(B)(N) The NASDAQ 100 “Ghost Riders”

Drama. There are currently eighty companies in the Nasdaq 100 that are in the Perpetual Bond™ now, but nearly all of them have been in the Perpetual Bond™ since September of last year and we bought another twenty-five of them early this year (please see Exhibit 1 and 2 below).

Nasdaq 100
“The Ghost Riders”

We call them the “Ghost Riders” because the leveraged portfolio (using only the margin account) has returned +124% (plus dividends) so far this year. And if we do nothing else but set the indicated stop/loss prices for these eighty companies, we might lose 11% of that, but then only if the market goes up in flames, so to speak.

But, it also means that if we bought them today for the indicated price of $6,277,000 (1,000 shares of each), we should not be surprised at any price for the portfolio between $6.9 million (+11%) or $5.6 million (-11%) absent a policy of buying puts or tightening up our stop/loss prices to something that we might willing to lose if we can’t protect the price. On the other hand, we only paid $2.8 million for most of the portfolio in December, so we could probably afford to use some of our profits or dividends to protect the rest.

There are also other ways to deal with the portfolio. For example, there’s no advantage to “cap weighting” the portfolio to somehow follow the Nasdaq Index itself, which is only up +15% this year. However, if we had decided to spend an equal amount of money on each stock, so that the number of shares varies, then the return would be the average of the returns of the stocks, which is +39% (please see Exhibit 2, CHG column).

A Good Position
$65 Billion

Moreover, $6 million, or $80 million, is “petty cash” because the current market value of all of them is $1.8 trillion, and we could take a “position” of 5% of all of them for $90 billion without any “paper work (SEC 13d)” although the same “position” would have cost us only $65 billion in December.

Exhibit 1: (B)(N) The Nasdaq 100 “Ghost Riders” – Cash Flow – August 2013

(B)(N) NASDAQ 100 Ghost Riders – Cash Flow – August 2013

(Please Click on the Chart to make it larger if required.)

Exhibit 2: (B)(N) The Nasdaq 100 “Ghost Riders” – Portfolio – August 2013

(B)(N) NASDAQ 100 Ghost Riders – Portfolio – August 2013

(Please Click on the Chart to make it larger and again if required.)

There are two other reasons that we call these stocks the “Ghost Riders”.

One reason is that even if we’re sold out at the stop/loss price, these companies could still be in the Perpetual Bond™ and we’d have to think about buying them back, at a lower price, if the ambient stock price, Stock Price (SP), continues to be above the price of risk, Risk Price (SF). Please see Exhibit 2.

There are also ten other companies that are currently in the Perpetual Bond™ but could be knocked out by volatility because the stop/loss price is less than the Risk Price (SF). These include such heavyweights as Google (+20% this year), Qualcomm (+40%), CME Group (+40%), Cerner (+18%), and Applied Materials (+30%).

The other reason is that nearly half of them are up in excess of +30% this year; only about half of them pay dividends; and some of them are up +400% (Tesla Motors), +200% (Netflix and Softbank), +100% (Green Mountain Coffee, Ctrip, and Red Robin Gourmet Burgers), and another dozen or so are up +50% this year.

To us, that’s amazing and no amount of investment punditry will be able to explain that for eighty companies for which anything and everything is possible.

For example, if we had bought $70,000 worth of Tesla Motors stock in December, we could buy five of their cars today, while we’re still waiting for the first one, and a place to juice it up.

And they will also need explain why the rest have turned in such a dismal minus (-2%), in aggregate, or average (+16%), with a current market value of $400 billion in about thirty companies including Angie’s List (+74%), Groupon (+100%), and BlackBerry (-12%).

For more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or for the real class action, La Dolce Vita – Let’s Do Prada!

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*.