Bargain says Gracie

“
Page 1 of 8 March 2012 & 2016 © Copyright StockTakers Limited, All Rights Reserved. Copying Prohibited.
The author does not provide investment advice. In order to use reproduce or convey the material herein,
in any way, written agreement must be obtained from the author or its agent Architypes Inc.
StockTakers Limited is an Alberta corporation providing information on “likeables” equities.
StockTakers Limited encourages your seeking tax law advisor for capital gains tax dispositions.
Man Bites Man! Bargain! says Gracie?
The classic radio comedies of Gracie Allen and George Burns have given us many endearing
witticisms that have endured. Gracie Allen might well have made an intriguing presidential
nominee. In 1940, she sure set a precedent many have followed and some even succeeded in
running for office. So much of their commentary is still timely, and prescient, especially on
bargain or value-investing.
One soon learns that there is no virtue or sin in the balance sheet or income statement that is
either too large or too small so as not to be rewarded by someone offering a valiant stock price1
.
That is not just in the options market such ineptly informed offers are made. Because, in other
words, there's no reliable connection between what they have learned in the classroom and what
goes on in the schoolyard or in markets. The cold realities just fog their myths2
and
presumptions3
. These are the fund managers who wield our social cache in assumptions of
expertise that amounts to nothing more than grab and run techniques4
found in the schoolyard
‘olympiads’. They like “your wallet, because then it is always a bargain.” Gracie was so right.
Financial industry advisors are schooled selling financial
products to exploit small investor savings for taking in their
fees. They are not changing their tools or sharpening those
dullards they have. They took the “regular courses” to be
certified in a self-regulated industry that only deals in their
creative fictions. Seemingly, certification requires intensive
study in the key tools of Rhetoric - Adumbration, Subterfusion,
Mystification and Derogation. Hmm, that sounds familiar.
“I only took the regular courses,” sighed the Mock Turtle.
“What was that?” inquired Alice.
“Reeling and Writhing, of course, to begin with, and then the
different branches of Arithmetic – Ambition, Distraction,
Uglification, and Derision.”
What proof does convention offer for all their suppositions of claimed expertise? Right, that is an
oxymoron5
. Convention is flat-landers in a global reality. Fund managers as financial advisors
are just financial products and used equities sellers who never kick the tires or check the fluids,
because they do not know better. Yet the tools of rhetoric have secured them a legally anointed
position running with your cache into their fraternal ‘craps’ alleys of stock markets. Do not give
those Artful Dodgers your wallet. Engage our “Likeables” and save your own bacon.
Gracie: There is a bargain sale on George, so, I need your wallet.
George: But Gracie, it is only a bargain if you need it.
Gracie: Exactly, George that is why I need your wallet, because then it is always a bargain.

“
One should not wonder that those who buy only virtuous balance sheets and expectant income
statements at low prices, call themselves “value investors”, and, have (for the most part) so little
money to spend absent your wallet. They would rather spend yours and charge you for their
privilege of living on your dime without question of rendering benefit to you their client. It is
about their need for fees to make their living, not about your risk6
.
That is because they never have known what any risk is in the real world of equities investments.
They cannot manage risk, as the adage learned from managing nuclear submarine construction
and NASA moon shots (subjects with firm physical laws like gravity), “you cannot manage what
you cannot measure.” Since all their models are based in expectations, of anticipated earnings7
or
speculation of future stock prices, which they immediate disclaim any responsibility for as
‘forward projections’ they have made. Their only ally is standard deviation of market volatility8
.
Just as Gracie’s famous “illogic logic” was the deft delivery of a very clever line. The fund
managers’ ‘lines’ sell well, because they know like any ‘gull’ you want to believe the grifter,
whether out of your naïveté or your greed. ‘Caveat emptor’ is their only ‘theory’ at work.
But, to be fair they never have had any concept like a Risk Price having had no such basis as we
provide. With our Risk Price derived ‘likeables’ it is a new world for investors, with a road map.
