(B)(N) The Easy (EC) Theory of the S&P TSX

The Dow Theory
Charles H. Dow (1851-1902)

Drama. The usual partitions of the markets into “classes” by industries, or index, such as the Dow Industrials, or Utilities, or the “bio-techs” or the “high-techs”, or whatever, are colourful, but they don’t mean anything to investors because there is no theory that might relate the stock market prices of one class to another, either before or after the fact.

That said, the Dow Theory has been spectacular for the last several years, but, let’s face it, if it’s produced, it needs power, and it needs to be moved, and we’ve had a different reason from either of those for buying and holding almost all of these stocks for the last two years, and longer, no matter what the industry says about “cycles”, “bubbles”, “China”, or the “QE”, or “defensive” portfolios which are the current rage – and the only reason they we buy and hold them is that they’re trading at or above the price of risk, and that’s the only reason.

Hence, we can use a much more direct approach to getting what we want – we want capital safety, liquidity, and a hopeful return above the rate of inflation – and we can place our bets on growth and dividends in the Canadian small-caps with a market capitalization of less than $10 billion, and that pay dividends, and are well-funded, which means, for the latter, that they demonstrate a Company E or a Company C  modality, hence, “The Easy (EC) Theory of the S&P TSX”; please see any of our Posts on “The Process” for more information on what that means.

No apologies are required for this simple-mindedness because these stocks were up 16% last year, and a further 11% so far this year, but in the Perpetual Bond™, the numbers are +34% last year, and another +24% so far this year, and they paid, in aggregate, $8.8 billion in dividends to their shareholders, for an aggregate return of earnings of 110% and a dividend yield of 2.8%; please see Exhibit 1 below.

Moreover, it doesn’t pay to be “too smart” or “smarter than the market” because the aggregate returns among the hundreds of hedge funds, who are still in business, are in the single-digits, and pension plans and endowment funds are fleeing that hypothesis for some “greener” (?) pastures of their own design – untested as they are – and we never hear the words – safe, liquid, and hopeful – from them either; please see, for example, our recent Posts on “(P&I) Bubblemania and The Working Poor” or “(B)(N) What’s A Girl To Do?“.

Exhibit 1: The Easy (EC) Theory of the S&P TSX – Fundamentals – June 2014

The Easy (EC) Theory of the S&P TSX Fundamentals

(B)(N) The Easy (EC) Theory of the S&P TSX – Risk Price Chart – June 2014

The EC portfolio appears to be very “green” and has a domain of 102 companies, and a total market capitalization of $310 billion, although only between 70 and 80 of them have been trading in the Perpetual Bond™ since December; for more details, please click on the links (and again to make them larger if required) “(B)(N) The Easy (EC) Theory of the S&P TSX – Prices & Portfolio – June 2014” and “(B)(N) The Easy (EC) Theory of the S&P TSX – Portfolio & Cash Flow Summary – June 2014“.

Our estimate of the downside in this portfolio at the stop/loss prices (which are always above the price of risk) is minus (-8%) in the next quarter due to the demonstrated and ambient stock price volatility, which is largely due to “market confusion”, for which we have a defence.

For more applications of these concepts please see our Posts which rely on the Theory of the Firm developed by the author (Goetze 2006) which calibrates The Process to the units of the balance sheet and demonstrates the price of risk as the solution to a Nash Equilibrium between “risk-seeking” and “risk-averse” investors within the demonstrated societal norms of risk aversion and bargaining practice. And for more on The Process, please see our Posts The Food Chain and The Process End-Of-Process.

And for more information on real “risk management” and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary; we’ve also profiled hundreds of companies in these Posts and the Search Box (upper right) might help you to find what you’re looking for.

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*.