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Reward-to-Risk Ratio is Paramount to Investment Success
Tony Robbins is a famous author and life coach who coaches billionaire investor Paul Tudor Jones. Robbins interviewed the legendary investor for his book, “Money Master the Game,” to share some of his investment advice. What Tudor Jones revealed in the book was not a holy grail for money-making but a risk-to-reward mindset that would mark a turning point in my investing career. When asked about risk, Jones said:
“5:1 (risk/reward). Five-to-one means I’m risking one dollar to make five. What five-to-one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.”
Why did this quote have such an impact on my investing career? The quote taught me (using simple math) that investing does not have to be complicated. Instead, investors need to lose a small amount when wrong, and run their winners when they are proven correct.
Below are three reasons Arm Holdings ((ARM - Free Report) ) presents an asymmetric risk-to-reward opportunity:
ARM Holdings: Strong Industry Group
The general market’s direction and a stock’s industry group are the most critical high-level ingredients to weigh when looking at a stock: 75% of stocks follow the market’s direction. With U.S. equities at all-time highs, it’s impossible to argue that equities are not in a bull market phase. Investors also want to track the top industries because industry group rank also plays an important role. ARM is a member of the Zacks “Technology Services” industry, which ranks in the top 22% of industries tracked by Zacks.
Image Source: Zacks Investment Research
Sound Fundamental Backdrop
ARM Holdings is a dominant player in the semiconductor industry due to its energy-efficient designs, which are critical to the function of smartphones, laptops and AI servers. Though ARM shares have come down to Earth after an explosive debut, the company’s fundamentals are very much intact.
Last quarter, ARM delivered earnings that grew 183% year-over-year. Meanwhile, ARM has eclipsed Zacks Consensus Estimates for three quarters in a row since going public, with an average positive surprise of ~24%.
Image Source: Zacks Investment Research
ARM's Bullish Chart Pattern
The easiest way to find the next stock to double is to look for stocks that already have. ARM is up more than 100% since its IPO in late 2023. On Tuesday, ARM shares broke out of a bull flag above the 50-day moving average on massive volume (indicative of institutional accumulation). ARM’s pattern offers a high reward-to-risk zone as investors can place a stop beneath today’s lows and the 50-day moving average.
Image Source: TradingView
Bottom Line
Asymmetric reward-to-risk investments are the closest thing to a “holy grail” that exists. Arm Holdings has all the attributes of a potential big winner.
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Arm Holdings: An Asymmetric Opportunity
Reward-to-Risk Ratio is Paramount to Investment Success
Tony Robbins is a famous author and life coach who coaches billionaire investor Paul Tudor Jones. Robbins interviewed the legendary investor for his book, “Money Master the Game,” to share some of his investment advice. What Tudor Jones revealed in the book was not a holy grail for money-making but a risk-to-reward mindset that would mark a turning point in my investing career. When asked about risk, Jones said:
“5:1 (risk/reward). Five-to-one means I’m risking one dollar to make five. What five-to-one does is allow you to have a hit ratio of 20%. I can actually be a complete imbecile. I can be wrong 80% of the time, and I’m still not going to lose.”
Why did this quote have such an impact on my investing career? The quote taught me (using simple math) that investing does not have to be complicated. Instead, investors need to lose a small amount when wrong, and run their winners when they are proven correct.
Below are three reasons Arm Holdings ((ARM - Free Report) ) presents an asymmetric risk-to-reward opportunity:
ARM Holdings: Strong Industry Group
The general market’s direction and a stock’s industry group are the most critical high-level ingredients to weigh when looking at a stock: 75% of stocks follow the market’s direction. With U.S. equities at all-time highs, it’s impossible to argue that equities are not in a bull market phase. Investors also want to track the top industries because industry group rank also plays an important role. ARM is a member of the Zacks “Technology Services” industry, which ranks in the top 22% of industries tracked by Zacks.
Image Source: Zacks Investment Research
Sound Fundamental Backdrop
ARM Holdings is a dominant player in the semiconductor industry due to its energy-efficient designs, which are critical to the function of smartphones, laptops and AI servers. Though ARM shares have come down to Earth after an explosive debut, the company’s fundamentals are very much intact.
Last quarter, ARM delivered earnings that grew 183% year-over-year. Meanwhile, ARM has eclipsed Zacks Consensus Estimates for three quarters in a row since going public, with an average positive surprise of ~24%.
Image Source: Zacks Investment Research
ARM's Bullish Chart Pattern
The easiest way to find the next stock to double is to look for stocks that already have. ARM is up more than 100% since its IPO in late 2023. On Tuesday, ARM shares broke out of a bull flag above the 50-day moving average on massive volume (indicative of institutional accumulation). ARM’s pattern offers a high reward-to-risk zone as investors can place a stop beneath today’s lows and the 50-day moving average.
Image Source: TradingView
Bottom Line
Asymmetric reward-to-risk investments are the closest thing to a “holy grail” that exists. Arm Holdings has all the attributes of a potential big winner.