President Trump is under the illusion that it is easy to win a trade war and it is projected that in the steel and aluminum industry 30,000 jobs will be created, while in the steel and aluminum manufacturing industry where most of the jobs come from 600,000 jobs will  be lost. One of the reasons is there was a practical reason why companies were buying non American made steel and aluminum – many of the companies making the steel or aluminum has American ownership or healthy American investors using the natural resources of another company. US Steel has plants in Canada, Mexico and the US, if a manufacturer bought steel outside the US but from a US producer is the product American or non American? As of mid July the President continues to issues more tariffs.

In the auto industry, German owned plants in the US exported vehicles to China, now German companies will be shifting production to China with joint ventures. BMW is doing a joint venture with Great Wall Motor Co to produce electric vehicles. BMW also announced it will be making more vehicles with partner Brilliance China Automotive Holdings. BMW sold 560,000 units in China which is more than the US and German markets combined.

Tesla announced in will begin construction of a new plant in China which will produce 500,000 electric vehicles a year within the next 2 or 3 years. Currently China exports the vehicles from its Freemont, California plant. Tariffs have added $30,000 to the price of the vehicles in China. Last year Tesla sold about 15,000 units or 3% of the market for electric vehicles. In terms of ranking that is 10th in the market but 17% of Tesla’s revenue.

Linking to dividend paying stocks, Presidents come and go, but corporate America makes decisions in the best interests of the company. If the interest of the company and the interests of the government are the same, so much the better. Manufacturers similar to every organization like to have options, there are more preferred options but options never the less. Political types can make silly policies, but  as long as companies are not buying into it and maximizing their returns, they are worth holding. If companies buy into the political musing of the day, find alternatives for eventually there will be change.

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

In every industry, people look to the leaders and try to copy them for it is normal thing to do for a person as well as in corporate strategy. In the world of movie production involving HBO and Netflix, according to Johanna Schneller, recently AT&T bought Time Warner and one of the media properties is HBO. The New York Times reported John Stankey who oversees Warner Media told a town hall meeting of 150 people that they will have to radically step up production this year. Mr. Stankey discussed the hours a day because we are competing with devices that sit in people’s hands that capture their attention every 15 minutes.

Ms Schneller disagrees with the idea because to her HBO has built a priceless alternative; a brand so reliable that people will try anything the service puts out, because they have that much faith in the network’s taste. Ms. Schneller sees Netflix as a generous throw it at the wall and see what sticks attitude. There has been some shows which are great but most are pleasantly good, not loyalty oath pledging fantastic.

The reason Netflix can produce more is highlighted in a book called AIQ by Nick Polson and James Scott, published by St. Martins Press, NY, 2018. In the book Netflix started out as a machine learning by mail. The company sent out red envelopes with DVDs and no late fees. Each envelope as the person to rate the movie between 1 and 5. As time went on, Netflix algorithms would look for patterns.

House of Cards was Netflix first try at producing a series rather than distributing it. When the production team pitched Netflix, after having been turned down by other studio who wanted to see a pilot to see how people reacted to it. Netflix said essentially we have run our data, and we do not need a pilot. To put that into perspective, in the year House of Cards premiered, the major TV networks commissioned 113 pilots costing $400 million. Of those only 35 went to be a series and only 13 ran in season 2. What did  Netflix know that the networks did not?

The pat answer is that Netflix had data on its subscriber base. (the networks had plenty of data to). Netflix had two things going for it: (1) the deep knowledge of probability required to ask the right questions of their data and (2) the courage to rebuild their entire business around the answers they received. Now days Netflix is where data scientists and artists come together to make awesome television.  Few organizations use AI for personalization better than Netflix. Personalization means conditional probability.

Linking to dividend paying stocks, Netflix and Warner Video are competing and both will churn out many hours to watch on TV or the tablet or smart phone. If the production company is correct more people will watch and advertisers will pay. If the show is being made to essentially fill up time slots rather than consider who is watching at what time and are they willing to buy a subscription? Turning out mediocre movies may keep an executive’s job, but if it does not draw the expected audience, perhaps the strategy of HBO will produce movies that were similar to the Hollywood era with a movie a week. and maybe one or two will be great. However the odds are against HBO becoming better than Netflix and Netflix and HBO reversing positions.

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

If you are focused on buying stocks which pay a dividend, unless the company has a monopoly and from an operation point of view the company is well run, then it will have multiple small competitors. Most of them will not challenge the company but some can and you need to be aware of what is happening in the marketplace. Recently Merge Gupta-Sunderji founder of Turning Managers into Leaders wrote an opinion piece in the newspaper titled How to spot warning signs of disruptive innovations.

