(B)(N) SSNLF Samsung Electronics Company Limited NVTG (OTC)
Drama. Samsung Electronics Company is a brilliant designer, engineer, manufacturer, and marketer of consumer electronics – a juggernaut with global sales of about $120 billion and an operating margin in excess of 10% that just keeps on producing winners – and it has to.
Samsung Galaxy III Courtesy: Samsung Electronics Company
It’s a fickle market that prefers style and function, but most customers will not pay the direct cost of , for example, their Samsung cellular telephone which is about $600 and is usually bundled in with a telephone service, and the actual costs to own it are comparable to leasing a small car.
It’s also a global market in economies that can’t afford to buy the latest in computers and telephone, but also can’t afford not to have one, or something like it, as designs and patents are infringed, stolen, and copied (FoxBusiness, June 7, 2013, Samsung Loses $12B in Market Value on Galaxy S4 Worries).
The stock was available for about $200 ten years ago but traded at $600 last year and is currently at $1,400 but in “traffic” (ibid, FoxBusiness). Please see Exhibit 1 below.
Global Adventure Investing
It doesn’t pay a dividend, there’s no options market, and buying and selling the stock directly is an adventure that takes place in the “grey market” of Over-The-Counter (OTC) transactions effected with a negotiated “value added” cost in the back rooms of a broker or bank that might have access to some.
There are 130 million shares outstanding, and the company has a market value of about $180 billion at the current prices, but in the last thirty days only 700 shares changed hands in New York, and one is minded of an “alternative investment” and cast back 200 years to the 19th century of wheeling & dealing in ownership.
Were it not traded in the Korea Stock Exchange in Seoul, where it represents about 20% of the entire market, it would not have any “value” at all because the common shareholders do not have direct access to the company’s cash flows.
The stock is currently trading at $1,400 per share and the indicated downside volatility in the stock price is minus ($100) but we can only buy it if someone else wants to sell it, absent the South Korean stock market and some mutual funds and hedge funds that have exposure there.
Exhibit 1: (B)(N) SSNLF Samsung Electronics Company Limited – Risk Price Chart
(B)(N) SSNLF Samsung Electronics Company Limited NVTG (OTC)
Samsung Electronics Company Limited is engaged in the manufacture, distribution, and sale of finished electronic products and device solutions worldwide.
(Please Click on the Chart to make it larger if required.)
From the Company: Samsung Electronics Company Limited together with its subsidiaries, engages in the manufacture, distribution, and sale of finished electronic products and device solutions worldwide. It offers consumer products, including mobile phones, tablets, televisions, Blu-rays, DVD players, home theaters, multimedia players, and digital cameras and camcorders; home appliances, such as refrigerators, air conditioners, washing machines, dishwashers, ovens, vacuum cleaners, and other appliances; and PC/peripherals/printers comprising notebooks, personal computers (PCs), monitors, printers, and memory and storage products. The company also designs and manufactures integrated circuits for storing digital information, which include dynamic random access memory (DRAM), static random access memory (SRAM), NAND flash memory, and Solid State Drives (SSDs); and logic and analog integrated circuit devices, such as display driver IC, CMOS image sensor, mobile application processor, smart card IC, and media player SoC. In addition, it provides hard disk drives for notebook and desktop PCs, as well as digital camcorders, MP4 players, and a range of other consumer electronics and mobile devices; external hard drives; and LCD panels for TVs, digital information displays, notebook PCs, and desktop monitors. Further, the company offers telecommunication products consisting of mobile WiMAX, WCDMA, CDMA, IMS, Femto cell, and wire line systems; enterprise systems, which include IP telephony, converged gateway, and digital key phones; and cable and IP set-top boxes, IAD, and IP phones. It has operations in Korea, the United States, Europe, Asia, Africa, and China. Samsung Electronics Co. Ltd. was founded in 1938 and is headquartered in Seoul, South Korea.
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
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