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(B)(N) Canada Days – The Uninvestibles

November 10, 2017
The Pump

Loonies Now!

Drama. Norway’s largest independent municipal pension fund, the Oslo Pensjonsforsikring (OPF), apologized for its return of 26.5% this year explaining that they really don’t know how that happened – just luck, I guess – and we shouldn’t expect that to happen again although their plan is to plough (their term) those gains into even more infrastructure investments in real estate and funds of other real assets (IPE Quest, November 8, 2017).

We’re in a similar situation now because the investors are still holding about seventy-five hot Canadian stocks that were trading for about $100 billion in 2012 when they bought them and they’re trading for $35 billion today – that’s a significant discount and we’re wondering when, not if, our 35 cents might buy back that whole dollar again because we just bought the common stocks of fifty-two of those companies with their dollar which we’re not giving back.

Come and get it, if you can.

Obviously, we don’t know the future, but there’s a lot to be learned by watching these companies fall-off their pedestals in case they might do it again next year.

The Uninvestibles

The Uninvestibles are seventy-five Canadian companies which each traded for under $1 billion in 2012 and were, therefore, deemed mostly “not investible” by the pension funds as too small and not worth the trouble to make enough money on them and, as above, they have an aggregate market value that started at about $100 billion in late 2011 and early 2012 which is only $35 billion today.

Last year’s revenues were $32 billion on which they earned $1.4 billion but lost ($9.8) billion for a net loss of ($8.4 billion) and, despite that, they paid $1.4 billion in dividends and their combined market value has still plunged 25% this year.

And almost all of these companies are in the resources industries which employ several hundred thousand Canadian workers; in 2012, they earned $2.5 billion on revenues of $46 billion and paid $2.3 billion in dividends that year and their debt burden is now $83 billion over a net worth of $52 billion and total assets of $135 billion which are trading at a significant discount.

It’s reasonable to think that some of these companies will go bankrupt this year and that their stock price will plunge to zero or that some will need to restructure their debt or default on their bonds or that some of these companies will recover to do well another day or that others will be acquired by other companies which are better-off and will buy these assets at a low price.

And, so, our situation today is even clearer than in 2012 from which the (B)-Class Portfolio has returned an average of 12% per year in the long portfolio and 25% per year in the long and short portfolio and we know exactly how to do that again; please see Exhibit 1 below for more of the grim details (and click on it and again to make it larger as required).

Exhibit 1 (B)(N) Canada Days - The Uninvestibles - Cash Flow Summary

Exhibit 1: Canada Days – The Uninvestibles – (B)-Class Portfolio

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 actionLa 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 AmericaBig OilShopping 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*.

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