(B)(N) The Producers

Deal Book. It’s been a banner year for the US motion picture industry. On revenues of $290 billion, it’s produced earnings of $17 billion of which $6.1 billion or 36% has been returned to the shareholders for a current yield of 1.2%. But there’s more. The aggregate market value is $490 billion and up from $350 billion last year and $280 billion the year before for a portfolio gain of +42% this year and +25% the year before. Please see the Insert and Exhibit 1 below.

The Producers

We got to the picture early and six of the nine companies have been in the Perpetual Bond™ since 2011 with only Sony, Fox and DreamWorks Animation taking a day off now and then. Please see Exhibit 2 and 3 below.

And we don’t know if they’re “overvalued” at 30× [P/E] earnings as a portfolio of all the companies that produce just about everything that engages us on our night out, absent sports, theatre, concerts and restaurants or bars. Shopping?

In contrast, the “Very Social Media” could be described as a “night in”, doesn’t pay dividends and doesn’t have any earnings to speak of but it is also up over +70% this year and there’s an ongoing turf war between these two avatars of the dream weavers which is most likely to weigh in on the side of the producers (The Washington Post, August 5, 2013, SOPA died in 2012, but Obama administration wants to revive part of it).

Now, that’s a surprising result!

And although earnings don’t really matter (which we already know), we can say, however, that in both cases there is an excess of aggregate “demand” over “supply” which is relaxed at the “price of risk” which we estimate as the Risk Price (SF).

In the case of “The Producers” it is $490 billion over $340 billion or +45% above the “price of risk” but in the case of “The Very Social Media” (please see our previous Post) it is $197 billion over $168 billion which is only +17% above the price of risk. Which might be a surprising result.

Everybody understands supply & demand when it comes to a tangible such as wheat, water and bread, but in this case the tangible “good” is the “demonstrated societal standard of risk aversion and bargaining practice” that is resolved at the price of risk in a provable Nash Equilibrium between “risk seeking” and “risk averse” investors.

The result does not say that “The Producers” (as a portfolio) is overvalued and that we should consider taking profits; or that the “The Very Social Media” is undervalued and that we should consider buying more. Nor does it say the opposite although the opposite is closer to the truth of what it really says.

In the case of The Social Media, it says that we can relax our sense of risk aversion and join the crowd of “risk seekers” as many have (if we choose) whereas in the case of The Producers, it says that we can buy and hold this portfolio at “high prices” with the usual “price protection” in case there is a “surprise” which, on a portfolio basis, affecting an entire industry, would be a “big surprise”.

Exhibit 1: The Producers – Fundamentals – November 2013

The Producers – Fundamentals – November 2013

Exhibit 2: (B)(N) The Producers – Prices & Portfolio – November 2013

(B)(N) The Producers – Prices & Portfolio – November 2013

Exhibit 3: (B)(N) The Producers – Portfolio & Cash Flow Summary – November 2013

(B)(N) The Producers – Portfolio & Cash Flow Summary – November 2013

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

For more information 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 action, La 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 America, Big Oil, Shopping 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*.