Sometimes you can pick up information in the most unlikely places, a case in point is the book Edison & The Electric Chair by Mark Essig  published by Walker Publishing Company, NY, 2003. The book has two interwoven sections  – one the aspect we all know the name of Tomas Edison as inventor and owner of electricity networks (Con Edison is a company many people know well) and the aspect is using electricity to kill people in the electric chair.

In his early years Tomas Edison was a tramp telegrapher, although he has equally interested in how the structure of the telegraph worked. His first patented invention was US Patent 90,646 issued in June 1, 1869 to tally votes in legislative houses. His next invention was provide gold and stock quotations for banks and stock brokerage houses which was successful. Western Union bought the company. The new invention was for duplex telegraphy or the ability to send 2 messages and the same time, one in each direction. Although Edison sold to Jay Gould’s Atlantic & Pacific which later sold out to Western Union.

With the money from his inventions, Edison built up the laboratory in Menlo Park, New Jersey. The research community is still very evident in the area – Bell Labs. The area is 20 miles south of New York. In terms of light bulbs, when Tomas Edison looked at the solution, his idea was to domesticate electric light. One has to consider at that time, light was generated by oil in lights, then gas and Edison believed it was possible to invent a low cost light that would be safe and improve life after it was dark. Similar to most beliefs, proving it and making it a success is easier to say than do. For example if you look at the light – the filament had to be invented – what is it made of?

Fortunately, Edison had some advantages others did not – he had a successful track record as an inventor. His success brought those with capital to help him. Edison had a stock company called Edison Electric Light Company and investors included: William Vanderbilt, the principal shareholder of Western Union; Norvin Green the President of Western Union; Egustio Fabbri, a partner with Drexel, Morgan & Company. The company associated with JP Morgan snapped up the British rights to Edison’s patents and became his agents for all of Europe.

The above shows he had access to capital, he also had the ability to send press releases to suggest he was almost there or had achieved success. This brought in a well fund laboratory to work in; Edison had the sense to employ extraordinary talent which lead to press releases which the public followed. When the public was invited to see an electric light because they had the correct materials for the filament – thousands showed up.

Similar to all industries, it was easier to invent the product than the next step is wire city blocks for lights to work and collect a revenue stream from. One reason is the gas companies did not go asleep. Gas lighting was introduced in the 1840s and 1850s which meant by 1880 they were well entrenched. Relatively cheap coal allowed the price to be low, the gas companies enjoyed a government-protected monopoly and by 1880s, 70% of the consumer price was pure profit. If you were an investor you loved gas companies.

If you think about electric companies, they would have to do everything the gas companies are doing and beat their prices. Edison closely studied the costs of gas lighting and tried to eliminate all the waste from the system “Everything must be got down to the last penny”

Linking to dividend paying stocks, in every company one considers do they do the invention and roll it out or do they do the invention and license the technology for others to do? There is no one correct answer because both can work although using license will use less capital from the original investors. Having a better idea is never the single answer, a whole complex of other issues come into place before a consumer buys on a consistent basis with enough margins to make a profit. As you look around in today’s economy the issues do not necessarily change a great deal, the execution does.

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

In an article by Sijia Jiang of Reuters, China’s Huawei Technologies Co expects to ship more than 200 million smartphone to become the world’s top vendor of the devices.

Huawei recently displaced Apple as the No 2 smartphone vendor in the June quarter. No 1 is Samsung. The growth for Huawei is coming from Europe and China. The premium phone is known as P20 and Huawei has sold more than 9 million units since its launch in April and in the over $500 smartphone, Huawei has a global share of 16.4%

If you do not know the brand in the US, it is because none of the big carriers sell the phone because of concerns the brand helps China spy on the users. The company denies the concern. The company has focused on Europe, Middle East and Africa where it saw a 73% revenue growth. In China the growth was 37%.

Linking to dividend paying stocks, in every category there is competition. Some of the competition you will know the brands, some you will not know. Just remember there is always competition trying to eat into the margins of profitable companies. It is important as you do your homework, how does the company make money and can it continue to keep their margins to continue to pay the dividends?

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

In early August the number of shares outstanding multiply by the stock price for Apple surpassed $ 1 trillion dollars. Not many companies are in that range and which is a cause for celebration. In an article by Mark Gurman of Bloomberg News, he looks back at Apple.

