Blowing Bubbles on Wall Street

Drama. In our view, there is only one issue in making an investment and it is, Are we likely to get our money back? And a reflective turn of mind will also suggest, Are we likely to get our money back when we need it and adjusted for inflation so that it has the same spending power then as now. That is, we want 100% capital safety, 100% liquidity (depending on our needs for money) and a non-negative real rate of return (which is just another way of expressing “will we get our money back”).

Go ahead, make a Wish!

That seems like a modest goal but it is also fair to say that most investors by number but not necessarily by capital, will not achieve that goal because they fail to ask that modest question.

What they have in mind is getting rich, getting richer or staying rich and the “market” does not discourage that view.

But the market does not give us 100% capital safety and a hopeful return above the rate of inflation. If they knew how to do that, they wouldn’t sell it to us.

What they give us is the promise of volatility and the risk/reward equation which have nothing to do with that modest goal except by chance.

And there is a rising clamour for “bubble-mania” now based on the view that corporate earnings and projections of earnings don’t support these prices and can’t support them in the longer term, such as this month (The Street, November 19, 2013, Kass: Flawed Case for a Bull Market and CNBC, November 18, 2013, US stocks end mostly lower; Dow below 16,000 on Icahn’s bearish talk).

Please, please, blow us a bubble!

We laugh at that because that’s funny and it will be not be funny only if we make it so by selling our stocks to run for cover.

The Smart Funds, for example, did not sell at the bottom of the market in 2008 and early 2009. They took their “paper losses” but bought more stocks at low prices if they had any money.

And so it is now. The markets could go down as much as 10% in the next several months based on the demonstrated volatility of the past year and the emerging “wish list”, so we’re making sure that our stop/losses are effective and we’re buying puts from profits and dividends in order to protect what we’re sure we want to keep.

And please, please, blow us a “bubble” so that we can buy more of your good stocks at even lower prices! Please see Exhibit 1 below.

Exhibit 1: Aggregate Market Returns – November 2013

Aggregate Market Returns – November 2013

For more information and additional references to the theory, 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 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.

And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

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*.