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June 15, 2013

Drama. ERISA (The Employee Retirement Income Security Act of 1974, as amended, from time to time) is the right idea – to protect the funds invested in private employer-sponsored pension, profit-sharing and welfare benefit plans for the benefit of the plan participants and beneficiaries – but it has the wrong tools. And can’t fix what is broken (Reuters, June 14, 2013, Exclusive: Creditors, governments must pay in any euro bank rescue).

Hammer & Anvil – The Wrong Tools Eventually Strip All Nuts

Undoubtedly, there are some bright spots in pension plan management, but these are isolated, secular, and have nothing to do with the provisions or guidelines of the ERISA.

And although we might hope that ERISA would prevent the worst excesses of pension fund mis-management, that is not the case either. And even the secular fails, from time to time, and readily admits it and it is anecdotal that the incompetent are never wrong, in their opinion (ibid, Reuters).

ERISA needs, in our view, to enforce only One Rule: 100% capital safety, guaranteed, or you’re not running our money. Period.

Paul Bunyan Portfolio Manager and Investment Guru – 100% Capital Safety or Nothing.

There’s no need, in contradistinction to that One Rule, to concern ourselves with credentials. Either the persons or fund can do, will do, what is required to be done, or they can’t, and if they can’t then the fund sponsors should expect to lose all of their money, or a great deal of it, and that has happened in the past and will happen again absent the One Rule.

There are only three investments that can and will guarantee the capital 100%: Real Return Bonds (RRBs) or Treasury Inflation Protected Securities (TIPS) or The RiskWerk Company. Anything else is just a gamble.

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 2006) 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.


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”
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 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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