The company was founded in 1976 by Steve Jobs and the company has consistently reimagined what a computer can be and defined how humans interact with the devices and software. Names such iMac, iPod, iPhone and iPad are brands many of us have heard about and know. Layered on top of that business model there was unparalleled product innovation, marketing excellence, combined with an untouchable retail experience. Tony Fadell believes there is not another company that executes at Apple’s level of detail, at their fit and finish.

Although Apple is a successful company, it had it ups and downs and was close to bankruptcy in 1997. Since the iPhone was introduced in 2007, the phones capabilities started the smartphone revolution.

When Steve Jobs died in 2011, Apple was worth $350 billion, with Tim Cook at the head the company is now worth over $ 1 trillion and has $200 billion in the bank. Since 2012, Apple has bought back shares and given dividends of $275 billion and has more to go.

Linking to dividend paying stocks, similar to all companies, the growth rate was not always up, back in 1997 Apple was a speculative investment at best and had made and lost money. Things turned around and now similar to Warren Buffett, Apple should be in your portfolio either directly or indirectly through a tech fund or index tech fund.

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

If you buy shares in a large company, at some point there will be a crisis – usually from external influences but something which is not the company’s “bread and butter” issues. To the company it is important, but it does not make them money, however to the customers it could and sometimes does erode trust.

Companies spend great deal of time and energy trying to ensure they have the trust of the customers to do the right thing and constantly improve. Understanding no system is perfect, but customers do what to see how the company reacts. If a company is under crisis, according to Melanie Paradis of McMillian Vantage Policy Group, the company should:

Step 1 – acknowledge the crisis. The three things which one tries to do is explain what happen? what are you doing about it? and how do you feel?

Very often the difference between a well managed crisis and a corporate disaster is executives overlooking the importance of empathy in maintaining trust. ( a classic case was when there was a oil spill in the Gulf of Mexico after a few weeks, the President said he want to get back to his old life and go sailing) The crisis took 100 days, everyone who used the Gulf of Mexico wanted to go back to their old lives when you could use the Gulf of Mexico).

How you feel, makes you relatable. Your willingness to express yourself vulnerable and authentically will strike a cord with your audience, just make sure it is consistent with your responses.

Step 2 – 72 hours after the crisis, which has hopefully found a solution, you must redouble your efforts to build, maintain and restore trust. It will not happen overnight.

Step 3 – most people have an idea about a fire drill. If there was a fire in your house what would you do? Ensure you have reasonable ideas for the things which would keep you up at night. What are the worst-case scenarios? Think about trust and the answers you will be giving both to shareholders and the press.

Linking to dividend paying stocks, one of the reasons why these companies are attractive is they have been through many crisis situation and people continue to use their goods and services. In your research see how the company has reacted to crisis and you will know whether in the future crisis to buy more shares when the prices are down.

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

 

 

Every large company has ideas and some are good and some just do not work. In the retail sector, senior executives look at Amazon and think how can we fend them off? they think about SWOT – Strengths, Weaknesses, Opportunities and Threats. The biggest retail in the world, Walmart thought about Amazon and came up with a solution – Walmart has the largest workforce in the retail world, some of its workers would likely welcome the opportunity to deliver packages to their customers. In an article by Nadita Bose of Reuters, for Walmart the advantages were: tap into their massive work force, boost e-commerce, lower shipping fees, and all would benefit. In Walmart’s executive minds lead by Marc Lore head of ecommerce – this could be a gamechanger – workers who make $11 a hour, could earn extra money after their shift. The advantage is with 4,700 stores with 16 miles of 90% of the US population. The idea at the moment is people shop on line, but come to the store to pick up the items. However if Walmart found a good way to deliver groceries, thing would be different.

The reality according the article for the process did not work. Workers realized after working at Walmart, they really did not want to deliver packages. Not surprisingly, Walmart wanted people to use their own vehicles, the program was set up with mileage but that was soon discontinued. Workers often had to wait to pick up the packages which was unpaid, and delivering 5 packages over 2 hours added $15.50 to the pay packet.

Under a new model, workers are hired to be a delivery driver and maybe do store work. The pay is slightly higher at $18.30 for 5 packages over 2 hours. Maybe Walmart should team up with Uber and have package delivery?

Linking to dividend paying stocks, all companies have great or good ideas, the execution to make a profit is what determines if the company is going to be profitable. In the case of Walmart, while they have many people, the people at the store level are seen as one more input. Looking back, the first model works for a small or start up company, not for a large one. The model has to make sense for the company’s culture in order to be executed properly. As you examine your company’s see how it executes its goals.