But by grabbing your attention, and their sales bonus, they say that in the long run you can
expect a return on equities of about 7% per year above inflation9
. We even have major pension
fund managers saying in national television interviews they can obtain that and more as they
project they will over the next decade, though they have never actually succeeded in decades
before. Fact is they have returned less than inflation. Even current claims of 9.1%10
make no
reference to fortuitous 30% exchange rate bonus converting US dollar equities to other national
currency. When we examine, their long term result is near half that of inflation, while for some,
pension fund contributions have been legally required increased 65% to cover successive years
of funding shortfalls. There is always new gap this year again compounding previous gaps. More
increases in contributions are to be phased-in with defined contribution plans that are the subject
of collective bargaining under threat of government forced resolutions over the indignity of
Montreal police wearing camo-pants in protest. Protest should be load and clear. By your being
forced to pay doubled contributions they can project earnings by claiming those contributions as
‘gains’ they had earned. That is as perverse ‘logic’, new donations as gains, they already use.
That is too good result they say they can ‘expect’ by their methods, as their history shows. Such
projections certainly are just and only ‘forward looking’ without any reference to their past
results. Something has to be different to expect different results. However, they are not talking
about how their methods need to change. Trusting in them is their only card in their game. It
seems to be much more real experience that by ‘mean reversion’ investors might have several
years of good returns, possibly 10% to 15% per year (they have never obtained), then one bad
year of minus 20% or so (as we have seen). Most likely many years of next to nothing, adjusted
for inflation or not after their fees. Their result is anecdotal, of course, but that story is not at
odds with their ‘theory’ which is not really theory it at all. Rather, their ‘theory’ is just a story, an

“
observation on historical data, with a very fervent “if only we had” wistfully uttered. They
bought none of those bargains, with or without your wallet.
Nobody can say from their “theory” why the long run return on equities appears to be about 7%
rather than 5% or 8% above inflation11
. In addition, the “long run” is about fifty years
consecutively, well beyond the investment horizon of most of us. Secondly, the standard
deviation model for volatility of the ‘expected returns’ is in excess of 15%, which means that in
three of ten years, a real return of less than minus 8% or more than plus 23% should not surprise
us, by chance. In the long run of fifty years, two or three instances of minus 23% (two standard
deviations) and plus 37% should also not surprise us either, that is statistically likely. Those
“results” they say are to be expected, based on their “theory” which, of course, is not a theory at
all, but conjecture without even the effort of proof instead of rhetoric. Observation is not cause12
.
Much touted ETF and Index funds suffer these same problems, no method that works, as they too
believe in the gospel of ‘mean reversion’ that underperformers “just need more time.” If it were
not for Quantitative Eating the most touted of these funds would still show a sharply negative
return. In its first 3 years the Vanguard Total Index was -23.29% in 2003. Now, after 15 years
remains still lower today than inception. Compare that to eroding inflation at 2.52% for that
interval and your first dollar is now $0.68. Fifty years is a long, long, time waiting for a second
coming, deviation (of +37%), holding an undifferentiated basket of common stocks that are
allegedly renewed or re-balanced13
from time to time, and as we have seen very recently, a lot of
misfortune can happen between year forty and year fifty, holding their bag of NASA hammers14
.
Obviously, there is something terribly wrong here. Whereas when we buy a car or a washing
machine, we are almost assured of a guarantee or warrantee of performance. When we hire a
technician to service our car or washing machine we reasonably expect things to work properly.
When you buy stocks or hire an investment manager, you are guaranteed nothing. Not returns,
not even capital safety or liquidity. You get well schooled highly paid ‘experts’ either playing
coin-tossers, or Whack-a-Mole with the bag of NASA hammers they bought with your cache.
