Skip to content

(B)(N) RIG Transocean Limited

January 16, 2013

Drama. We should not expect to see farther or do better in our investments by merely standing on the shoulders of billionaire investors however gigantic and well-earned their fortunes are (Businessweek, January 14, 2013, Transocean Says Icahn Acquired 1.6% of Shares, Seeks More). Not everyone agrees with that view – and the press is buzzing about new opportunities in activist investing – but seldom do we see a confluence of billionaire investors, do we.

Transocean is presently a $20 billion company but it was a $50 billion company in 2008 and a $30 billion company in 2010 and investors are no doubt relieved that Transocean has agreed to pay (only) $1.4 billion in penalties for its role in the 2010 well-head explosion and oil spill in the Gulf of Mexico, the worst such U.S. maritime disaster ever, that killed 11 workers, destroyed the Macondo well and spewed millions of barrels of crude oil and mud into the Gulf of Mexico. The nominally Swiss company (which, after all, is land-locked and has no ocean frontage) has seldom paid dividends since 2002 ($0.03 per share) and doesn’t now but it did pay $3.16 per share or $1.1 billion in dividends for a short time in 2011 and early 2012 as the stock price cratered again from $80 to $45 (please see Exhibit 1 below). In the absence of dividends, we can only make money by buying and selling the stock to each other and it means nothing to the company absent a takeover or shareholder control initiative at low prices.

The current Risk Price (SF) is $51 and the current stock price is $45 to $55 with a downside due to volatility of minus ($5). We’re not buying it but if we were we would also buy the May 2013 put at $53 for $2.95 per share and partially offset the cost of that with a short or sold call at $58 for $2.00 per share so that for a net cost of $0.95 per share ($2.95 less $2) we can play this out for the next five months at no less than $53 a share and no more than $58 per share (absent trading in the options). But, why?

Exhibit 1: (B)(N) RIG Transocean Limited – Risk Price Chart

(B)(N) RIG Transocean Limited

Transocean Limited is an international provider of offshore contract drilling services for oil and gas wells.

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

Last year’s Perpetual Bond™ in the S&P 500 NYSE companies returned +20% plus another 2% to 3% in dividends (please see the Total Line in Exhibit 2 below) in contrast to the full market (Companies Line) or index returns (Index Line) of +14% and +12%, respectively. And we know exactly how that was done and can do it again and again and again and as long as there is at least some “economy” going on somewhere.

Exhibit 2: S&P 500 NYSE – The RiskWerk Company Perpetual Bond – Cash Flow

S&P 500 NYSE - Cash Flow

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

The Cash Flow Chart is our standard chart and has been described in many of our Posts. For example, the above Chart shows that we invested $9,634,000 in late December 2011 and early January 2012 by buying uniformly blocks of 1,000 shares in 176 companies (as opposed to $18,420,000 if we had bought similar blocks in them all). The market Perpetual Bond™ is an actively managed portfolio of stocks and our buying and selling activity is shown in the monthly Count, Buy and Sell lines. At the end of December 2012, the portfolio was worth $13,612,000 with 235 companies in it and a margin account (optional) of $2,057,000 for a net Total of $11,556,000 should we chose to retire the margin account. The portfolio obviously “scales” in the $11 trillion market of the S&P 500 NYSE and $10 million could just as well have been $100 million or $100 billion without creating any waves, so to speak.

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*.

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: