Drama. Deluxe Corporation has been designing and making our checks for more than 100 years and (like IBM which also started at about that time as a “card counter”) is the silent partner of thousands of banks, credit unions, and small businesses throughout the World.
The stock price has more than doubled from $30 in 2012 to the current $66 in three years and it has been brought to our attention that there might be some “downwards pressure” on the stock price because of investor “uncertainty” that has been discovered by the dreaded “head & shoulders top” and a declining Relative Strength Indicator (RSI = 100×RS/(1+RS) where RS is the ratio of the average of the closing prices on up-days to the average of the closing prices on down days) (TheStreet, May 22, 2015, 5 Toxic Stocks to Sell Now).
Deluxe Corporation is currently in our NYSE portfolio because at $66 it’s trading above the stop/loss ($61) and it is also well above the “price of risk” ($44; please Exhibit 1 below for more details) and in this situation of life-changing possibilities with an unpredictable outcome, we have implemented our usual policy – do nothing and let the market work it out because that’s what we’re waiting for.
Indicative But Not Actionable
The “technical indicators” are indicative of a “situation” (there’s a “yellow” light) but they are not actionable because they can’t predict the outcome and are usually hedged with many “ifs” regarding the circumstances.
However, it’s possible that a lot of investors with more or less money will respond to them and run their investments that way by selling or shorting the stock (which contributes to the outcome); hence, respecting that possibility, we could raise our stop/loss price to $63 noting that the demonstrated downside volatility in the next three months is about 7% of the ambient price and most of that has been due to price increases rather than price declines that would sell us out.
But, on balance, the institutional investors will decide what the stock price is today and their motivation is unclear until they do it and most times (absent a market “event”) it’s in response to a profit-taking opportunity or necessity due to liquidity concerns which are not predictable on a day-to-day basis.
In the case of Deluxe, five institutions own more than 20% of the stock and ten own more than 30%, and they’ve been doing some “profit-taking” recently; please see the chart on the right which also summarizes the “technical” indicators.
On the other hand, we have shown that the aggregate market value of an entire market (such as the NASDAQ 100) tends to be “random” on a uniform distribution in which one value is neither more nor less likely than any other within the range of the demonstrated minimum and maximum prices over some reasonable time interval (such as the last 20 to 90 trading days) so that a “blip” on the radar could be meaningful.
However, none of the”blips” in these alleged “5 toxic stocks (ibid, TheStreet)” are meaningful as predictors of their future values – they exist only as “shadows” for something that was or might have been there before but for which it’s too late to do anything if we’re unprepared and don’t know where we are and don’t know the “price of risk”; please see Exhibit 1 below (and click on it and again to make it larger as required).
Exhibit 1: Toxic Stocks & Random Prices
For more information on 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.
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™
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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.
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*.