The Amazon example was meant to introduce the constant value formula. It wasn't meant to be the whole system.
I agree that it would be pretty discouraging to have your account drop so much year after year, and I don't advocate having only one stock in your portfolio.
The philosophy of my system is that there is an edge in constant value rebalancing stocks over time because they fluctuate. They don't necessarily cycle between 2 price points, or cycle at a constant frequency, but stocks fluctuate. My system is to buy and hold growth and value stocks, and use constant value as a pump to generate extra cash from the "tidal" movement of the stocks. Like a casino has table limits, I want to either use ETFs or a multi-stock portfolio to guard against being wiped out - so my edge can build excess return over time.
Just some things to keep in mind:
1. I chose AMZN from 2000 because it was the WORST possible time to buy the stock. I wanted to show how constant value investing can self-correct the initial purchase. In practice, I try to buy positions that aren't overvalued and would hope that I don't get too many situations like this.
2. On page 38, where I discuss the optional stop loss rule, I mention that it would have caused us to sell out of our AMZN position. In January 2001, it was trading at less than 1/2 the initial buy. So, at that point, if we were using the stop loss technique, we would have sold all the AMZN shares and bought $2000 worth of a replacement - say Ebay, Apple, or Microsoft, etc. In other words, you still rebalanced back to a $2000 position, it's just that it is a different stock.
3. On page 71, I state:
Diversify your holdings - It is foolish to put all your
money in one stock. If you do not have enough funds to
put at least $2,000 in 5-10 stocks, then avoid individual
stocks and stick with mutual funds or ETFs.
