(P&I) $2,283 per hour

Figure 1: $2, 283 per hour or a jet airplane

Drama. Your “pension plan” is costing you (yes, you) $2,283 per hour, or some multiple of that (please see Figure 1 on the right), because for the last fifty years or so since the advent of “volatility” in the 1950s as investment risk, your pension plan has been fighting it – and they lost.

The more fabled investors only invest in arbitrage, and they usually fail if they try something in the equity markets for one reason or another, but for nearly all pension plans – including yours – there aren’t any 5% or 10% government bonds at home anymore, and their infrastructure investments in Brazil, Turkey, and India, and so forth, anticipate that these poor folks will pay your pension in twenty years if the dams don’t break, and the bridges don’t fall down, and the roads and buildings don’t rot before then.

The reality is that all we have for the investment of our multiple hundreds of millions, and even billions, of our pension savings are the equity markets, or possibly more grandly, the capital markets to include corporate and government bonds, and some alternatives as above.

But they’re all markets and using the equity markets wisely, rather than just shrugging our shoulders and expecting some kind of “mean reversion” if we wait long enough, makes the difference between a burgeoning and prosperous economy at home and a failing one, and between investment returns that are routinely in the double-digits and not just in the minor single digits of 4% or 6% or 8% or, in their wildest “dreams”, 12% next year!

Of course, we don’t mean to mock them, but we do need to raise the bar (or starve) and the equity markets are worth 20% to 30% a year – as a business – that they’re not getting and we need to invest in them rather than against them – that is, we want 100% capital safety guaranteed and we want a hopeful but not necessarily guaranteed return above the rate of inflation. And that’s all that we want.

Volatility is not an Investment Risk

If you’re bored already, we can’t help you and we’ll see you in the market tomorrow. But have you never wondered what the cause was for the extraordinary opulence of a few, and far from the many, in centuries past in conditions much more trying than our own?

Figure 2: This is an investment risk

The key concept here is that it’s the equity market itself that provides returns that are in excess of the dividend rates and, oftentimes, in excess of the return on the shareholders equity of the companies themselves.

Try to imagine the return that you could get on your cash – can you get 20% on your cash and not be arrested?

For example, the Dow Jones Transportation Companies returned 33% on the shareholders equity (the net worth which is like our cash and what we own net of debt) last year – and nobody is talking about it (or wanting to arrest them); and they paid $8.3 billion in dividends to their shareholders for a current dividend yield of 1.8% but that was only 20% of their earnings – they kept the other 80% in order to buy more airplanes, trains, and trucks, and for the rainy days.

Figure 3: The (B)-class Portfolio

But as investors in the stock market for these companies, we earned another +16% from our arm chair last year (it was a bad year) and an average of about +30% per year in the last five years; in other words, we earned +220% in these companies, in that market, in less than five years, and we tripled our money; please see Exhibit 1 and 2 below for how that is done (and click on them to make them larger as required) because it’s not a one-off – we can do it every year in the the World Trade Portfolio and it’s worth $2,283 per hour to your pension plan.

By the way, CSX Corporation, Kirby Corporation, and the Matson Corporation are all on sale today at 2012 prices, and if we really want to make a splash in global shipping in the US and Pacific, we can buy them all for about $30 billion and expect steady earnings of about $2.3 billion a year and a steady return on the shareholders equity of about 16% every year; please see Exhibit 3 below.

Exhibit 1: (B)(N) Dow Jones Transportation Companies – Fundamentals and Cash Flow Summary

Exhibit 2: A Stock Chart, a Ruler, and a Good Eye

Figure 2.1: ALK Alaska Air Group Incorporated (B+)	Figure 2.2: CHRW CH Robinson Worldwide Incorporated (B+)	Figure 2.3: DAL Delta Air Lines Incorporated (B+)
Figure 2.4: EXPD Expeditors International (B+)	Figure 2.5: FDX FedEx Corporation (B+)	Figure 2.6: GMT GATX Corporation (B+)
Figure 2.7: JBHT JB Hunt Transport Services (B+)	Figure 2.8: KSU Kansas City Southern Corporation (B+)	Figure 2.9: LSTR Landstar System Incorporated (B+)
Figure 2.10: LUV Southwest Airlines Company (B+)	Figure 2.11: NSC Norfolk Southern Corporation (B+)	Figure 2.12: R Ryder System Incorporated (B+)
Figure 2.13: UAL United Continental Holdings (B+)	Figure 2.14: UNP Union Pacific Corporation (B+)	Figure 2.15: UPS United Parcel Services Incorporated (B+)
Figure 2.16: XPO XPO Logistics Incorporated (B+)	Figure 2.17: ALEX Alexander & Baldwin Incorporated (B-)	Figure 2.18: CSX CSX Corporation (B-)
Figure 2.19: JBLU JetBlue Airways Corporation (B-)	Figure 2.20: KEX Kirby Corporation (N)	Figure 2.21: MATX Matson Corporation (N)

Exhibit 3: The RiskWerk Company “King Shipping”

For more information and examples of 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 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®™, The Medina Bond®™, The Barometer®™, the Free Market Yield®™ and Extreme Economics®™ 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*.