(B)(N) The Delivery Warriors – Amazon, Alibaba and JD.com

Cold enough for you?

Drama. The stock market has become a cold place for our money, new or old, because there is much more money in it (invested, they say) looking for an income than there is income.

For example, the aggregate payout rate of dividends from earnings has increased to more than 50% of the earnings in the US and Canadian markets and even 70% in the euro, and for much more in some cases by company, to maintain meager dividend yields in the 2% to 3% range.

But that also means that the companies are retaining less of their earnings to finance their production facilities, new product development, future growth, and their inventory.

In contrast, the market value of Amazon, Alibaba, and JD.com which produce delivery is up by more than 50% this year and they are currently trading with a [P/E]-multiple of 120× for a market yield (the inverse of the [P/E]) of less than 1% (80 basis points) and they don’t pay any dividends at all.

Amazon Drone Delivery

However, if the companies can’t produce fast enough and they don’t have the money to produce faster or build-up their factories and inventories, then they will have to choose to whom they will deliver first – will it be Amazon, Alibaba, or JD.com – for the same scarce goods delivered to you. And the delivery warriors might have to choose which company they buy next or lose the race from the plant to the inventory to your doorstep, driveway, or even to your front yard.

And if the market doesn’t make any sense in the race for our money, we need to take special care that we do.

The Delivery Warriors

It does not pay for us to be judgmental of the market of which we’re a part, or to wonder what helicopter they’re flying today, or what fumes they’re breathing, because they will tell us what they want to pay for the stocks that we own and our job is just to buy them at the right price – the risk price or the production price in this context – and then to wait patiently for that information to be delivered, so to speak.

The Market Delivers in the (B)-Class Portfolio

And as a consequence of that production and patient waiting, our (B)-Class Portfolio in these three stocks is up +725% since 2012 for an average return of 45% a year for five years and the long and short portfolio in this same market is up +875% for an average annual return of 49% per year and we can’t do any worse than that no matter what else the market delivers this year.

We should also note that we now have as much idle cash as when we started in 2012 and that the market bought and delivered the stocks in this portfolio for us and that they will never stop doing that because that’s how it works and they do have a lot of money in want of an income.

Please see the illustrations below for more information (and click on them and again to make them larger as required).

Exhibit 1: The Delivery Warriors – Fundamentals

Exhibit 2: The Delivery Warriors – (B)-Class Portfolio – Cash Flow Summary

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*.