Skip to content

The Dow Transports & Utilities

June 25, 2013

Drama. The Dow Transportation Index is up +16% so far this year and the twelve of twenty of them that are in the Perpetual Bond™ since December are up +25% at the current prices  – not including our profits on stop/loss selling or the results of a collar – please see almost any of the (B)(N)-Company posts for examples and Exhibit 1 and 2 below.

There have been some changes but it doesn’t feel like six months of work. We sold FedEx Corporation and Landstar System Incorporated on a stop/loss in May, and haven’t bought them back because they appear to be trading at or below the price of risk, and we bought Con-Way Incorporated and Southwest Airlines Company in March because the ambient stock prices appeared to be at or above the price of risk, Risk Price (SF), and for no other reason. Please see Exhibit 2 below.

Exhibit 1: The Perpetual Bond™ in the Dow Transports – Cash Flow Summary ($000)

The Perpetual Bond in the Dow Transports - Cash Flow June 21, 2013

The Perpetual Bond in the Dow Transports – Cash Flow June 21, 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 June 21, 2013

The Perpetual Bond in the Dow Transports – Portfolio June 21, 2013

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

If They Could Make Money Doing This, Then They Wouldn't Be Doing It To Make a Living

If They Could Make Money Doing This, They Wouldn’t Be Doing It For A Living
Courtesy: Forbes

If the “spin” is on – if and when it’s on – it cannot do us any harm. If we have to take profits on stop/loss or collars – OK, we will – but we’ll also know what to buy at the lower prices and we also know what not to buy at lower prices which is something that most investors have real problems with.

However, indecision is not a problem for investors who are slaves to the Elliott Wave Theory, or some such, or the Capital Assets Pricing Model (CAPM) and Modern Portfolio Theory (MPT).

CAPM & MPT

CAPM & MPT
The Spin Decides

The “spin” will decide which line they’re on – alpha or beta – as their computer programs and tens of thousands like them, buy and sell a little bit, or a lot, of everything, until everyone is as average as possible, so to speak, as they were yesterday.

We also use computer programs to help us, but average is not our goal and we only held about half of all the companies in the larger markets with capitalization of $2 billion or better, and that portfolio has hardly changed at all in six months, and produced +17% plus dividends so far this year and we keep everything that we get and we know how to keep on getting it.

For more details, please our recent Post The Wall Street “Spin” For Sale.

Exhibit 3: Summary Year-to-Date of the Perpetual Bond™ –

The Perpetual Bond - June 2013

The Perpetual Bond – June 2013

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

The Dow Utilities is a specialty portfolio and investors expect reliable high dividend rates, and high debt that is funded by the bond market which must also be paid.

For example, the current fifteen companies in the Dow Jones Utility Average™ will pay $14 billion in dividends this year, to shareholders, and the current debt is $550 billion and up from $450 billion in 2010 (in round numbers) on which there will be interest payments of another $20 billion, to the bond holders.

The Dow Jones Utilities Average Since 1929

The Dow Jones Utilities Average Since 1929

In addition, the market value of all fifteen companies is currently $325 billion, and up from $225 billion three years ago, and the dividend return is about 4% per year which is down from 5% two years ago, but that decrease can be partially explained by the increase in the stock prices.

A rising stock price is bad for consumers because the companies will have to pay out even more money in dividends in order to maintain the dividend rate; if the rate falls, the companies might alienate the stock market and, therefore, have less bargaining power with the bond holders.

However, not every electric company is an ATM machine, and of the fifteen, only eight have been in the Perpetual Bond™ since early 2009 (five years) and their return is +5% (plus dividends of another 4%) so far this year and only slightly above the index return of +4%. Please see Exhibit 4 and 5 below.

And one might wonder how one producer of electricity should be different from another, and, surely, if anything could be average, then electricity companies seem like good candidates. Please see Exhibit 6 & 7 below.

Exhibit 4: The Perpetual Bond™ in the Dow Utilities – Cash Flow($000) – January through June 21, 2013

The Perpetual Bond in the Dow Utilities - Cash Flow June 21, 2013

The Perpetual Bond in the Dow Utilities – Cash Flow June 21, 2013

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

Exhibit 5: The Perpetual Bond™ in the Dow Utilities – Portfolio – January through June 21, 2013

The Perpetual Bond in the Dow Utilities - Portfolio June 21, 2013

The Perpetual Bond in the Dow Utilities – Portfolio June 21, 2013

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

Exhibit 6: (B)(N) American Electric Power Company Incorporated – Risk Price Chart

(B)(N) AEP American Electric Power Corporation

(B)(N) AEP American Electric Power Corporation

American Electric Power Company Incorporated is a public utility holding company, through its subsidiaries, provides electric service, consisting of generation, transmission and distribution, on an integrated basis to its retail customers.

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

From the Company: American Electric Power Company Incorporated is a public utility holding company, and engages in the generation, transmission, and distribution of electric power to retail customers. The company generates electricity using coal and lignite, natural gas, nuclear energy, and hydroelectric energy. It also supplies and markets electric power at wholesale to other electric utility companies, municipalities, and other market participants. As of December 31, 2012, the company owned and leased approximately 37,300 megawatts of domestic generation capacity. In addition, it transports coal and dry bulk commodities primarily on the Ohio, Illinois, and lower Mississippi rivers. The company owns and leases approximately 2,600 barges, 45 towboats, and 25 harbor boats. It operates primarily in the states of Arkansas, Indiana, Kentucky, Louisiana, Michigan, Ohio, Oklahoma, Tennessee, Texas, Virginia, and West Virginia. American Electric Power Company Incorporated was founded in 1906, has 19,000 employees, and is headquartered in Columbus, Ohio.

Exhibit 7: (B)(N) AES AES Corporation – Risk Price Chart

(B)(N) AES AES Corporation

AES Corporation is a global power company. The Company acquires, develops, owns, and operates generation plants and distribution businesses in several countries. The Company sells electricity under long term contracts.

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

From the Company: The AES Corporation operates as a diversified power generation and utility company. It owns and/or operates power plants to generate and sell power to customers, such as utilities, industrial users, and other intermediaries. The company also owns and/or operates utilities to generate or purchase, distribute, transmit, and sell electricity to end-user customers in the residential, commercial, industrial, and governmental sectors; and generates and sells electricity to the wholesale market. Its portfolio includes a range of fuels, including coal, gas, fuel oil, water, wind, and solar. The AES Corporation owns and/or operates a generation portfolio of approximately 31,000 megawatts and the company has operations in the United States, Chile, Colombia, Argentina, Brazil, Mexico, Central America, the Caribbean, Europe, the Middle East, Africa, and Asia. The AES Corporation was founded in 1981, has 25,000 employees, and is headquartered in Arlington, Virginia.


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.

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*.

One Comment leave one →
  1. January 1, 2015 7:59 AM

    Hey There. I found your blog using msn. This is a really well written article.
    I’ll make sure to bookmark it and return to learn more of your useful
    information. Thanks for the post. I’ll definitely return.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: