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Post of the Day
October 19, 1999

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Arm Holdings PLC

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Subject:  ARM, Darwin and Survival for the US
Author:  Calidor

I have been threatening to write something about evolution and ARM for some time and here it is! It will give you something to read over the weekend whilst we await the results. I make no apologies for commencing this thesis by saying something about the 19th century and Charles Darwin. This was an incredible period of time and if the story of Charles Darwin and his voyage in the Beagle had been written as fiction it would have been seen as an impossible fantasy. I promise that you will hear about ARM later and, hopefully, with some benefit.

There were three giants bestriding the 19th century - Charles Darwin, Sigmund Freud and Karl Marx. Their work was of transforming significance - there was the world before them and the world after them and it was not the same place.

Sigmund Freud had ideas about infantile sexuality and personality development that made modern psychology and psychotherapy largely what it is today. The 'couch' and psychoanalysis have gone but the impact of Freud is still with us. He came to London just before the war and died of his cigar habit in 1939. He had cancer of the jaw! Consider that you smokers!

Karl Marx wrote the incredible 'Das Kapital' which is almost unreadable. It is far better to read Friedrich Engels. They met in Paris in 1843 and Engels - who came from a rich German textile family based here in Manchester - supported him for the rest of his life. Marx got himself thrown out of Paris in 1845 and ended up in Brussels with Engels where they put together the Communist Manifesto published in 1848. It is quite a saga and Das Kapital published in 1867 is one of the most influential books in the world however unreadable it is. It isn't generally known that Marx wanted to dedicate his work to Charles Darwin! Marx died in London in 1883 and is buried in Highgate Cemetery very near the grave of Herbert Spencer, the philosopher. It was Spencer who coined the phrase 'survival of the fittest' and this was later used by Darwin. So - if you want to know what happened to M&S the answer is that they were buried in Highgate Cemetery. This is a joke that has served me well over the years and may be particularly appropriate today. (I should advise our American friends that M&S is an English store in deep trouble at this time.)

Finally we come to Darwin himself. His work is without doubt one of the most staggering and influential contributions to modern science. It has gained general acceptance throughout the world except in Kansas where they are trying to return to Creationism - Adam and Eve no less. Our American cousins are a little worrying ( translation - our American cousins are VERY worrying). Students in Kansas are no longer expected to know about Darwin and Darwinian Evolution. This was voted on and brought in just recently - the vote was only 6 to 4 in favour of Creationism so we could still be in with a chance!

Darwin came from a medical family and went to Edinburgh when he was only 16 years old to study Medicine. All the best people go to Edinburgh - Darwin, my wife and Burke and Hare. These last two didn't quite manage to study Medicine exactly but they did try to help by doing a bit of body snatching until they were caught! Their problem was that the bodies they were snatching weren't quite dead until they killed them! Unfortunately Darwin was studying Medicine in the days before anaesthesia and he quit after attending a very traumatic operation on a young child.

Darwin finally took a degree in Divinity at Cambridge and went back to chasing his cousin, Emma Wedgwood, in 1831. It was at this time that he was offered the chance to travel with Captain Fitzroy in the Beagle on a voyage around the world organised by the Admiralty. Fitzroy was quite a character and started our modern system of weather forecasting and finally became a Vice Admiral. He hoped that Darwin would help him substantiate Genesis and find evidence of the Great Flood in their travels! Finance was needed so that Darwin could make the trip and this he managed to get out of his Uncle Josiah - he was the famous Wedgwood potter and thought that if Darwin was to marry his daughter, Emma, he should maybe first take a trip around the world in a small boat!

The Beagle was not a large ship - only 90 feet long - and it could actually be beached in order to sort out the copper cladding on the hull. There were 74 people crammed on board and cabin space was at a premium. Darwin managed to secure himself a sleeping place but he could only stretch out by removing a drawer from a locker and shoving his feet inside. It was in these very cramped and difficult conditions (and he was sea sick most of the time) that Darwin travelled around the world for the next five years. It was a truly remarkable voyage and could not be made today because things have changed so much. They called in at the Galapagos Islands and that is where Darwin was able to get some confirmation of his developing theory.

I took my dear lady to the Galapagos in order to see if we could see what Darwin saw and I think we found it difficult. What Darwin did was a work of real genius. I will not go on about the Galapagos but it was partly the separated communities of finches on the various islands that gave Darwin one of his major 'clues'. We swam with the sea lions and it was quite incredible. They actually played with us even though they were quite wild and it was like being touched by the hand of God - or should I say Darwin.

Darwin finally returned home, married Emma in 1839 and that was the end of it! He carried on working on his collection of specimens but no book. It was almost as if Darwin realised what a time bomb his book would be if released into the God fearing Victorian society. It was only in 1858 when he received a letter from Alfred Russel Wallace that he realised the game was up. Wallace was on to the same theory and Darwin finally had to publish his book in 1859. It rapidly ran through three editions and by 1860 the clergy were thoroughly aroused - and not best pleased. It should be realised that in the 19th century the Church and the Bible were paramount and sacrosanct. People really believed that God created the earth in six days and that Man was made in His image. All the other animals were created at the same time and only survived the great flood because Noah took two of each of them into the Ark. Man, of course, had no links with the other animals.