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

Hopefully over the course of the summer, you were able to visit a lake and spend time in and around it. Hopefully your pursuits were recreational, but have you ever thought about the eco-system under the water? In a book called The Death and Life of the Great ,Lakes by Dan Egan published by WW Norton & Company, NY, 2017 the author has and did. Although most of the book focuses on the Great Lakes – Superior, Michigan, Huron, Erie and Ontario; the eco-system of the entire US is discussed. Most of the time if you go to a lake, the lake is the end point of rivers and streams sending water into the lake. In the case of the Great Lakes, one really interesting method to look at them is they are a river flowing from Superior to the Atlantic Ocean. Niagara Falls means two things – one the waterfall is lovely to see, although 100 or 200 plus years ago it was 10 times the size and noise. However in terms of the ecosystem, because fish could not get over Niagara Falls, the fish were different on both sides of the falls.

In the world of fresh water systems – there is the Great Lakes system and the Mississippi system and they partial meet in Chicago at the Chicago Sanitary and Ship Canal. Chicago receives its fresh water from Lake Michigan and sends its sanitary waste down the canal to the Des Plaines River which connects to the Illinois River which connects to the Mississippi River. This means if there is something no good for the water in the Mississippi ecosystem it will not be good for the Great Lakes system.  In the book, the story of the Zebra and Gugga Mussels, Asian Carp, Lake Trout and Salmon were given.

In the case of the mussels, the good idea was in terms of ship building was to use water as the ballast to ensure the ship was steady in rough seas. The bad idea is where the water was picked up, the organisms in the sea was transplanted to the next stop of the ship’s journey. Until species developed and generally when new species develop at first they have few food chain “enemies” so they multiply. After some time, the animals in the sea change to their surroundings or die off. As the movie the Lion King said – the circle of life – we are all connected.

The issue is the cost to clean up is always more than the cost of prevention but until people or politicians see there is a need for cleanup, the balance typically falls out of synch and the costs are in the cleanup.

Linking to dividend paying stocks, in nature there are balances in the ecosystem until things change. Some for the good, some preventable and some because we believe nature can adapt to the changes. It can but it does take time. For dividend paying stocks, the balance is ability to sell goods and services at a healthy margin and make profits. Your task is to ensure you know how your companies are making profits and monitor those conditions do not change your balance.

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

 

Now that summer is officially over and many routines begin to be brought into the normal sphere, it is important to start off the next few months as fresh as possible. On You Tube, if desired besides many entertainment venues there are opportunities to learn things. If you think about short sellers, one of the prime names which comes up is Jim Chanos of the Kynikos Associates firm.

Mr. Chanos is a choice speaker for conferences because he looks at the market from what could come apart. Most of us look at the markets to see how much money we can make over the short and long-term. However just because a stock is on the stock market, it does not mean the company will not and has not stretched the line between legal and illegal. When companies are making money, all is good. When companies do not make enough money, the first instinct is to buy time to get their business model working.

If you short, which Mr. Chanos recommends you do not, the most important thing is after you have done your extensive homework and have the courage of convictions, you are well diversified. Even if you are right, but the market does not agree for now, you may lose money. Many investors have to agree with your ideas. Mr. Chanos’ firm sees shorts as insurance to make your longs reward you more.

There are always companies which stretch the truth because the model is not doing as well as the executives think it should be. Mr. Chanos noted there was a fine line between putting the company’s best foot forward and crossing the line to embellish or fraud. It happens more than you think it should and it past surveys of CFO’s when the person could not be identified, 2/3’s admitted the topic has come up and they were pressured to do so.

There are always some easy themes which Mr. Chanos’ firm examines:

Booms that go bust -Cash flows do not service the debt. Eventually something will happen

Real Estate bubbles  – we all want our real estate to go up in price but when is it too high too soon?

Technological obsolesces – business models which were great for a while, changed think about Kodak, Blockbuster Video, Record Stores

Growing by acquisitions – when a company buys another many times it does not work out, so accounting begins to see fraud to seemingly make it work.  some examples have been Baldwin United, WorldCom, Enron, Sunbeam, etc

Consumer Fads – the public latches on something,  a few months later they have move on to the next fad

Visionaries – some will be correct and change the world, most will not.