Hope should not triumph over reason when the most likely outcome on their promises is that you
will get back a lot less than you put into their control, especially when adjusted for inflation and
agency costs, and perhaps that is the lesson we should take from “Dr. Stock Investor.” His fee is
guaranteed by you, but your returns are not guaranteed. The expected average is not guaranteed
or even understood. Mean reversion is not a solution to your needs. It solves his need.
As their martingale game is played their way, you ought to expect real capital losses, whether
you stay in cash (in which case the losses are guaranteed by inflation) or venture into securities
by coin-tossing on your own, with some faint hope that you might beat inflation, suffer no loss or
even gain, or lose substantially in the short term of the next five to ten years. That experience of
investors is very likely and one of the reasons most people regard the “stock market” a dangerous
and mysterious place, which includes “Dr Stock Investor” the dangerous financial advisor who
lives there but does not know where at any time. Do not trust those promises with your wallet.

“
However, with Risk Price derived “likeables” we have proof of a very different world altogether
– a brave new world – when the investor demands guarantees that can be honoured “3% plus
inflation, every year, no matter what” for example, can be guaranteed, can be done. Of that there
is no doubt as we have shown through 4 years public TaxCharityTM
suite demonstration.
We show that the result is a logical outcome of our theory of the firm and its implied valuation
measure or “numeraire” N* of any firm. We use N* obtained from credit float added to financing
model of the firm reported in the balance sheet. This measure determines the firm’s Risk Price,
to enable we can manage portfolios. We find N* respects investor and market behaviour in a way
that is built-in. We tested and found that the market behaviour tends to be very consistently nice.
Thus, we can dismiss using statistical averages and standard deviations of returns as practices
unfounded in theory, and both, naive, and irrelevant to stock price performance15
. We know they
are, wrong16
, useless17
and harmful18
for investors, and have proven that19
. There is no need to
hitch your wagon of savings to those fund manager conventions of wild horses20
, as the only ride
in town. In retrospect, it just seems just desperate to hitch your hopes to their promises for a nice
ride with their blind-folded driver. Do not give them your wallet for their bargain shopping.
Our theory shows that every stock market or group of stocks, such as the Dow Industrials, Dow
Transports, S&P 500, NASDAQ, TSX, and so forth, partitions naturally into exactly two
portfolios of stocks that have nice properties. In the first group, are all the companies revealed by
our partition of Risk Price derived “likeables” that absolutely tends to not lose in value. The rest,
its complement, the ‘bargains’ second group, forms a portfolio that tends to not gain in value.
Obviously, the first portfolio of “likeables” is a kind of “holy grail”, a “money machine” made
up of pieces readily taken with some distribution from our “likeables” shelf. The second the
‘goat’ is not bad to know either because having taken out ours first, the remaining portfolio will
tend to not gain in value, more likely will tend to lose. For the ‘goat’ losing is as likely as
winning and we shun it as a more appropriate domain for the methods of CAPM, VaR, and
portfolio management which presumes zero-sum, they can play dice with their presumptions.
The first or top portfolio on our “likeables” shelf has an implicit bias towards winning, by its
disciplined practice of economics. That is actually rewarded21
in that portfolio by using our Risk
Price, as we can and do show proof positive, in our TaxCharityTM
suite of portfolios.
Although we suggest only for comparison, there are “brute force ways” to discover portfolios
like that first one, our“likeables”, though without theory, there is no way to ensure that once you
have found one, it will continue that way22
. For example, in the thirty companies of the Dow
Industrials, at any time, there are exactly thirty ways of forming a portfolio with only one
company in it, and the complement the rest. To continue, there are a mere 230
=1,073,741,824
“portfolios” (equal-weighted say) 23
, to check (plus the contra position) and in hindsight see how
long the properties obtain in each case. Whereas, we select the top ‘grail’ portfolio based on our
Risk Price derived “likeables” tending to not lose in value. Its’ complement the ‘goat’ tends to
not gain in value. Our theory provides proof in all markets of that distinction, of our Risk Price
derived “likeables” portfolios tendency to gain for the long term. Results do rise and fall on the
tides of others market behaviour, but your ‘tippy canoe’ becomes a keel boat and then a yacht.

