(B)(N) AMD Advanced Micro Devices Incorporated

Drama. Analysts are again in a “tizzy” over the future stock price of AMD Advanced Micro Devices. The issue is not whether we should buy it or sell it but how should we “weight” it – should we “underweight” it to avoid the loss of alpha, “overweight” it for more alpha, or just keep it at the market weight (no change) whatever that “weight” is in our portfolio (The Street, October 18, 2013, Advanced Micro Devices (AMD) Suffers on Weak PC Demand).

In counterpoint, there’s no suggestion of extraordinary speculative gains or losses, although anything could happen. There might be a takeover offer or the markets or customers for its products might vanish in the commodities market for micro-processors that compete with or substitute for the Intel dual- and quad-core chips. Institutional interests are pro forma and it takes about twenty of them to get to the 30% ownership position and another one hundred to get to 40%. The Vanguard Group Incorporated has (or had) the largest position with 40 million shares and a 6.7% interest.

In a replay of what happened to Micron Technology Incorporated last week (which is still trading at $17 down from $18 to $18.50), three well-regarded analysts said “underweight” or “neutral” and one said “sell now” (ibid, The Street) and on the strength of that 14% of the stock (100 million shares) changed hands today and the price dropped from $4 to $3.50 in after hours trading and it’s now trading at about $1 off its July prices of $4.50.

And way below the $8 price that we last sold it in March 2012. Please see Exhibit 1 below.

Our One Rule is that we will buy and hold any stock for no other reason than it appears to be trading at or above the price of risk. And otherwise not. And we always protect the stock prices that we have against “surprise” by buying the put on our long position, or setting a stop/loss based on the demonstrated stock price volatility, but we always have a sell price in mind which is below the current stock price and not above it as long as the stock appears to be trading at or above the price of risk. (For more information, please see our recent Post, The RiskWerk Company Glossary.)

What? You measure “Heat” you say?

The reason is that stock prices above the price of risk are a “free good” in economic terms. Investors who are willing to buy and hold the stock at those prices demonstrate a relaxation of uncertainty and have reason to believe – whatever the reason is, it’s their reason and we’re not judgemental – that the stock has the dual attributes of being “as good as cash and better than money” meaning that they expect, and have reason to believe, that the stock will hold its value in real terms and, therefore, has a fair chance of obtaining a hopeful but not necessarily guaranteed return above the rate of inflation which makes it better than money as cash.

We can make that assertion because the “price of risk” is (provably in economics and mathematics) the stock price that resolves the Nash Equilibrium between “risk seeking” and “risk averse” investors and we can say that stock prices above the price of risk demonstrate an excess of demand over supply and, vice versa, stock prices below the price of risk demonstrate an excess of supply over demand.

Heat at Low Temperature and possibly Low Demand

We can also say, within that paradigm, that the “price of risk” measures “heat” whereas volatility-based measures such as the Sharpe Ratio of volatility adjusted returns, measure “temperature” which is to say, in terms familiar to Mr. Graham, the price of risk is a “weighing machine” whereas the volatility-based measures (including the Capital Assets Pricing Model) are “voting machines”.

Case in point, Advanced Micro is presently trading below the price of risk which we summarize as the Risk Price (SF) of $4.50 at the present time, and the demonstrated volatility in the stock price is minus ($1) so that as far as we’re concerned it could be trading anywhere between the current $3.50 (say) and $3 to $4.50 without surprise and, in any case, we’re not buying it for less than $4.50.

That’s the weight of it.

Anything below that is “under weight” and anything above that is “over weight”.

Exhibit 1: (B)(N) AMD Advanced Micro Devices Incorporated – Risk Price Chart

(B)(N) AMD Advanced Micro Devices Incorporated

Advanced Micro Devices is a semiconductor company with manufacturing, research and development, and sales and administrative facilities throughout the world. It provides processing solutions for the computing and graphics markets.

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

From the Company: Advanced Micro Devices Incorporated operates as a semiconductor company worldwide. It operates in two segments, Computing Solutions and Graphics. The company designs, develops, and sells microprocessor products, such as central processing units (CPU) and accelerated processing units (APU) for servers, desktop PCs, and mobile devices. Its microprocessors for server platforms include AMD Opteron 6000, 4000, and 3000 series processors; APUs for mobile PC platforms consist of performance mainstream AMD A-Series APU, the AMD E-Series APU for everyday performance, the AMD C-Series APU for HD Internet experiences in small form factors, and the AMD Z-Series APU for Windows-based tablets; and CPUs for mobile PC platforms comprise the AMD Phenom II mobile processor, AMD Turion X2 mobile processor, AMD Turion II mobile processor, AMD Turion II ultra mobile processor, and AMD Athlon II processor. The company’s APUs for desktop PC platforms primarily comprise the AMD A Series APU and the AMD E-Series APU, second generation desktop AMD FX processors, and AMD A-Series APUs for mainstream desktop platforms; and CPUs for desktop PC platforms include AMD FX processors, AMD Athlon II processors, and AMD Sempron processors. Advanced Micro Devices, Inc. also offers embedded processor products for vendors in industrial controls, digital signage, point of sale/self-service kiosks, medical imaging, set-top box, and casino gaming machines. In addition, it provides chipset products with and without integrated graphics processors for desktop PCs and servers, and AMD controller hub-based chipsets for its APUs; and graphics, video, and multimedia products for use in desktop and notebook computers. The company serves original equipment manufacturers, original design manufacturers, system builders, and independent distributors directly, as well as through independent distributors and sales representatives. Advanced Micro Devices Incorporated was founded in 1969, has 10,000 employees and is headquartered in Sunnyvale, California.

For more information on the Chart Elements, please see our recent Post, The RiskWerk Company Glossary.

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 action, La 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 or Earnings Don’t Matter – NASDAQ 100.

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*.