Drama. When the bulls and the bears are fighting it out and the market is stoned and looking for cover, that’s a good time to steal the honeypot (Reuters, August 25, 2016, Ackman approached to buy Herbalife shares owned by Icahn and then Bloomberg, August 25, 2016, Icahn Buys More Herbalife, Denying Claim He’s Selling Stake).
And that’s what we did with just a “stock chart, a ruler, and a good eye” because during all of that time and drama since 2012, our money on the stock Herbalife in the managed (B)-class portfolio was as good as cash in the bank – 100% capital safety – but better than cash in the bank because we’ve now got a lot more of it, more than +300% more of it and we’ve quadrupled our money (back to back doubles, in street talk) with no risk at all, and we’ve earned an average of 35% per year during the dust-up, and we still own the stock, and we’re waiting now for the final throw, which we’ll discuss below.
The Market Paparazzi
Investors such as Mr. Ackman and Mr. Icahn can create a new market inefficiency because of the amount of new money and noise that they can throw at a stock price, and they know that because otherwise they would keep their own counsel and do what they will with their own money and not ours.
For example, Mr.Ackman has a $1 billion short position on the stock and wants the stock price to go down, even to zero, whereas Mr. Icahn has a long position of about 20% of the stock and, therefore, does not want the stock price to go down if he can’t acquire all of it at a lower price.
But we’re not disturbed by that because we know that no matter what the “stock price” is today, the rational and efficient “stock price” is the “risk price” and that’s the only one that we really need to know in order to establish an effective arbitrage on the stock price made better while it’s in play.
Moreover, the fundamentals suggest that this company should be privately owned and not have a “stock price” at all; please see Exhibit 1 and 2 below for more details (and click on them and again to make them larger as required).
Exhibit 1: If you’re tired of “weight loss” in the stock market, try the arbitrage – Fundamentals
Exhibit 2: HLF Herbalife (B)-Class Portfolio – Cash Flow Summary
For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel, Green Energy and The Coal War; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that.
And 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.
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
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.
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*.