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(B)(N) DIS Walt Disney Company

April 5, 2013

Drama. The news today is that the Walt Disney Company has eliminated, or is eliminating, about 1,900 jobs in its U.S. theme parks through job cuts and attrition (UPI, April 3, 2013, Disney announces 1,900 job cuts) which is even more disturbing in the context of lower rates of job creation (deficient in the tens of thousands) in March in both Canada and the U.S. (Reuters, April 5, 2013, TSX set to open lower after weak jobs data). Nevertheless, the stock price of Walt Disney, which has about 160,000 employees worldwide, remained steady at $57.50, and is even up about $1 since early March, and, for the most part, none of the major markets were moved beyond a fraction of a percent downwards by this news. For what we can do about it, please see below, but, firstly, we need to take care of business.

Walt Disney has been in the Perpetual Bond™ since much lower prices of $38 in 2011 and it pays an annual dividend of $0.75 or $1.4 billion to its shareholders for a current yield of 1.3% even as its stock price has gained another +40% in the past year. Moreover, unlike the employees with whom we will shortly empathize and try to help, we have options; the indicated downside volatility of the stock price is minus ($4) and we can protect ourselves against that for the next several months by buying the July put at $55 for $1.29 today and selling or shorting the July call at a higher price, $60, also for $1.29 today, so that net of some minor transaction costs, we’re assured of a steady dividend (but not a steady job) for the next three months and a stock price of no less than $55 and no more than $60. Oh well.

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

(B)(N) DIS Walt Disney Company - April 2013

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.)

Adam Smith said long ago (1776) that “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” What happened? Why are the butcher, the brewer, and the baker, so to speak, not participants in the economy anymore, other than as labour? Why do the citizens of Cyprus, Greece, Italy, Portugal, Spain, and Ireland, and possibly Disneyland®, have so much of their money in cash and “safe” bank deposits and government securities?

For example, it cost us $170,600 to buy 100 shares of each of the thirty companies in the Dow Jones Industrial Index (including Walt Disney) in December, and that portfolio is now worth $189,200 for a gain of +10% or $18,600, plus dividends, which will add another 1% for the quarter (please see our Post, The Risk Adjusted Dow, March 2013, for more details). If $170, 600 is too much, we could have bought a Honda for $17,060 (and spent another $7,000 every year, after tax, to keep it running and insured), or just 10 shares of each of these companies to get us started as owners and investors and not just employees.

For more hope that does not fade from pay check to pay check in Fantasy Land, please see our recent Posts, S&P TSX Winners & Losers, April 2013, The Dow Transports, March 2013, or The Wall Street Put, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013.

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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