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(B)(N) How Not To Be Wrong

September 4, 2017

Abraham Wald (1902-1950)

Drama. In 1942,  Abraham Wald advised the British Bomber Fleet on how to best protect their bombers with the least additional weight of armour and he said that rather than add more weight and armour-plate to where the holes were on the returning bombers, which was what the British were doing at the time, you had to add more armour-plate to where the holes weren’t because those were the holes in the bombers that didn’t come back.

And that’s an example of “maximizing returns without an undue risk of loss” and it’s correctly called “survivorship bias” in that case and “100% capital safety” in ours.

However, almost all of our pension plans claim to be doing exactly that – they are bravely “maximizing returns without an undue risk of loss” for us stay-at-homes – and like the British Bomber Fleet, they’re trying to do it in the most obvious way by “fixing the holes” and buying only the stocks of “good companies” (they say) and possibly taking a “position” in them and, secondly, by buying diversified global portfolios of stocks and bonds in buoyant economies, at least when they bought them.

And as a consequence, like the British bombers which were expected to make about fourteen sorties before they didn’t come back, only an average of about 7% of our money returns to us every year and in some years it’s a bit more, maybe 15% once in a while because the market was “good”, and in other years such as 1998 or 2008, we have to pay money in order to get back what we lost – or just wait for it – and we attribute all of this “uncertainty” to “risk” which we have failed to manage.

For example, we ought to understand the Dow Jones Industrial Companies perfectly because there are only thirty of them and they don’t change that much from year to year and, so, we think that the investors owe us an apology for their dreadful “uncertainty”; please see Figure 2 and 3 below (and click on them and again to make them larger as required). And we’ve accepted their “apology” and their money.

Thank you very much.

Figure 2 Dow Jones Industrials - Full Market By Company

Figure 2: How Not To Be Wrong

Figure 3 Dow Jones Industrials - (B)-Class Portfolio

Figure 3: Thank You Very Much, Gentlemen.

For more examples of the (B)-class portfolio in difficult markets, please see our recent Posts on”The “W” Syndrome“, Steel,  Green Energy and The Coal War which is heating-up again now; and the Canadian Mines have also taken-off – please see our recent Post “(B)(N) Extreme Economics – The (New) Canadian Mines” for a heads-up on that.

And 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 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®™, 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*.

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