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(P&I) The World’s Worst Pension Plan

June 3, 2015
Maybe next year?

Maybe next year?

Drama. A private or public pension plan will tend to hold about sixty stocks although that number is dwarfed by the holdings of some of the World’s largest pension plans and sovereign wealth funds which have little choice but to invest in everything – bonds, equities, ETFs, alternatives, funds and funds-of funds, and so forth.

And because they have to invest in everything, they tend to get the “everything” performance which is roughly tied to the growth of the GDP wherever it might be and there’s nothing that they can do about it in aggregate because they’re all trading with each other and there just aren’t enough “people” and companies and enterprise in the World to produce and “give” them their money as an investment return in the stock or bond markets – one fund’s gains are another fund’s losses and there is no “value added”.

But there are also thousands of public and private plans that support trade unions and affiliations such as the teaching staff or the hospital staff and so forth and we would expect that a typical plan for 1,000 employees might have assets of about $200,000 per employee and therefore manage $200 million in bonds and equities and if 60% of that is in equities then the average stock holding for sixty companies would be about $2 million in each of them and that number is typical of many of the holdings of institutional investors – $2 million in any company that they choose to invest in and, obviously, we can scale that number up – and they do – but who has the staff to know everything about 60 companies or more and there are regulations that govern their interest in any one company.

Figure 1: The World's Worst Pension Plan

Figure 1: The World’s Worst Pension Plan

On balance, then, whenever we’re analysing a stock portfolio for a pension plan, we are dealing with about 60 companies that are effectively randomly selected from the 1,600 or so in our global database of well-invested companies in the major markets.

And among those we found “the” portfolio of 60 companies that lost more than 2/3rds of somebody’s money in the last three years and also the portfolio of 60 companies that increased it by almost 500%; please see the illustration on the right (and click on it and again to make it larger as required).


What is shocking about this is that these are all brand name companies – we hear about these companies every day – and there are about 400 of them (25% of our database) that gained less than 10% in the last three years to date and there are a lot of sixty company portfolios that can be created from 400 companies – about 1.5 billion of them followed by sixty zeros both the number and the portfolios one of which might be yours and probably is.

On the other hand, there are nearly 500 of them that gained more than 100% and doubled our money since 2012 and the number of sixty company portfolios that can be made of them exceeds the former (the losers) by a factor of 1.7 million so that for every loser there are 1.7 million winners and we should note that all of these pension plans are playing in the same game and they are playing with each other because the companies (the “investments”) are largely indifferent to their stock prices and there isn’t much that they can do about their stock prices other than avoiding a price that becomes so low that they might become a takeover candidate and the notion of “maximizing shareholder value per unit of risk” is a mythology and not a fact nor even possible (The Tao of Stock Prices).

But what is even more shocking is that nearly all pension plans qualify for the Award “The Worst Pension Plan in the World” and the reason is that with a more heads-up management for capital safety – 100% capital safety – even “The Worst Pension Plan in the World” can become a +50% winner rather than a -74% loser or, more typically, a +15% (or less) “winner” year after dismal year.

A “pension fund” that is returning only 15% per year, or less, with no guarantees, is a bad deal and the wrong people are retiring on it; please see Exhibit 1 below.

Exhibit 1: The World’s Worst Pension Plan Made Better

Figure 1.1: (B)(N) The World's Worst Pension Plan Made Better

Figure 1.1: (B)(N) The World’s Worst Pension Plan Made Better

The Escape from Randomness

To escape from randomness, we need to manage our portfolio so that it doesn’t lose money – 100% capital safety – and secondly, that we might obtain a hopeful but not necessarily guaranteed return above the rate of inflation; in other words, that we obtain a hopeful non-negative real return for which the term “non-negative” (no less than zero) is guaranteed.

The RiskWerk Company

The RiskWerk Company

The RiskWerk Company posts are now being received all over the World in every economy from Argentina, Brazil, and Colombia to the US and Canada, Africa, Europe, Russia, India, China, Taiwan, Japan, Malaysia, Indonesia, Australia and New Zealand (just to name a few) but the only place to get the theory and practice is here.

If you’re dependent on a corporate, public, or private pension plan for your good life, have your Board get in touch with us at – their “plan” for you needs some work – we guarantee it.

For more information on the Free Market Yield and the terms that we have used above, please see our Posts “(P&I) The Dismal Equation (Ecclesiastes 9:1)” and “(B)(N) S&P 100 Volatility Risk and The Full Moon” and “(B)(N) NASDAQ 100 Volatility and The Stone Bunnies“ and for an introduction to The Barometer “(B)(N) What’s A Girl To Do” or “(P&I) The Swiss Franc Debacle“.

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.


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
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


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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