(B)(N) MDI Major Drilling International Incorporated

Drama. Major Drilling International is one of the world’s largest drilling service companies in the global mining industry. In capital terms, they are mid-sized and mid-cap with total assets of about $1 billion and net worth of about $500 million, a market capitalization of about $1 billion at the current prices and annual sales which are volatile but also of the order of $1 billion on five continents.

Despite all of that, we investors decided, on balance, after all the buying and selling is done, that the company should have a 15% “haircut” because it prudently anticipates reduced global drilling work in the first half of this year (The Canadian Press, January 24, 2013, Stock in Major Drilling plunges after contract driller issues revenue warning). Please see Exhibit 1 below.

As risk averse investors – we want to keep our money safe (100% Capital Safety) and obtain a hopeful return above the rate of inflation – we only buy or hold the stock when it appears to be trading at or above its “risk adjusted price”, the Risk Price (SF), which is represented by the Black Line (a step function) on the chart and is the only “price” that is of interest to us.

In simple terms, it can be said that we tend to “buy high” and with a simply enforced selling discipline (please see, for example, our Post, The Wall Street Put, August 2012) we tend to “sell higher” and neither buy nor hold the stock while the volatility players are fighting it out amongst themselves by buying and selling the stock to each other.

Exhibit 1: (B)(N) MDI Major Drilling Group International Incorporated – Risk Price Chart

Major Drilling Group International Incorporated provides contract drilling for mining and exploration companies around the world. The company is based in Moncton, New Brunswick which is a city of about 100,00 people.

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

For example, with reference to the Stock Price (SP) which summarizes our buy and hold prices subject to the selling discipline, we bought and held the stock at prices between $10 and $16 in 2010 and 2011 and absent an enforced stop/loss or “collar” at $16 or more, sold the last of our stock at no less than $13 three months later or any time in between at prices between $16 and $13 and we did not buy or hold the stock again until the last quarter of 2011 and the first and second quarter of 2012 at prices between $16 and $18.

In contrast, somebody who did not have those bearings and did not know the “risk adjusted price”, bought the stock at $18 in early 2011 and possibly held it through $10 now. We can say that with confidence because absent both buying and selling activity, the stock price would not have changed at all. It is the desire to buy it from those who hold it but might not want or need to sell it that tends to increase the price, and for those who own it to sell it to those who might want to buy it (a basic asymmetry of intent) that tends to decrease the stock price.

If we had the skills of Major Drilling International and forty years of experience and presence in the global mining industry and their ambition, perhaps we too could be international drilling contractors with operations and offices on five continents that is based in the small city of Moncton, New Brunswick which has less than 100,000 inhabitants.

But we don’t have those skills. We’re just investors and we haven’t done anything for the company since their IPO in 1995 which only raised about $100 million for the company at $1.33 per share adjusted for a 3:1 stock split two years ago. Since their IPO, the stock has traded as low as $0.50 and as high as $20, all for the same stock in the secondary market which is just we investors buying and selling the stock to each other unless the company itself floats more stock out of treasury (usually with a zero or small par value) and sells it to us or buys and sells its own stock in the open market.

It’s possible, of course, that somebody bought or held the stock at $0.50 and took profits or sold the stock at $20 but those people are usually called “owners” and “billionaires” and probably know something about the company and its industry that we can only guess at absent fortuna.

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

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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*.