(B)(N) BLK BlackRock Incorporated

Drama. BlackRock Incorporated has humble roots as a fixed income manager in 1988 when the 8% T-bill was hard to sell, and didn’t obtain any “size” until a number of acquisitions and mergers that began in 2005 and ended in 2009 with the acquisition of Barclays Global Investors (BGI) and control of the exchange traded funds (ETFS) now called iShares.

As “risk managers” to the World, and portfolio managers of about $4 trillion of other people’s money, they can do everything in advisory, execution, and brokerage services. If we have $1 billion that is ripe for exposure to any conceivable “risk”, BlackRock can do it the same day. And they’re not alone in that because it seems like anyone with enough computer nous is an ingénue “risk manager” and if it can be computed in the name of “risk management”, it will be computed (Barron’s, July 6, 2013, BlackRock: Volatility Is an Asset).

The RiskWerk Company
The Business of Societal Innovation and Enterprise

But the one thing that they can’t do is the only thing that we want. We want 100% capital safety and a hopeful return above the rate of inflation. Give us that and the World is our oyster.

But there are only three funds in the World that can do that: they are Real Return Bonds (RRBs) in Canada; Treasury Inflation Protected Securities (TIPS) in the US, or like-minded government and sovereign funds; and anywhere in the World, The RiskWerk Company with the added bonus of 100% liquidity at opportune prices.

Nor is it anything sinister. It’s just that everybody knows that “volatility risk” is not investment risk; it is just volatility – that’s pretty obvious – and micro-managing volatility will not save our investments from the great catastrophes of the World.

However, we could make some money by investing in BlackRock Incorporated itself. It’s been eligible for the Perpetual Bond™ at various times, but most recently at $170 last year through the current $265 and nearly $60 above the price of risk, the Risk Price (SF) of $208 and rising.

Please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF) and for no other reason. And certainly not for the stock price volatility which we estimate to be as high as minus ($35) in the next quarter, so that we would not be surprised for the stock to be trading anywhere between the current $265 and $230 to $300.

We can afford the stop/loss at $240 (say) from our profits, but even at $240 it would still be trading above the Risk Price (SF) and we would be inclined to just buy it back.

We can better protect our current price of $265 by buying the August put at $260 for $7.50 today and partially offsetting the cost of that by selling the August call at $270 for $6.90, so that for the cost of holding the stock at $265 and the collar at $0.60 per share ($7.50 less $6.90), we can continue to collect our dividends of $1.68 per share per quarter for a current yield of 2.6% and be assured of a stock price between $260 and $270 no matter what the market, or until we have more or new information.

To see what else risk management has recently done for us, please visit our current posts for equities exposure or more specific exposures to the Dow Transports or Utilities or designer tastes.

Exhibit 1: (B)(N) BLK BlackRock Incorporated – Risk Price Chart

(B)(N) BLK BlackRock Incorporated

BlackRock Incorporated and its subsidiaries provide investment management services to institutional clients and to individual investors through various investment vehicles.

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

From the Company: BlackRock Incorporated is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors. It also manages accounts for corporate, public, union and industry pension plans, insurance companies, third-party mutual funds, endowments, foundations, charities, corporations, official institutions, and banks. The firm also provides offers global risk management and advisory services. It manages separate client-focused equity, fixed income, and balanced portfolios. The firm also launches and manages open-end and closed-end mutual funds, offshore funds, ETF’s, unit trusts, and alternative investment vehicles including hedge funds and structured funds. It invests in the public equity, fixed income, real estate, and alternative markets across the globe. The firm primarily invests in growth, value, and core stocks of small-cap, mid-cap, SMID-cap, large-cap and multi-cap companies. It employs a fundamental and quantitative analysis with a bottom-up stock picking approach to make its investments. The firm employs liquidity, asset allocation, balanced, real estate, and alternative strategies to make its investments. BlackRock Incorporated was founded in 1988, has 11,000 employees, and is based in New York City.

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*.