I got a phone call this week from my tennis coach, who, in between booking me up for some $85 an hour lessons, confessed to me that whenever I write about going short, he always has to read the article twice but still struggles with the whole concept.
I told him that when I was first introduced into option trading, it took me about six weeks to get my head around buying a put option. A call option I could understand but the word ‘put’ and its purpose just threw me.
I explained it to him in a more understanding way.
Imagine you are standing next to the bananas in Woolies and they are $3.00 a kilo. You know that in Coles they are $2.00 a kilo.
An old man is standing there and he tells you he is just there to buy 3kg of bananas. Being the kind Samaritan that you are, you tell him to give you $9.00 and you will drop them off at his house.
After he zimmer frames it away, you run to Coles and buy the 3kg for $6.00.
You put the difference into your tennis shorts and deliver his bananas to his house.
Congratulations! You have now managed to arbitrage the banana futures market on a backwardation.
“Simples,” I said and he thanked me. He then asked me what this week’s article would be about.
I said that I think it will involve Chelsea Football Club, Bruce Springsteen and Listerine mouthwash and he mumbled something about my column being “nearly as manic as my backhand”.
I tell you, if Google ever released my internet search history, I think I would get sanctioned. Or at least have a family led intervention meeting, before the men in the white coats appeared.
Mind you, that’s what I loved about the markets. You never knew what it was going to do, so every trading day was different.
Bit like my mate’s very jealous red-haired Italian girlfriend. Hot and cold, just like the markets. One glance (profit downgrade) the wrong way and all hell gets let loose. A bunch of flowers (profit upgrade) and she sizzles.
So, my manic week started at about 3.00am one day when I was wondering if mouthwash sales had fallen, because everyone had been wearing masks for a couple of years.
I thought this was quite a normal thought, though Mrs Broker told me later that morning it wasn’t.
Anyway, Googling away I discovered that Listerine had actually been around since 1879, which took me back a bit. I always thought it was a modern day invention.
It started out as a surgical antiseptic and then it was later watered down a bit and marketed as a way to reduce bad breath and the germs that help create it.
Now this is the bit that really took my breath away. Listerine has a royalty share which is listed on an over the counter (OTC) exchange.
As some of you will know, I love royalty payments, having first made a tidy profit out of Sun Oil Royalty Units.
Listed in the UK, they gave you a royalty, which was payable in barrels of oil. A P76 owner’s wet dream!
We would buy them three months ahead of them drilling for oil and sell them to the quacking ducks two days before drilling would start.
I managed to do this four times before they ran out of money, having never found any oil.
Listerine Royalty Rights give the holder (or part holder) a payment of US$6 for every 2,016 ounces of Listerine sold which is equivalent to 144 400ml bottles of the green stuff.
A 1% share in the Listerine royalty trust pays out about US$240k per year in passive income, split into quarterly instalments by Johnson & Johnson, who now own and produce the product.
This royalty has been paid out every year, without fail, for over 130 years. Howzat for a contract!
The Beautiful Game
Now, having read all of that, I started to Google around ‘royalty news’ and I read that the part owner of Bruce Springteen’s back catalogue is a chap by the name of Todd Boehly.
Bruce’s sale drew the largest amount ever paid for a single artist’s royalty entitlements, so he now really has become ‘Born to Run’ as he rushes to see all those noughts in his bank account.
I now start to look into the background of this Todd Boehly and I discover the 48-year-old American has just led the consortium that bought Chelsea Football Club for the ‘bargain’ price of $7 billion and has now become their front man.
The Boss sold his rights to Todd and his mates for US$500m, having written his first song 50 years ago.
If you take the income generated by the Listerine royalties, on a 5% yield, they would be worth the exact same amount of money as Bruce’s back catalogue. Music for your taste buds, if you like.
So, when I finally decide to go back to bed, I wake up Mrs B, as I can’t stop giggling about the thought of all of these burly tattooed UK Chelsea fans singing at the top of their lungs ‘Born in the USA’ with fresh minty breath.
She asks me what on earth I am going on about and I tell her that she will be happy to know that mouthwash sales didn’t drop when everyone had to wear a mask.
Now, that’s research!