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(B)(N) Tesco PLC et al

September 24, 2014

Lady GagaDrama. The more we look at good food, the more we understand that the stock market has nothing to do with good food, and that the stores can just ignore it – must ignore it – and just mind their business, because chasing a higher stock price is akin to Forrest Gump dating Lady Gaga (not that it’s not possible – please see below).

Even Mr. Munger, the Vice (sic) Chairman of Berkshire Hathaway, which is said to own 3.7% of the company, Tesco PLC, has piously intoned “It’s the people who expect everything to keep going wonderfully who are nuts.” (Bloomberg, September 23, 2014, The Rise and Fall of U.K. Grocer Tesco That ‘Owned The World’).

But as far as the stock market is concerned, Tesco might as well be another Safeway and, of course, we don’t expect anything except losses (and rejection) – which is why our stop/loss is always in force; please see the Risk Price charts below.

Exhibit 1: Tesco PLC and Safeway Incorporated – Risk Price Chart

Figure 1.1: (B)(N) SWY Safeway Incorporated - September 2014

Figure 1.1: (B)(N) SWY Safeway Incorporated – September 2014

Figure 1.2: (B)(N) TSCDY Tesco PLC ADR

Figure 1.2: (B)(N) TSCDY Tesco PLC ADR – September 2014

The bottom-line for a stock price that’s trading above the price of risk and is, therefore, in the (B)-class, is the greater of the price of risk and the stop/loss price (which we can also enforce by buying puts) – easy, right?

On the other hand, the bottom-line for a stock price that is trading in the (N)-zone of investor uncertainty and, therefore, below the price of risk, is zero, but if the stock price is low enough, maybe some investors will want to buy the company, and why not if the earnings return on equity (ROE) is still in excess of 11% and the dividend yield is currently 8.9%?

But for this performance, and a 160% return of earnings as dividends, Tesco has been rewarded with a minus (-32%) decline in its stock price this year; please see Exhibit 2 below for more of the Fundamentals of in-store groceries.

Exhibit 2: Tesco PLC et al – Fundamentals

(B)(N) Tesco PLC et al - Fundamentals

(B)(N) Tesco PLC et al – Fundamentals

Figure 2.1: (B)(N) Tesco et al - Risk Price Chart

Figure 2.1: (B)(N) Tesco et al – Risk Price Chart

The portfolio of all nine companies gained +14% in 2012, another +16.5% last year, and is off minus (-2.6%) so far this year; it also paid $11.5 billion to its shareholders for a return of earnings of 44.1% and an aggregate dividend yield 2.7%; please see Exhibit 2 above for additional details, and Figure 2.1 on the left.

But the market doesn’t shop where we do.

Why yes, thank you very much.

Why yes, thank you very much.

When managed as a Perpetual Bond™ with due regard for the (B)-class and (N)-class companies when they are such, the same portfolio returned 21.6% in 2012,  a staggering 88.6% in 2013, and 28.7% so far this year; please click on the links “(B)(N) Tesco et al – Prices & Portfolio and Cash Flow Summary” for further details.

And for more information on real “risk management” in modern times and additional references to the theory and how to read the charts and tables, please see our Post, The RiskWerk Company Glossary and “(P&I) Dividend Risk and Dividend Yield“, and our recent Posts “(P&I) The Profit Box” and “(P&I) The Process – In The Beginning“; and 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, such as “(B)(N) TLM Talisman Energy Incorporated” or “(B)(N) ATHN AthenaHealth Incorporated” or “(B)(N) PETM PetSmart Incorporated“, to name just a few.

And 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 on what risk averse investing has done for us this year, please see our recent Posts on “(P&I) The Easy (EC) Theory of the Capital Markets” or “(B)(N) The Easy (EC) Theory of the S&P 500“, and the past, 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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