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(B)(N) DIS Walt Disney Company

January 7, 2013

Deal Book. The Walt Disney Company is one of the nine companies of the thirty companies in the Dow Jones Industrials that made it into the Quintessential Perpetual Bond™ last year and it is still there at the beginning of this year (please see our recent Post, What’s a girl to do?, January 2013 and Exhibit 1 below). In review, the stock price was up +26% in 2012 and the company also paid a dividend of $0.75 per share or $1.3 billion to the tens of thousands of its shareholders for a current yield of about 1.4% which, of course, we’re glad to take and is marginally comparable to inflation and helping us to keep the value or worth of our money.

What else should they or could they do for us? We ask the question rhetorically because the stock price today ranged between $50 and $52 and closed at $51 and although the headline news of the day was somewhat negative – which is what caught our attention – Reuters, January 7, 2013, Exclusive: Disney looks for cost savings, ponders layoffs – the news, on balance, had no effect and it had no effect on our portfolio either even though nearly ten million or $500 million of its shares changed hands today. In other words, some investors were willing to pay $52 for the stock (but not for long) and no investors were willing to sell their stock for less than $50.

Our estimate of the current downside due to volatility is minus ($4) and our estimate of the Risk Price (SF) is $43 or more than $7 below the current stock price (please see Exhibit 1 below) which indicates to us that the stock is trading as an “economic free good” (please see our Post, The Price of Risk, August 2012) and the expectation of the investors who are holding it at $50 or more is that the “price of risk” will eventually rise to that level rather than the stock price fall to it (please see our Post, The Nash Equilibrium & Its Stock Price, October 2012).

Exhibit 1: (B)(N) DIS Walt Disney Company – Risk Price Chart

(B)(N) DIS Walt Disney

Walt Disney Company is a diversified worldwide entertainment company with operations in five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive.

(Please Click on the Chart to make it larger if required.)

Of course, we don’t know the future but we can buy it for $1.10 per share because the April put at $50 costs $1.70 per share today and the short or sold call at $55 sells for $0.60 per share so that for a net cost $1.10 per share we can be guaranteed that our stock will be worth no less than $50 and no more than $55 for the next four months while we wait, collect our dividends, and see how the future of other investors unfolds.

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®™ 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*.

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