Dr John Lightfoot of Cambridge University and Archbishop Ussher had actually worked out that the world was founded at 0900 hours on Sunday morning, October 23rd 4004 BC! This 'fact' was actually printed in Bibles of the day! Darwin was saying that the earth was much older than that and all the animals were linked together in some way. He never said that we were descended from the apes - he thought that the higher apes and Man (not to mention the Archbishop of Canterbury) came from the primate stem and this was fairly recently.

In terms of a time frame I like the example of a two hour film of the earth's history and Man would only appear on the very last frame for a brief interval. The Dinosaurs ruled the earth from 245 to 66 million years ago - that is about 180 million years - and yet all we have left of them is a few fossils. Man is very much a newcomer and has only been around for about the last five million years but he has already made changes to the earth that are quite staggering and may even be terminal.

The end to the Darwin publication saga was in 1860 when the British Association met at Oxford University. The clergy were ready to do battle and they were going to confront Darwin at some point during the meeting. Darwin didn't attend because he was 'ill' and his friend T.H.Huxley was there to defend him. Bishop Wilberforce of Oxford (Soapy Sam) was the main opponent and he finally turned up with all his retinue. He spoke very critically of Darwin and finally turned to Huxley and asked him if he was descended from a monkey on his mother's side or his father's side. Huxley replied that he would much prefer to be descended from an ape than from a man who prostituted the gifts of culture and eloquence to the service of prejudice and falsehood! The students (of course) clapped and applauded and there was uproar. Insulting the clergy in 1860 was simply not done.

It was at this point that a man stood up waving a Bible saying that he had warned Darwin all those years ago where his ideas would lead him. This was no less a person than Vice Admiral Fitzroy late of the Beagle. He killed himself by cutting his throat in 1865 allegedly because of Darwin. What a story - but we must move on to what it all means and what it has to do with ARM and the stock market.

Darwin's Theory of Evolution is basically the survival of the fittest. Darwin realised that animals must struggle to survive and that only the fittest do so. The giraffe with the slightly longer neck can eat leaves from higher up the tree and therefore survives when times are hard and gets to sire the next generation of giraffes - all with longer necks. The advantages of being an elephant are fairly obvious - they are BIG - and the cheetah can touch 60 miles an hour in a chase so why are animals like these not the dominant animals? The answer is because they got it wrong - and Man is the dominant animal because he got it right. How did he manage to do this given the competition?

Once the dinosaurs were out of the way there was a chance for evolution to have another go and create a new animal. We mustn't get involved in the arguments about how Man developed upright stance, opposing his digits etc etc but he did. The essential thing is that this new animal was adaptive and not adapted. What Man had was a kit of parts and he could make them suit any need. The dinosaurs were superbly adapted to their environment but when it changed they were sunk. I favour the meteor strike theory - the Gulf of Mexico looks very much like a meteor crater to me! The ensuing nuclear winter wiped out the dinosaurs and gave evolution another chance to develop another animal to replace them and the result was Man. I must say to all you ladies that I am not excluding you when I say 'Man' but this is how the human animal has always been described before women's lib. It was the adaptability of Man that gave him the edge - he has been able to live and survive on the sea, under the sea, on the land, in the Arctic, in the desert, in the jungle, on the moon - he could even live in cities like foggy London. This was now a runaway effect and it was just a matter of time before Man took over the world. And he did!

It would seem that the essential nature of how things are on planet earth is that they are Darwinian. This idea applies to so many things that it becomes an almost universal theory that we cannot repeal or ignore. Why Karl Marx wanted to dedicate his book to Charles Darwin I cannot imagine - Communism is essentially anti-Darwin and doesn't work. The American society is essentially Darwinian and does work and that is why it has become the most powerful society the world has ever seen. It would seem that Man and the earth cannot do without Darwin and all our best systems seem to conform to his theory and confirm his theory.

If you had been able to view evolution over the last five million years do you think you could have spotted the developing human animal as the potential winner? If you had seen this hairless ape-like thing doing the best he could and living on the foreshore would you have been able to foretell his future? AND this brings me to the stock market!! At last!!

Picking a company and a share that will do well is essentially about evolution and survival. Get one thing straight - the stock market is Darwinian. Evolution is always in context and changes do take place over time - very much like the demise of the dinosaurs and the rise of the human. We have been through the 19th century and seen the rise of the dinosaurs and I believe we are about to see them fall. We are in a very interesting period of change and it is very similar to the evolution of Man.

We are moving, willy nilly, into an electronic age and all the old parameters by which investment was assessed must be reassessed. Forget P/E ratios, earnings per share, dividends and the rest. Go with the companies that are not dinosaurs and have a flexible, human adaptability. ARM is one such. Stay away from M&S! It is a dinosaur and fully adapted to a 1950's environment that has gone. It is in deep trouble and will stay in deep trouble - along with many other similar companies like BA.

ARM is typical of the modern company in which the informed, astute investor should place his loot. They don't make anything - contrary to some statements in the Motley Fool recently. They have IP - intellectual property. They can be quick on their feet when things change, they have a small infra structure and they can become essential to the rapidly developing world of electronics. This is where your money should be. The guessing game is to spot the next ARM - will it be E14? I have pushed the whole of our portfolio towards telecoms, drug companies and firms like ARM. It seems to be successful because we are beating the Footsie by at least 19%.

I rest my case. In the not to distant future I will pen something on entropy and the arrow of time to further support my thesis. I bet you can't wait!

My Regards, Calidor.

PS What have you Yankee folk been doing to Nasdaq and the ARM share price?