(B)(N) Make A Wish – Alibaba et al

Make A Wish

Drama.You can check the daily news for more details but it’s very confusing as hedge funds and activist investors are dropping like dominoes, oil is cheap and getting cheaper, and the government isn’t going to pay us any more money for the use of our money in a deflationary or low inflation economy – and, anyway, the portfolio that we want today is not any of those but is on-line and connected and it’s being built right now by “The Millennials” who are finding new ways to buy things and new things to buy.

So we want to take a look at the on-line retailers and consumer services (e-commerce) and try to figure-out when they’re going to make money and what the investors on Wall Street – who really don’t know what to buy anymore – will pay for it when they do (Reuters, February 26, 2016, Alibaba in talks with several banks for up to $4 billion loan: WSJ).

Make A Wish

The twenty (21) companies in our make a wish list have nearly no fixed assets or inventory (with the exception of Amazon.com ($10.2 billion) and Netflix ($3.1 billion)) but the return on the shareholders equity (the net worth) was 17.3% last year – which seems to make them worth owning – and they earned $27 billion but gave almost none of it to the shareholders – the current dividend yield is 0.21% (21 basis points) and the payout rate for the earnings is only 8.5% or 2.9% when weighted by their market values.

But that’s not all. Their aggregate market value is currently $1 trillion and that’s up +80% since 2012 ($600 billion) and they’re currently trading at a 12% discount to their values as recently as December and early January this year.

And the really big news is that the (B)-class portfolio in these same companies returned +260% since 2012 and more than tripled our money in just a few years and that can make a lot of wishes, and a lot of dreams, come true if we can just keep on doing that. And why not?

The “secret sauce” is that we know what we want – we want 100% capital safety guaranteed and we want a hopeful but not necessarily guaranteed return above the rate of inflation – and we know how to get it.

Risk? What Risk?

We’ll talk about this in another Post “Dear John (and goodbye to all that)” but the capital markets, like a good business, are worth a lot more than the 7% or 8% per year that investors and our pension funds don’t know how to get and can’t seem to find, but in the meantime we can just run the (B)-class portfolio in any market – up or down or middling and indecisive like this one – and expect to get our double-digit returns without any real trouble at all; please see Exhibit 1 and 2 below for more details.

In Exhibit 1, we’ll talk about the fundamentals and the special characteristics of this market in the e-commerce companies and in Exhibit 2, we’ll have to figure-out what to do because there are only four of them in the (B)-class portfolio right now, and we’re heavy on cash; please click on the exhibits and again to make them larger as required.

Exhibit 1: Make A Wish – The Fundamentals

Figure 1.1: Make A Wish – The Fundamentals

Exhibit 2: Make A Wish – The (B)-class Portfolio and How To Run It

Figure 2.1: Make A Wish – The (B)-class Portfolio and How To Run It

For more information and examples of the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and 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, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And 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 on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, 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®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ 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*.