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They will be right. But not today.

September 19, 2013

Drama. Pundit after pundit is doing the “granny thing”, wringing their hands over high valuations – such high PEs, tut, tut – and such high prices in the absence of earnings – my, my (The Street, September 19, 2013, Cramer: This Market’s the Smarter Fool Theory and Kass: The Default Bull Market).

They will be right. But not today.

They will be right. But not today.

Undoubtedly, they will be right, but not today.

And pending that time, which will be right, we need to take care of business and tidy-up our stop/losses and buy some puts for longer term holds to protect the prices that we have.

And will we buy at “high prices”? Absolutely.

Because we are “investment consumers” which means that we have to buy risk, which is the possibility that we might not get our money back or fail to obtain a hopeful return above the rate of inflation.

The Value of $1 Since 1776

The Value of $1 Since 1776

And we also know that if we are not prepared to buy risk, then it will buy us. So we need to buy only “high quality risk” which might be described as risk that will last, and risk that we can manage, not just the daily ups and downs of stock prices that we provably can’t manage.

We can summarize our strategies in just a few words. Volatility is not risk. “Risk” (ibid the above) is the possibility that we might not get our money back or that we might fail to obtain a hopeful return above the rate of inflation. An investment is just and only the purchase of risk, and like any other purchase that we might make, we ought to know the price of it, that is, we ought to know the price of risk.

The price of risk that we calculate and summarize as the Risk Price (SF) is complicated and we have demonstrated that the price of risk respects “the societal norms of risk aversion and bargaining practice” and the invariable portfolio successes in all markets that we have demonstrated in real time, affirms that we do “respect the societal norms of risk aversion and bargaining practice” of which the so-called bull- and bear-markets are symptoms, not causes.

We’ve also shown that simpler principles that respect the same rule – buy quality risk such as buying and holding only stocks with high PEs and protecting the prices with stop/losses and buying puts (out of profits) – is also an effective policy on a portfolio basis, as is buying the entire market, company by company. Please see our recent Posts on Earnings Don’t Matter (the Dow) and Earnings Don’t Matter – NASDAQ 100, for further examples and references.

Expect a Miracle

Expect a Miracle
San Judeo Dommatina

All of this runs against the “poor boy” notion that we need to buy “bargains”, companies with low PEs, for example – a real “steal”, they say, just wait – and the “poor boy” notions of the academics who are not investors – they’re academics and economists and still studying the problem – but are unduly impressed by the “volatility” of stock prices (my, my) and large market movements that they can’t predict (tut, tut).

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 (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks.

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*.

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