(B)(N) What’s A Girl To Do?

Buying High Selling Low Courtesy: Investment Company Institute

Drama. The Senior Economist at the Federal Reserve Bank in St. Louis has noted that mutual fund investors have tended to “chase returns”, typically, buying high and selling low (Business Insider, July 6, 2014, An Obvious Psychological Mistake Is Costing Investors A Fortune).

The other approach is better – buying low and selling high – but nobody knows how to do that, and the long-time leader of The Vanguard Group, Jack Bogle, has suggested that consumer investors should just buy a balanced fund and not bother to look at it until they are ready to retire (P&I DC Digest, June 23, 2014, Jack Bogle: Don’t look at DC account balance until retirement).

However, there’s scant reason to buy any mutual funds because anybody can just buy and hold the thirty companies of the Dow Jones Industrials, or the twenty companies of the Dow Jones Transports, or both, and not do anything else, except spend or re-invest our dividends, and maybe pull-down some profits now and then.

The “Fundamentals” are transparent and unless we know how to get +15% returns on our savings and somebody who is going to give us 40% of their very substantial income every year, that seems like a reasonable “starter” policy at any time, even now; please see Exhibit 1 below (and click on it, and again, to make it larger if required).

Exhibit 1: The Dow Jones Industrials & Transports – Fundamentals – July 2014

The Dow Jones Industrial & Transport Companies – Fundamentals – July 2014

Figure 1.1: (B)(N) The Dow Jones Industrial Companies – Market Value – July 2014

Figure 1.2: (B)(N) The Dow Jones Transportation Companies – Market Value – July 2014

The market value of the Dow Industrials has grown by 14% per year since 2011, and the Dow Transports by 22% per year, and those values are saved by the stop/loss prices which have grown at the same rate; please see Figure 1.1 and Figure 1.2 on the left.

Only “weeds” grow at those rates, indefinitely, and these aren’t weeds.

The Perpetual Bond™, however, is fully-loaded in both groups of companies, currently holding all thirty of the industrials and all twenty-one transports (excluding only KSU Kansas City Southern in the first few months of this year).

But we have no fear because the stop/loss will save what we have, in cash or stocks, and a market swoon will just create new buying opportunities at lower prices as long as there are still companies that are trading at or above the price of risk.

And there always are, somewhere, because the money that the market has “let go” and “left behind” in a fit of anxiety, has to go somewhere. Thank you very much.

Safe, Liquid, and Hopeful.

For more details please click on the links (and again to make them larger if required) “The Dow Jones Industrial Companies – Prices & Portfolio” and “Portfolio & Cash Flow Summary“, and “The Dow Jones Transportation Companies – Prices & Portfolio” and “Portfolio & Cash Flow Summary“.

For more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more information on real “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary; we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for.

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*.