(B)(N) OWOO One World Holdings Incorporated

Drama. In March we could buy 1,000 shares of One World Holdings Incorporated for $20 and maybe the whole company for $25 million. But today we can buy 1,000 shares of One World Holdings Incorporated for just $1 and maybe the whole company for $2 million, or more, or less, depending on the outcome of “The One World Doll Project” and the passion of many cosmopolitan eight year-olds with a “world view” (The Street, November 25, 2013, The One World Doll Project: The New Face of Toy Success).

OWOO Is Me

But it’s Christmas and we’re about to empty our wallets buying new toys for those we love and causes that we cherish.

To be in better shape next year, maybe we should look at the companies that are holding us “hostage to love” and see if we can’t join the “enemy”, so to speak, and get some of our money back in dividends and capital gains.

An iThing Would Be Good!

We’ve already investigated the transports (like Santa Claus, everybody and everything is travelling, give us +132%) and shopping in America (+50%) at all levels (+40%, bespoke seems to be more about ownership) and the movies (+66%), so we’re going to focus on the toy makers to see what else they can make for us!

The Lego Standard Brick
Courtesy: The Lego Group

Toys are created by individuals and their designs are then ramped up by manufacturing, marketing and distribution in a process that is similar to the pharmaceuticals.

One of the largest, The Lego Group of Billund, Denmark, is family-owned and began in the workshop of Ole Kirk Christiansen in 1932 as hand-crafted wooden bricks. Mastermind LP is also an innovator and brings many new and exclusive products to the market; it is a limited partnership but the three toy makers that we can still buy on the stock market are impressive. Please see Exhibit 1 below and click on the links for the Prices & Portfolio and the Portfolio & Cash Flow Summary which returned +95% this year on a modestly leveraged basis and +42% on a cash basis, plus dividends of $695 million with an aggregate yield of 3.1% and a return of more than half their earnings (52.6%) to the shareholders.

Exhibit 1: The Toy Makers – Fundamentals

The Toy Makers – Fundamentals

But three companies is not a “portfolio” and we could easily end up holding nothing but cash which is not an “investment”. “Diversification” is not even an issue and would only appeal to investors who don’t know what they’re doing.

To buy more risk (which is an investment), we need to look at the context and expand the portfolio to include Amazon, eBay and other retail vendors that are crowded with customers at this time of year; and Expedia and Priceline (more travel), guns (Smith & Wesson for the avant garde) and roses (music from iTunes and Pandora), new hammers (Home Depot and Lowes) for failing investment advisers and gift certificates for their clients.

Now that’s a portfolio with lots of “risk” which is what we want – we want our money to be safe – 100% capital safety – and to obtain a hopeful but not necessarily guaranteed return above the rate of inflation.

All nineteen companies in it are currently in the Perpetual Bond™ for the rapidly approaching new year 2014.  That portfolio returned +76% this year on a leveraged basis and +34% on a cash only basis and paid aggregate dividends of $26 billion for an average yield of 2.1%. Please see Exhibit 2 below and the portfolio details in Exhibit 3 and 4 below.

Exhibit 2: The Toy Makers & Friends – Fundamentals

The Toy Makers & Friends – Fundamentals

It also gives us pause because the earnings multiple is 50× that of the toy makers themselves ($74.7 billion versus $1.3 billion) and half the earnings are due to Apple Incorporated ($35.7 billion) which lost $32 billion in market value this year and only returned a third of its earnings ($11 billion) to its shareholders.

Moreover, the marketing juggernaut, Amazon.com, is barely earning a living (net $133 million), doesn’t pay dividends, and its stock price is up +37% this year for an increase in “market value” of $45.3 billion.

And the ubiquitous Toys”R”Us is missing from our portfolio because it was taken over in 2005 for $6.5 billion by the limited liability investment company, Toys “R” Us Property Company II, LLC, which now operates as a “real estate” company that leases the properties and owns the “brand” with the idea that Toys”R”Rent for the time being (The New York Times, March 29, 2013, Toys ‘R’ Us Withdraws I.P.O.).

However, our job is not to argue with the folks but just to appreciate what they do for us and we can play again next year. Please see Exhibit 3 and 4 below.

Exhibit 3: The Toy Makers & Friends – Prices & Portfolio – November 2013

Exhibit 4: The Toy Makers & Friends – Portfolio & Cash Flow Summary – November 2013

The Toy Makers & Friends – Portfolio & Cash Flow Summary – November 2013

(Please Click on the Chart 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*.