector of which it is a part. That sector is down 3.46% on the day, off by 35.53 from 1,026.06 to 990.53. Now one might question why the sector has declined so much. Is a lack of interest in the Technology sector driving ARM down, or is the drawback on ARM, pulling the sector down. This decision I leave up to you. It might take just a bit of research on your part, but that’s what I want you to do.

Now let’s step back even farther and compare ARM to the FTSE indices of which it is a constituent. The 100 is up 53.54 on the day. The 350 is up 28.59. The All-Share is up 28.20. So, what does this mean? It means that on this particular day, at this particular moment in time, ARM is performing below the level of the leading indices. Does that mean that it is going to continue to do so? Here is where a look back might also help. How has ARM performed historically when compared to both the sector and the indices? Is this information enough to make you nervous or, on the other hand, more secure?

Sometimes, it’s just investor whims or it’s strategic moving of funds by investment firms that can cause these ups and downs. Take a look at the top 5 gainers on the FTSE 100 today. Resolution, up 3.89%, is in the Life Insurance sector. Weir Group, up 3.01% is in Industrial Engineering. Aggreko, up 2.96%, is in Support Services. Vodafone, up 2.86% is in Mobile Telecommunications, and Experian, up 2.79%, is in Support Services. That’s kind of a smattering, but then the Support Services, Mobile Telecommunications, Life Insurance, and Industrial Engineering sectors are all up today. The aforementioned Technology Hardware and Equipment Sector is the biggest loser of the day and ARM is also the biggest loser of the day on the FTSE 100. All of this would seem to indicate what analysts call “a lack of interest” in that sector or a fear that ARM is about to lose product market share, or both. Or something entirely different. But that could all change tomorrow.

One final thing that needs to be considered. What is ARM technology actually doing? What is their business strategy? What is in their product pipeline? What is there relationship with their clients? What are their competitors doing that could influence ARM’s revenues? What are their strengths, their weaknesses, their opportunities, and what are their threats? We’ll talk more about this latter question in an upcoming article. Until then, unless you are gambling in the market, and if you are serious about making money long-term, I urge you to stand back a litter farther and dig a little deeper. A snapshot is nice if its one of your family, but it seldom give you enough information for making wise investment decisions.

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