“
Our first test case the DJI Exhibit 1: Portfolio Values and Cash Balances – From Zero to Hero
The portfolio that's shown (Black Line = Portfolio Value) was crafted and run among the thirty
companies of the Dow Jones Industrials between the years 2000 through 2008. The only
selection rule is that the stock price (SP) should exceed the Risk Price (SF) and the company
remains in our portfolio while that is true (SP>SF), and otherwise, is not held, or is sold when the
stock price falls below the Risk Price (SP<SF). By our decision we prefer that the Risk Price is
rising, or is likely to rise, and will tend to not buy the stock if the stock price is above the Risk
Price but the Risk Price is declining (or appears to be). We shop for ‘bargains’ that we need.
You notice that the portfolio value Black Line (which is the sum of the equity values in green
and the cash balance in yellow or pink) starts at zero and increases more or less steadily24
to
$11.6 million whereas in the same period, the Dow Jones Industrial Average (on the same scale)
starts at $11.6 million and ends up at $9.5 million ten years later, $2 million lighter and a much
more “exhilarating” ride (so much for index investing and passive “couch potato” portfolios).
We also note that whereas the Dow Index ran between $10 million and $15 million (+50%) in
2004-2007, our “likeables” portfolio ran between $5 million and $10 million (+100%) during
that time. It's also noteworthy that whereas we kept our profits and even increased them – with
no change in strategy – the Dow promptly lost 40% and finished below where it was eight years
previous – and nobody knows why, no one is to blame, but according to our rules price drop
triggered sell-off of “likeables”, taking out the profit gained, for a massive but affordable tax bill.
Our valuations or assessments are done only on the cycle of quarterly balance sheet data, though
stock prices are fluid, as fund managers’ bargain every day, with money from other people’s

“
wallets, on news and gossip, absent any theory that works. Another factor is that the Risk Price
is calculated independently of the stock price or ‘expectations’ – it is truly new information –
relies on balance sheet data only which are typically three to six months old when we do our
assessment on only public information, as law requires. In other words, stock prices are current
and readily available, but balance sheet data always lag valuation by typically three months
because that's all the market investors know in general25
, by law, unless they not abide the law26
.
It's important also to have confidence in the validity of the Risk Price which is, after all, a
computation and a provably meaningful surrogate (but surrogate it is) for the “price of
likeability”, that is, “the least stock price at which a company is likeable” (Goetze 2009).
Whereas the stock price is fast moving and can gain or lose ±5% or more on any day, Risk Price
is much slower moving because by our practice, it is on the quarterly cycle of balance sheets
unless there are interim SEC filings, although one could develop balance sheets pro forma in
order to test ‘goodwill’ found in an emerging or conjectural Risk Price. A “computer
implementation” could do the comparison SP>SF or SP<SF several times a day, and get needless
results. For those who need to live in that “fast lane” psychosis we recommend that if their
‘market timing’ test succeeds and a company is bought for the portfolio, then the computer
should enforce a hold rule of no further purchases or sales in that stock for at least three months.
The typical holding time for a stock in “likeables” portfolios is fifteen months, often more. If we
don't like its unfolding Risk Price inclination then we sell, collar-option or just shop elsewhere.
All stock markets are available to us. The research costs for stocks’ public information are
negligible (it's pointless to “interview” management, or analysts, to gauge the worth of a stock
price for a public company on their expectations’ of good news). We just need the balance sheet
data firms are required to file with the SEC. Another way to take in times of uncertainty is to buy
options and then wait to see how the stock price and Risk Price unfold as more real price data
emerges. We can use put options also as a means to test for a time to leave any position. We do
advocate routine selling on gains so we end up in a “free” position as our gains are secured in the
residual shares as “risk-free good” which others claim is not possible.
