The Street

Drama. The Street, which is hosted by Jim Cramer and his team of talented analysts and commentators, is (in our view) the best and most comprehensive source of market-making ideas and issues for investors. There’s a new idea every day and they’re not afraid to take their lumps and bumps, whatever the case may be.

Courtesy: The Street

We critique them all the time in these Posts – and we hope in a nice way, that is, objectively – because we appreciate them as “risk seeking” and “risk taking” investors, whereas as we are the opposite and “risk averse”.

But both kinds or types of investors are required in order to make the market and, therefore, the capital market, and there’s not much difference between them.

“Risk seeking” investors are willing and can afford to accept a possibly negative real rate of return in the hope of excess real rates of return, that is, above the rate of inflation.

“Risk averse” investors also hope for a positive real rate of return but will not or cannot accept a negative one, and are aware of that.

Wikipedia: Caravaggio, The Cardsharps, 1594

And then there are the others, those who are proactively neither “risk seeking” nor “risk averse” and may be called “gamblers”, or “reckless”, because they don’t really know what they want, and they will take what they get, even if it ruins them.

In our view, gamblers are the enemy. And we have an antidote called The Wall Street Put.

For more information, please see our Posts, Stock Prices Are The New Pink and Bystanders & Collateral Damage.

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2006) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.