(B)(N) SI Siemens AG ADS

Drama. The lights are never off at Berlin’s new Willy Brandt International Airport because no one knows how to turn them off – which is probably a good thing in an airport that expects 30 million visitors a year – and, so, the solution is to get the passengers in to see them (Reuters, April 7, 2013, German prowess called into question with Berlin’s troubled airport, other botched projects). And in that, we share the typically German viewpoint of Mr. Hartmut Mehdorn, the new chief executive of the airport, and formerly the boss of the fabled German railway system:  “The whole world says: it’s not possible at all. I (Mr. Mehdorn) say: It should be possible. I just don’t know how yet.”

Siemens entered the Perpetual Bond™ at less than $60 in early 2009, tumbling down from much higher prices of $150, or so, in early 2008, and it remained in the Perpetual Bond™ through $128 in the third quarter of 2011 before dropping to $80 later that year (please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF)). Such a price drop, while we own the stock, is invariably a huge opportunity for us – it turns the lights on rather than off – because of the “selling discipline” – our “put” kicked in at $128 and was “worth” $45 or more when the stock price bottomed out. In effect, we sold (put) the stock for $128 (regardless of how it was priced in the market) and “re-purchased” it, at our option, with cash at $85 per share because the stock was still trading above the Risk Price (SF) of $83 within a few weeks.

At the present time, Siemens is trading at $106 and the Risk Price (SF) is $90, possibly rising to $92 later this year. The estimated downside in the stock price due to volatility is minus ($9) and we could be sold out on a stop/loss at $97, which is still well above the Risk Price (SF); the July put at $105 costs $5.00 per share today and the cost of that can be partially offset with a sold or short call at $110 for $3.20 per share, so that for a net cost of $1.80 per share ($5.00 less $3.20), we can protect the stock price between $105 and $110 for the next three months, and continue to collect our dividends, which are annual and currently expected to be $2.94 per share for a current yield of 2.8%.

Exhibit 1: (B)(N) Siemens Aktiengesellschaft (AG) ADS – Risk Price Chart

Siemens AG is engaged in electronics and electrical engineering. The Company’s operations are focused on three sectors: Industry, Energy and Healthcare.

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

Siemens has total assets of $140 billion and a shareholders equity of $40 billion; it’s sales are of the order of $100 billion per year, and the company expects to pay $2.5 billion in dividends to its shareholders  this year.

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined not by colour, taste, or appearance, but by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation. Investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information. Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more details.

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*.