The conventional investment industry cannot prove any of their assumptions underlying their
methods, where results are 1.03:1, like a coin toss. Avoid those Artful Dodgers playing dice
while bargain shopping with your wallet. Investors need a real compass27
and sketch showing
cataracts of tidal reversing falls to guide their canoe. Risk Price shows investors a way forward.
Our TaxCharityTM
suite of portfolios gives proof. In the spirit, constraints and tradition of real
science like Bacon and Newton we feign nothing. Our portfolio demonstrations are in real time
with real consequences obtaining real benefit to investors’ wallets. Because we can, we do.
In our Modal Geometry theory of the firm we make only two assumptions, clearly as follows:

“
1. there is a balance sheet of the firm (that the rule of law governs its information is
possibly weak assumption but at an accuracy to at least the modest degree accountants
are prepared to be responsible for); and,
2. the firm will vigorously negotiate, “what it owns” (in order to stay in business “what is
owed to it” with “what it owes” and vice versa, to make the best of what it has, that is in
its trading connections).
The Modal Geometry theory of the firm has unfolded more by rigourous observation in the real
world of corporate ledgers relation to balance sheets. That is aided with logic, epistemology, and
some powerful mathematics, real science, not conventional assertions with little but gossip.
Our reasons for having any equity in our portfolios are clear, concise and consistent. The
“likeables” are equities shown valued by investors, tending to continuing gain, which investors
have demonstrated a determination to buy and hold at stock prices above the Risk Price.
“AlphaSmartTM
gains, Capital Safety and Liquidity” are consequences we obtain through risk
aversion that our Risk Price enables. That is proven. Do not give them your wallet.
Proof is positive, in our TaxCharityTM
TaxCharit€TM
and BookBuilderTM
portfolios extending
our proprietary information to small investors. The BST-Solo50KTM
and ABC-ZsTM
suit larger
wallets. Because we can, while the entire financial industry is so busy blowing bubbles28
with
cash from your wallet, as Gracie prefers, they go bargain shopping for stuff you do not need.
It is the price of risk29
because that’s the price at which we can reasonably expect to get our
money back with a possible and hopeful return that exceeds the rate of inflation. That proof is
here in your hands, as we continue to show as above, because, we can.
Know What You Have, and only, Have What You Know.
Our risk averse view works. The proof of our method is clear and forthrightly shown. Of course
we require 2&20 fees for doing that, or utilize our 12% Bond. Mail us for our help.
Hans Goetze,
Architypes Inc. architypes@gmail.com and StockTakers Limited
Head Office
76 Midridge Close SE
Calgary, AB
T2X 1G1
351 Chemin Boulanger
Sutton, PQ
J0E 2K0
450 538-1270
1
https://en.wikipedia.org/wiki/The_Intelligent_Investor
2
http://www.slideshare.net/HansGoetze/the-obduracy-of-clouds
3
http://www.slideshare.net/HansGoetze/the-grail-and-the-goat-portfolios on North American markets the combined average
result of ‘managers’ investment models is 1.03:1, statistically no better than monkeys tossing coins or dice as compared to Risk
Price driven ‘likeables’ portfolio showing 2.28:1 of these equities gain for long periods, the rest is ‘gardening’

“
4
http://www.slideshare.net/HansGoetze/judge-by-company-they-keep
5
http://www.newyorker.com/online/blogs/johncassidy/2014/05/how-hedge-funds-get-away-with-it.html
6
Leading proponent of Modern Portfolio Theory, Peter L. Bernstein, disaffected realized it was exposing investors to risk while
productive way for making fund management professionals a living http://www.e-m-h.org/Bernstein1999.pdf
7
http://riskwerk.com/2013/09/15/earnings-dont-matter-2/
8
http://riskwerk.com/2012/09/22/popovicius-volatility/
9
Jeremy J. Siegel, Stocks for the Long Run, 4th
edition, McGraw-Hill, NY, 2007.