When a young company outperforms an industry titan it is called disruptive innovation. The company often introduces new products or services to gain advantage over established competitors. If the new company is successful, the new company can replace the old one.

The issue for investors is no matter how much you “love” the established company, once the new one takes hold it is game over. The time can be still months away but the new company has gained traction that any efforts to reverse the tide is futile.

The signs needed to nip or see the potential threats:

Identify Potential Disruptions – Ensure the SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis is correct. LISTEN to your customers when your customers tell you their pain pints and who is stepping into relieving the ache. (It is easier to start with are there any little concerns you have with the company? listen and then ask about big ones). Companies that are addressing your customers’ complaints are the ones that pull ahead to disrupt your business. How does the company listen to complaints?

Determine Your Competitive Advantage – How does the company make profits? Why is better than the others?

Evaluate Your Disruptors’ Barriers – Look beyond the present. What barriers does your competitors have to go over to wipe out your existing differentiators?

Momentum – are customers there because they are used to status quo? Remember status quo can change.

Tech Implementation – will changes in the use of technology change your customers. As the world moves to the connectivity of everything how does that change your business.

Ecosystem– can the business environment shift?

New Technology – what has to be invented for disruption to occur?

Business Model – is the competitor following your business model or a different one?

Linking to dividend paying stocks, these are the companies that can be disrupted because they are profitable. The issue for you is to ensure you know how your company makes its profits and how secure they are. What has to change and how likely will it change while you own the stock. Many companies have a monopoly or monopoly like environment and that has worked very well for the companies. Will it continue and why would it continue?

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

 

If you invest in raw materials world or the minerals, quickly the companies you invest in will go beyond the reasonably stable democratic country where you live. Minerals are found around the world and in some countries due to the person in power, essentially bribes or royalty fees to the ruling cabinet must be paid. It is very hard to be in the mining industry only dealing with saints, invariably by any definition of the word companies have to deal with sinners. Recently Eric Reguly examined Glencore’s dealings with some sinners.

Glencore is one the world’s biggest commodities traders and miners. The example in the article deals with Glenore’s operations in Africa but with minerals it could be multiple countries around the world. Africa is blessed with endless resources to be tapped – cobalt, copper, diamonds, oil. In the more regulated countries, some of the dealings with the unregulated countries keeps the lawyers files filled and invariably companies pay a fine without admitting breaking the law. Recently the US Department of Justice filed a suit against Glencore alleging it had broke the law regarding the Foreign Corruptions Act. Glencore in the Republic of Congo used the services of Dan Gerler (who has ties to the President) with great success. The background is the mining of cobalt in which the Congo is home to 60% of the world’s known reserves.

Linking to dividend paying stocks, we all have choices in terms of investments and some companies are easily removed from seemingly wrong doing. For example, if you invested in ExxonMobil for the most part it tries to the right thing at healthy margins, however the history of how the Rockefeller’s gained a monopoly and controlled the oil industry at the beginning of the 19th century while healthy for investors was not in keeping with the ethics of Mr. Rockefeller’s seemingly personal ethics.  At some stage many companies prior to gaining a dominance did something to lessen the competition. It is after they gain a dominance that from an ethical standard they are more easily invested in.

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

 

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If you think about which companies in Germany made armaments and steel in the World Wars, near the top of the list would be Krupp, which merged with Thyssen. For generations, Thyssenkrupp has been one of the key industrial companies in Germany. The company has evolved over the years and is still a premier company involved in construction, engineering and service of industrial plants – essentially Thyssenkrupp helps any company around the world after the raw materials have been extracted from the earth and the next stage is to produce something from them. They have a long history and recently merged their European steel operations with Tata Steel in a 50/50 operation. Tata which is based in India owns a steel mill in the Netherlands which is close to Thyssenkrupp’s mill in Germany and it is believed money can be saved with a merger. If you been in an elevator you might see the Thyssenkrupp name.

In the world of the stock market sometimes being stand alone business is worth more to shareholders, sometimes conglomerates are worth more because they are diversified. Thyssenkrupp is a conglomerate and at the moment, the shares have not move upwards in 2 years even though the company continues to do well. Activist shareholders believe the sum of the parts would be worth more than combined and have pushed management in that direction. The pushing meant Heinrich Hiesinger the current Chief Executive submitted his resignation and the company will be restructured in some fashion keeping in mind the biggest shareholder is the Krupp Foundation.

Linking to dividend paying stocks, often times as shareholders you want the company to fully diversified in the operations it does. The company can control its destiny from raw materials to the goods and services it delivers. Sometimes this is worth more than the sum of its parts and sometimes some shareholders will call for outsourcing of some of the parts. There is no perfect answer and companies will and do go through the process on a consistent basis. In the same fashion, sometimes shareholders will worry about debt, sometimes they believe the company could carry more debt. Companies continue to balance the competing vision of where the stock will be in a few years. As dividend shareholders you want to ensure your company does not go to far on the pendulum.

