An Example of Advantage Over The Pros

http://www.barrons.com/articles/aristas-software-will-let-th…

This analyst is admitting he was wrong. But this analyst is also the conventional wisdom. Most analysts assume that every company will revert to the mean. That no company is exceptional, or have exceptional competitive advantages. They therefore under value a company and don’t see its long-term market dominating potential.

However, sometimes this potential becomes known to us little guys and we know it well before the big guys. Arista is one such thing, as information was known to the little guys as early as 2015.

In real time, such as with Vertex, I have seen information that I found 6 months earlier, and even posted about, ignored by Wall Street. 6 months later, the exact same story, when it finally hit the “acceptable” publication or media outlet caused disruption in the share price.

It is this sort of intangible thing, and this sort of credible gossip supported by real world FACTS (not real world SPECULATION) that often gives us this advantage.

However, one thing I have noticed, and this is consistent with the prior Nutanix discussion, is the company at issue is usually considered “overvalued” to begin with, and just gets more overvalued when the information translates into perception of it being true by the mainstream press even though we saw it with real world evidence years before (we were able to see the incredible margins, cash production, how the software was disrupting the market, the future for routers, and the fact that the business would accelerate on 100G and 400G - all known to us way ahead of time, but not diffused into the conventional wisdom of the mainstream press). Heck, I once owned an insurance stock, I heard news of a hurricane hitting Houston (years ago), I immediately sold, 30 minutes later the stock tanked. It took 30 minutes for the news to diffuse that this tangent event was going to be material.

Anyways, that is the opportunity for a company like Nutanix. Are there such things that the market, by its conventional wisdom is missing, based upon real world FACTS, and not just VISIONARY things.

And yes, there are. As an example, and Chris spoke about this, given the land and grab strategy, and with large customers buying even more repeat purchases, that Nutanix’s recent success retaining new large customers will create even more growth in the next year or two that is found in any number, than is found in any earnings forecast why? Because it is a tangent fact, not readily apparent and not straight forward, and only mentioned on the periphery. At some point this will make it into the mainstream press from a mainstream analyst, and it will then be called “brilliant” analysis.

The key is that we easily fool ourselves into thinking “aha, I know more than the market” and it becomes euphoric, and is particularly something we do with “cheap” stocks. Nutanix is clearly not a “revert to the mean” company as its competitive positioning, which is a tangent because it is intangible, is something that we recognize early, it is based on REAL WORLD FACTS (not speculation of visionary thinking), and is something that takes more than 2 quarters to come to fruition.

Saw the analyst opinion and sudden “enlightenment” and had to laugh. It was well known, 2 to 3 years ago that Arista gets more dominant the faster the switch speeds get, and will not revert to the mean. But what you gonna do.

So, just adding a little more subtlety to my point that IRdoc so precisely articulated.

Tinker

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