10
http://cdpq.com/en/results studious review reveals sale of US equities bought when there was dollar parity sold when
Canadian dollar was 0.75 indicates there was actual loss converted to a gain due to currency differential not management skill
11
That is, “mean reversion” is a name, not a cause. Economists will sometimes refer to the “force of mean reversion” as if the
flight to average is the inevitable result of business excellence, success, or failure. Dr. Siegel does not explain why a real return of
7% might be logical or expected. We can just as logically claim his conjecture shows a 2.4% shortfall in market return value
compared to 9.4%, the product of average inflation for the last half century and average rate of Gross World Production as guides
International Monetary Fund and World Bank analyses.
12
https://en.wikipedia.org/wiki/Schr%C3%B6dinger's_cat for discussion of the Copenhagen Interpretation fallacy
13
There is no reason to “re-balance” other than by taking (some) profits and re-investing them in other stocks; it is pointless to tie
ourselves to an index if we don't know why it is what it is. Within the paradigm of “mean reversion” one should actually take
(some) profits and buy the stocks that have underperformed. That doesn't make sense either because there is no overriding reason
that what has gone down or stayed down, will now or eventually go up. It is ‘martingale’ investing supposed as ‘strategic’ but has
spawned more bankruptcies than success. As one savant said, ‘markets can be erratic longer than an investor’s pockets are deep’.
14
http://www.wired.com/2008/09/dumb-as-a-bag-o/ thus "hope"replaced responsibility
15
Equipped with what we said you might ask your investment advisor to justify their methods and explain why they cannot, at a
minimum, guarantee capital safety and returns above the rate of inflation, as does the Government Real Return Bonds (RRBs)
with a return that is guaranteed to offset inflation as measured by the Consumer Price Index (CPI).
16
http://riskwerk.com/2013/09/15/earnings-dont-matter-2/
17
http://riskwerk.com/2013/08/07/the-god-stock-econo-speak/
18
http://riskwerk.com/2013/10/07/bn-the-riskwerk-company-glossary/
19
http://www.slideshare.net/HansGoetze/running-markets-without-walras-and-schumpeter
20
http://www.slideshare.net/HansGoetze/four-horses-of-portfolio-apocollapse
21
One could seek “losing” in the same way but it is not deemed “economic” and we have found that the top portfolios for which
not losing money is the objective actually tend to gain in value whereas the bottom portfolios actually tend to lose money.
22
We mention this “solution” because one of those portfolios – among all those portfolios - will be the one that we generate
using our rule; but, without our theory we will not know which one it is, segment of or necessarily be the only one of that type.
23
Obviously, much more intense calculations will need to be done every day and in a matter of minutes.
24
There are three losing quarters in the first three years (and one much later in 2008 of $60,000 in $11 million) when the equity
holdings are small in number – that's predictable and avoidable – we're not ”stock pickers” and the more that we're in the market,
bull or bear, the better, as the tendency for gain is robust and our rules frame resistance to loss.
25
If there was a handicap that could shadow the method and not break the rules, we took it. There's nothing “optimal” about
what we did and in practice, there are many ways to protect equity values including simple stop loss and strategic puts and calls.
26
http://www.independent.co.uk/news/business/news/bankers-face-jail-time-under-new-bank-of-england-rules-9637394.html
http://www.bloombergview.com/articles/2015-05-11/nobody-s-worried-about-too-big-to-jail-any-more
Wall Street 2015 bonuses hit a three year low, falling 8% to $25 billion, although down, the average bonus was $146,000, likely
adding some 450mn to $230 billion in litigation costs since 2009 and another $70 billion through 2016 for trading irregularity
http://www.reuters.com/article/2015/01/13/us-banking-litigation-research-idUSKBN0KM10G20150113
27
http://www.slideshare.net/HansGoetze/orienteering-among-magpies
28
http://riskwerk.com/2013/10/14/asset-bubbles-day-october-14-2013/
29
http://riskwerk.com/2012/08/26/the-price-of-risk/

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