Movement of Senior Executives – people move between jobs, that is a good thing. For a company you have wonder when the senior level of people move more than normal. At the senior levels, one would expect people have a broader picture of information about the company. If they are moving to get out, then eventually the President and CEO need to be replaced and that means stock price falls for a time.

Linking to dividend paying stocks, when you buy these types of companies ensure you understand how they make a profit and can continue to pay you a dividend. As long as they continue to make a profit, the other companies will make wonderful reading in the press, but not necessarily great investments. You need to have a keen sense of skepticism of high flying companies, but remember ask how do they make a profit?

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

 

 

One of the most well known stories about a serial killer is Jack the Ripper. One of the reasons why it is well known is many people believe one person is the killer, no one has ever proved it. There are multiple books and plays about the time and one such book is called Jack the Ripper – The Complete Casebook by Donald Rumbelow published by Contemporary Books, Chicago-NY, 1988. The book was originally published in London UK in 1975.

In the late 1880’s London’s East End was considered and essentially was what is known as the other side of the tracks. The section of town typically where the railroad tracks cut through the city and in the old days of steam engine – the coal tended to settle on one side of the tracks or the other.  (as a side note, the other side of the tracks can change – in New York City there is an apartment building near the United Nations Building where there are very few windows looking west. On the east side is the river, when it was built the west side was slaughter houses. After the United Nations was built, the neighborhood changed but the building did not. Changes can happen). However in the late 1880’s the east side of London was poor, crowded, marginalized and best avoid by respectable people in the evenings. Rooms for rent were cheap and sanitation facilities – plumbing and water sewers were lacking.

In the above sort of environment, prostitutes were killed – not just be strangulation but their throats were cut and their bodies were sliced and diced. The pattern of killings was very distinctive. It was a mystery to why? and clues were not found – for example when someone is cut the blood comes out, blood is still hard to clean from clothes. Although the East End London was poor, people of various states tended to be outside and possible witnesses were high for a person who does not look like they belong to the East End. After the first murder, the person would need to have more than a working knowledge of the streets and laneways to get away. The person who was doing the killing seems to have a working medical training – this fact tends to eliminates people.

One idea for a movie which which was seen is the murders was connected to the Royals? it was never proven but the myth goes on. The author goes into details about the history, the ladies, the crime scenes and possible suspects.

Linking to dividend paying stocks, for most things in life we do not have to know everything. When you are investing, you do have to know what business the company is in and how does it make its profits? why would the company continue to make profits? is it a monopoly or near monopoly conditions. After you have answered those questions you can begin to look at alternatives – why one company over another? is it better to buy a fund or ETF? As time passes there will be more questions but if you want to preserve your capital and grow it, you do not need to know everything.

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

 

Every once in a while, one has to look at the macro effect, even though the micro effect is something we can easily see. David Rubenstein was at the Seeking Alfa sponsored by CNBC in mid July. Mr. Rubenstein is the co-founder of Caryle Group which is a very successful fund which owns 275 companies around the world. How he sees the world is important.

He was asked what keeps you up at night?

1. Budget deficit – when the public begins to sound off the deficit is too high.
2. Tariffs  – if tariffs become a trade war
3. Income inequality – more work does not translate to more income at the bottom

Mr. Rubenstein has 275 companies in the portfolio and every quarter the results are correlated with macro views. At the moment, Mr. Rubenstein believes his companies are doing well and will continue to do well.

The context he put tariffs in was the world has $80 trillion in trade, at the time of the interview about $50 billion was in tariff mode. The problem is when the percentage increases to above 5% and is expected to increase for example the President puts out a $500 billion tariff as if it will have no affect on capital investment or decision making.  The President believes companies bringing back money into the US from overseas holdings translates into investments in new jobs. (an example is Apple – they held $350 billion in overseas accounts – with the money coming back at lower tax rates, they increased their dividend and bought back stock. The investments were done with domestic money)

Linking to dividend paying stocks, if our personal lives it is relatively easy to project aspects or changes to systems. We think that some is good, but we are not positive when it affects us. At the time of the interview, it was thought the world economy could easily absorb the changes. It is always good to listen to people who have a bigger picture of the world than we do. There are always many challenges or fires to be put out, which one become larger we are not positive. The essence is ensure you keep doing your homework, try to narrow you field to see both the macro and micro picture and remember when you choose quality time is on your side.

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