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(B)(N) AMZN Amazon.com Incorporated

October 26, 2013

Drama. There’s only One Rule in investing and it is “Don’t lose your money”. That sounds so dumb that we need to say it again to be sure that we’re not misunderstood:

Your Deal

It’s Your Deal
Courtesy: Cassius Marcellus Coolidge (1844 – 1934)

The One Rule of Investing: Don’t lose your money.

Working then from the bottom up, we could just keep our money in our pocket or bank account (if we have one), or spend it, or buy government bonds.

But there’s a “gotcha” and it’s called “inflation” and at some times and in some locales as recent as a few years ago, “hyperinflation” but even the garden-variety “inflation” that’s required to foster growth and employment can do a lot of damage if we’re not growing too.

The Value of $1 Since 1776

The Value of $1 Since 1776

What we want then from our “investments” – and we’d better have investments or just stay at home – is a non-negative rate of return and if we’re going to beat inflation, we need a non-negative real rate of return.

And that’s where it gets to be tricky (The Street, October 25, 2013, Jim Cramer: Pattern That Plagues the Market and You’re Investing, Not Running the Company)

The Holy Grail

The Holy Grail

For a lot of investors, an “investment” is treated with the same piety as the search for the Holy Grail and they load up on equipment – value investing, index investing, balanced funds, emerging markets, the January effect, and so forth – but what they need and don’t have is a map and a compass because it’s easy to lose sight of the goal (don’t lose your money) when we have so much safety equipment that we don’t know how to use (or maybe it doesn’t work?). Please see Exhibit 1 below for our Map & Compass.

The map is easy to use. We just follow the Red Line Stock Price (SP) which is representative of ambient stock prices above (use the compass) the price of risk estimated by the Risk Price (SF), Black Line.

Using then the One Rule, we don’t want to lose our money and we’d like to obtain a hopeful but not necessarily guaranteed return above the rate of inflation, we elect to only buy and hold those stocks for which the ambient stock price appears to be trading at or above the price of risk which we estimate as the Risk Price (SF). So, it’s basically the Red Line (SP) above the Black Line (SF), and for no other reason.

As a result, we began buying the stock of Amazon.com at much lower prices of $200 to $225 two years ago and we haven’t sold it yet through the current $365. It’s also up +35% this year but we never know whether it will stay there or not.

Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($13) per share so it could be trading between the current $365 and $352 to $378 without surprise. But as we have often said, the market is full of surprises – something new every day, round any corner – so we’re careful to watch our stop/loss and sometimes buy puts to protect the stock in times of uncertainty.

Of course, being in the right place at the right time doesn’t help if nobody else wants to be there because the stock price only rises if there’s somebody else who wants to buy it from us. But not to worry, there seem to be a lot of investors who want to do that and we say, better late than never. Please see Exhibit 2 below for a timely wrap-up of our adventures in the stock market this year and some of our Posts for where we’re going to be next year.

Exhibit 1: (B)(N) AMZN Amazon.com Incorporated – Risk Price Chart (Map & Compass)

(B)(N) AMZN Amazon Incorporated - October 2013

(B)(N) AMZN Amazon Incorporated – October 2013

Amazon.com Incorporated serves consumers through its retail websites and focuses on selection, price, and convenience. The Company’s products include books, music, computers, electronics, home and garden, and numerous other products.

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

From the Company: Amazon.com Incorporated operates as an online retailer in North America and internationally. The company operates in two segments, North America and International. It operates retail Websites, such as amazon.com and amazon.ca, which include merchandise and content purchased for resale from vendors and those offered by third-party sellers. The company serves consumers through its retail Websites and focuses on selection, price, and convenience. It also offers programs that enable sellers to sell their products on company’s Websites, and their own branded Websites. In addition, the company serves developers and enterprises through Amazon Web Services, which provides access to technology infrastructure that enables virtually various businesses. Further, it offers Kindle Direct Publishing, an online platform that lets independent authors and publishers to make their books available in the Kindle Store; and programs that allow authors, musicians, filmmakers, app developers, and others to publish and sell content. Additionally, the company manufactures and sells the Kindle e-reader devices. It also provides co-branded credit card agreements, and fulfillment and advertising services. Amazon.com, Inc. was founded in 1994, has 90,000 employees and is headquartered in Seattle, Washington.

Exhibit 2: A Good Year To Be Working in America

Working in America

Working in America

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

For more information on the theory and references, please see our recent Post, The RiskWerk Company Glossary.

And 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 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*.

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