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(B)(N) The Dow Transports

November 12, 2013

Drama. The Dow Theory was flashing “buy” in July on the conjunction of new highs for both the industrials and the transports but by then the Perpetual Bond™ was already fully loaded except for JetBlue which we began buying in September (The Wall Street Journal, July 18, 2013, Dow Theory Flashes ‘Buy,’ As Transports, Industrials Hit New Highs).

We met them all at the pass and the leveraged portfolio is now up +132% this year and the cash only portfolio is up +54%. Plus dividends that averaged 1.7%. Please see Exhibit 3 and 4 below for more details.

Howdy!Courtesy: The RiskWerk Company

Howdy! Greetings!
The RiskWerk Company

The big issue for us is how to protect the prices that we have which are up an average of +45% since December.

We can afford the stop/loss at minus (9%) if the entire market swoons (please see Exhibit 3 below and an example in Exhibit 1 for Delta Air Lines) but there’s also plenty of opportunity to buy puts against our long position and we can do that with the dividends already earned or take some profits by selling a few shares to protect the rest.

Buy or Hold (B)Sell or Don't Buy (N)

Buy or Hold (B)
Sell or Don’t Buy (N)

That’s the hardest decision all year.

In aggregate, we made only eight buy/sell decisions for the transports this year and none of them has been a sell (please see Exhibit 3 below for (B)- to (N)-transitions indicating a sell and the reverse (N) to (B) for a buy).

The fundamentals (Exhibit 2 below) look like random numbers and don’t help us at all and we’re committed to buying and holding anything and everything that’s trading at or above the “price of risk” and for no other reason.

It doesn’t matter to us, for example, that UPS United Parcel Service is trading at 231× earnings and is up +28% this year; or that Delta Air Lines is up +122% this year but still “undervalued” at 11× earnings.

It’s also disturbing that an industry that is as heavily “mortgaged” with debt more than twice the equity can afford to return nearly half of its earnings to the shareholders. Possibly they could issue some new stock to satisfy the appetite for it. In any case, we have no idea what the market will do next. The economics of transport, especially the airlines, is complicated and evidently the investor rules can change from company to company even in the same business.

Exhibit 1: (B)(N) DAL Delta Air Lines – Risk Price Chart

(B)(N) DAL Delta Air Lines Incorporated

(B)(N) DAL Delta Air Lines Incorporated

In contrast, the “price of risk” is an invariant. Its very meaning is tied to the bottom-line of any investment decision: are we likely to lose our money and if not, can we expect to make some?

When a stock price appears to be “unhooked” from that idea, we just “buckle up” because we know that we have to.

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

Exhibit 2: The Dow Jones Transports – Fundamentals

The Dow Transports - Fundamentals - November 2013

The Dow Transports – Fundamentals – November 2013

Exhibit 3: (B)(N) The Dow Transports – Prices & Portfolio – November 2013

The Dow Transports - Prices & Portfolio - November 2013

The Dow Transports – Prices & Portfolio – November 2013

Exhibit 4: (B)(N) The Dow Transports – Portfolio & Cash Flow Summary – November 2013

The Dow Transports - Portfolio & Cash Flow Summary - November 2013

The Dow Transports – Portfolio & Cash Flow Summary – November 2013

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

For more information on the Chart elements and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class actionLa Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100.

And for more on what’s Working in AmericaBig OilShopping in America or Banking in America, to name just a few.

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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