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(B)(N) Are We Too Late For The Dow?

October 21, 2017
Money Tree

The Dow

Drama. The Dow Jones Industrial Companies are trading for $6 trillion today and the investors have lavished in $3 trillion more to buy the same companies that they could have bought at half the price ($3 trillion) in 2012 – and some of them did – even though the revenues are down, the earnings are down, and the payout rates to make dividends are up at 60% for an aggregate dividend yield of 2.5% which is also down from 3.2% in 2012.

So, the prices are up and all the down things are wrong and the financial press has been mumbling and muttering “I don’t know” which is true (TheStreet, October 19, 2017, TheStreet Staff Recalls Black Monday and the Crash of 1987).

But do the well-heeled and relatively conservative investors in the Dow have a choice? And the answer is, no, they don’t. It’s the Dow equities or find another market or slowly go bust on low yielding bonds.

Banking Map

Where the banks have gone.

And the reason is that the bond market already has far more money in it than anybody wants and if they rely on that for an income, they’re going to have to tighten their belts and they may also end-up in court trying to get their money back at 50 cents on the dollar as they have already done for Argentina, Brazil, Greece, Puerto Rico, and even Fannie Mae to name just a few of their bad debts in a spotty market for new loans and financed equities.

Accordingly, all of the banks are now trying to make more money on “Wealth Management” because they’re not making enough money on their loans and IPOs pending some new “economic disaster” because, as you know, banks don’t make any real money if we don’t really, really need theirs (Bloomberg, October 17, 2017, Goldman and Morgan Stanley Look for Profit Elsewhere After Trading Slumps).

Our solution, of course, is that we don’t care about what they need to boost their incomes at our expense because we have the (B)-Class Portfolio of equities in our World Trade Portfolio which is currently worth about $50 trillion in a dozen markets, is easy to run and always 100% capital safe, always 100% liquid at the market values at or above our stop/loss or protective option prices, and will always provide a hopeful but not necessarily guaranteed return above the rate of inflation as long as there is an active market somewhere that is not in hock to the banks.

And as a consequence, the (B)-Class Portfolio has effortlessly returned an average of 18% per year (+164% at the stop/loss prices or +180% at the current market prices) in a market that was nominally good for only 13% per year (+108%) since 2012 and we’re currently holding twenty-six of the thirty companies in the Dow for free because we’ve more than doubled our net worth by investing in them and we have the portfolio which can’t be worth any less than it is today and twice what it was worth in 2012 and we have almost as much useless (idle and not invested) cash as when we started which we could use to pay our bills or buy more of these elegant stocks which have been so friendly to us for all of that time.

But that was the past and we need to find some way to not worry about December.

Parsing the Dow

Only Walt Disney, General Electric, Nike Incorporated, and AT&T are not in our portfolio right now pending a new risk price which we can’t decide until the market decides at what new low price they want to buy them; please see Exhibit 1 below for more information on our hopes for them (and click on it and again to make it larger as required):

Exhibit 1 (B)-Class (B-)

Exhibit 1: The Dow (B-) and (N)-Class

Of the twenty-six companies that are in the portfolio, there are seventeen of them that as a portfolio have never returned less than 2% in any twelve-month period no matter when we bought them in the last five years and nine of them (as a portfolio) which have never returned less than 8% in the same twelve-month periods of which there are sixty in the last five years and this year and next year are just two more of the same because this market has already paused once in 2015 only to come back even bigger; please see Exhibit 3 below for the cash flow summary of the (B)-Class Portfolio in these stocks which we will run as a long and appropriately short portfolio, as required, regardless of what the market does in December.

Moreover, even though the aggregate revenues have not increased and the earnings have faltered, the aggregate Coase Dividend is still underpriced by about 15% compared to what the investors are willing to pay for the earnings which depend on it and its decline suggests that the companies in the Dow are struggling for growth even as the investors are willing to pay more for their share of the income; please see Exhibit 2 below for more details and wonder if the next stop on the investors’ horizon is a [P/E]-multiple of 30× and, effectively, $30 for $1 of ever scarcer earnings ultimately affecting their incomes.

Exhibit 2 The World According To Dow - Fundamentals

Exhibit 2: The World According To Dow – Fundamentals

Exhibit 3 The World According To Dow - (B)-Class Portfolio

Exhibit 3: The World According to Dow – (B)-Class Portfolio

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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