Dividends and How We Got to Now, part 3

Part of investing is looking forward, we want to ensure our investments will continue to be profitable and pay dividends, we also want the company to stay in business and grow. If the company has a natural monopoly, it makes it easier, if not then we occasionally we need to look at how things fit in and if we believe the company is doing the correct thing. There is a book called How We Got to Now – 6 Innovations that made the Modern World by Steven Johnson, published by Penguin, NY, 2014. Mr. Johnson has written other books which you may want to check out.

If you look at our society and there are many wonders, how did or what needed to happen to arrive at where we are? In Mr. Johnson’s book the 6 important ingredients are glass, cold, sound, clean, time and light. You might add a category, but it is differently an interesting way to see how the world we know evolved to where it is. If you can see what Mr. Johnson sees, that will help you invest and notice if the companies you invest in do not seem to be getting in, how to connect the dots for the future.

Cold

Living in the northeast, there is cold weather, but generally it is bearable and over the years we have heard about towing glaciers to Saudi Arabia for water. This story repeats history for in 1834 Frederic Tudor sent ice blocks from the Boston area to the Caribbean. Similar to many families, the Tudor’s had an ice box which kept ice from the ponds and lakes of the area in a box and when the hot summer months arrived, ice was chipped to be added to drinks or cool down a bath during a heat wave.

The idea of sending ice south was a good one, except for there was no market for ice because the locals did not know what to do with it. The residents were not use to the cold, they were used to heat and organized their lives around the heat. Morning and evening work, sleeping or rest during the hottest times of the day. Most of his customers did not understand the usefulness of ice – they needed education. It took a number of years before Mr. Tudor built up the infrastructure – harvesting, insulation (sawdust and double-shelled structures), transport and storage. American ice was going around the world with the biggest customer – India. By 1850 more than 100,000 tons of Boston ice was shipped around the world. By 1860, 2 out of 3 New York homes had daily deliveries of ice.

Most of the trade in natural goods involves material that thrives in high-energy environments. Sugarcane, coffee, tea, cotton were all dependent on the heat of tropical and subtropical climates. You could make a fortune in the 1800’s by taking things that grew in high-energy environments and shipping them to low-energy climates.

Chicago owes its growth to being a transportation hub and ice-powered refrigeration. Pork can be relatively easy preserved, but beef can not so remain a Chicago area delicacy. Cattle was originally moved from the ranches in the plains to markets in New York and the eastern coast by train, but the cattle was both expensive and about half of the cattle would be inedible. There had to be a better way – and ice cooled facilities were invented along with the refrigerator rail car. Then up to 14 million animals were slaughtered in the stockyards of Chicago.

To understand the next breakthrough we need to know how they happen. It is not just a solitary genius coming up with a brilliant invention. Ideas are fundamentally networks of other ideas. We take the tools and metaphors and concepts and scientific understanding of our time and we remix them into something new. If you do not have the right building blocks, then it was not possible. By 1850, a refrigerator was coming into the possible.

Artificial cold took time – most ideas tend to come in clusters, where a handful of geographically diverse investigators independently stumble upon the same discovery. Most discoveries become imaginable at a very specific moment in history after which point multiple people start to imagine them.

For refrigeration, the knowledge of thermodynamics and the basic chemistry of ice, combined with the great fortunes made in the ice trade, made artificial cold ripe for invention.

In terms of food, Clarence Birdseye noticed the key to freezing food was how quickly it was done. We now call in flash freezing and what that does is generate small ice crystals and the food tastes better. A good method to look at the issue is, people used to go to a butcher for beef, the stores carried a very limited selection. After flash freezing is invented, it took some time, but food retailing changes to the the Super Stores that you may have gone to. a

In the household, air conditioning is consider an essential in the warmer climates of the US and we owe Willis Carrier who received his start fixing a problem for a printing company to stop the ink smearing in the humidity. Carrier first worked on industrial business, one may see or remember signs of movie theaters – air conditioning. The air conditioning for homes allowed people to move to the sun belt and live the same lives as they would in the north of the US, without the cold. The increase in people living in the Sun Belt changed how the President became President.

Linking to dividend paying stocks, in the past 100 years lives have changed, hopefully for the better but it is easy to see how lives were lived in the movies. If you think about a movie called To Kill a Mockingbird, there was no air conditioning, which meant life was a little slower. Perhaps it was better, it was different. With each element society changed and companies grew and declined or alternatives were needed. Society will continue to change hopefully for the better, which is why when you invest understand how the company makes money or a profit.

There are more questions than answers, till the next time – to raising questions.

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