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The Pensionnaires

May 15, 2013

Drama. “Many pensions are badly underfunded as a result of losses sustained during the financial crisis, and are struggling to fulfill their obligations to the firefighters, teachers, police officers, and other public employees whose retirement money they safeguard. Pension managers are supposed to make a certain amount of money every year — usually a target rate of 6 to 8 percent — and they’ve been convinced over the years that investing with hedge funds and private-equity firms will help them pull that off.” – New York Magazine, May 11, 2013, Are Hedge Funds Bulletproof?

Does this describe you or the pension fund that you contribute to? “The biggest challenge is waking up in the morning and wondering how to meet that 8 percent target,” said one pension manager who oversees the state of Oregon’s main pension funds (ibid, New York Magazine).

If your guy is an investment professional and won’t guarantee the capital – 100% Capital Safety – and can’t provide a hopeful return above the rate of inflation, then they’re not running anything – they’re just running and need to get some new wheels, such as the Dow Transports.

Exhibit 1: The Perpetual Bond™ in the Dow Transports – Cash Flow Summary

The Perpetual Bond in the Dow Transports - Cash Flow March 2013

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

Exhibit 2: The Perpetual Bond™ in the Dow Transports – Portfolio Summary

The Perpetual Bond in the Dow Transports - Portfolio March 2013

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

The Price of Risk

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 by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks.

Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, 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 information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 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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