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

One of the internet providers had an advertisement slogan is Where will you go on the Internet or it was featuring one of the great things about the internet – if you are curious about a subject you can learn or find information till your heart’s content. You can find others who are interested in subjects you are interested in and you can be a more informed person. Most people including me are sometimes curious about subjects, but not 7 days a week. Sometimes seemingly mindless activities are equally as important. It is the seemingly mindless activities that a book was written about the subject. The book is called The Internet Trap by Ashesh Mukherjee published by U of T Press, Toronto, 2018. The author is an Associate Professor of Marketing at McGill and can be reached at ashesh.mukherjee@mcgill.ca.

Too Many Comparisons

When we compare ourselves we tend to compare upwards. Upwards means in our minds, people who are better than us. If you are on Facebook, you tend to post something more than routine or more interesting. The best of the 100’s of pictures taken or the places seen. This can lead to envy because the viewer has not have not done anything interesting.

Too Little Privacy

The Internet never forgets. Everything we do online is recorded in data bases and big data is becoming more important. Companies will continue to mine the data and as long as it is in the general grouping we are likely good. As data mining becomes more specific perhaps it is better to be off line every once in a while.

Linking to dividend paying stocks, while the above related to individuals, companies are making the connections and for really good reasons. Not long ago, an elevator company connecting all their elevators was a good thing. The data will help the company and potentially give it a competitve advantage. That type of collection and information may help the stock price to go up because the company is no longer just an elevator company. The information can be used for other purposes and the information allows you to examine a company differently.

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

 

 

One of the internet providers had an advertisement slogan is Where will you go on the Internet or it was featuring one of the great things about the internet – if you are curious about a subject you can learn or find information till your heart’s content. You can find others who are interested in subjects you are interested in and you can be a more informed person. Most people including me are sometimes curious about subjects, but not 7 days a week. Sometimes seemingly mindless activities are equally as important. It is the seemingly mindless activities that a book was written about the subject. The book is called The Internet Trap by Ashesh Mukherjee published by U of T Press, Toronto, 2018. The author is an Associate Professor of Marketing at McGill and can be reached at ashesh.mukherjee@mcgill.ca.

Too Much Information

One of the wonderful aspects of the internet is the amount of choice one can find. Instead of one of two store to browse, you can as potentially hundreds. Choice is the basis of free markets, driving competition and economic growth which are are good things. However choice has some negatives – choice paralysis, choice shortcuts, post choice satisfaction, and barriers to learning.

Why does too much choice lead to paralysis? Some of the reasons are regret, anxiety and effort. Sometimes will all the choice one can make, the question is did you make the best choice? Research has shown thinking about choice options creates a sense of attachment to all the considered options. The giving up of one option creates a feeling like you lost. Too much information can create anxiety which results in not making any choices.

In order to make a choice, we make shortcuts and this is why firms spend heavily on branding and jealously guard their brand equity. Brands bind customers with invisible chains of assurance and convenience in a world of excess information.  We tend to go with top ranked websites on the search engine. This tends to entrench the dominance of big brands in the marketplace.

Most people after purchasing their product will compare to others and some people will have received better deals than others. Did you receive the best deal?

The barriers to learning is partly due to the tools of the internet which can help you, you delegate to outside sources. The issue of relying on information can lessen our ability to learn because we now make less effort to organize and understand information in our mind.

Too Much Customization

More and more the internet can customize what you like to you which can be a very good thing. The issue is do you only associate with things and people which are similar to you, there is a world beyond you. If you only associate with people like you, it is very hard to think outside the box or be creative.

Customization can increase the costs because of the ownership feeling. This sense of virtual ownership or virtual endowment can create higher expectations of performance.

If the product is a luxury item, the less regular people input, the better. If the product is everyday, the more regular people having an input the better.

Linking to dividend paying stocks in life and on the internet there is balance for the individual. What is great for the company, may not be great for the individual. As we continue to evolve, how does the company balance the two and keep sales?

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

 

 

 

One of the internet providers had an advertisement slogan is Where will you go on the Internet or it was featuring one of the great things about the internet – if you are curious about a subject you can learn or find information till your heart’s content. You can find others who are interested in subjects you are interested in and you can be a more informed person. Most people including me are sometimes curious about subjects, but not 7 days a week. Sometimes seemingly mindless activities are equally as important. It is the seemingly mindless activities that a book was written about the subject. The book is called The Internet Trap by Ashesh Mukherjee published by U of T Press, Toronto, 2018. The author is an Associate Professor of Marketing at McGill and can be reached at ashesh.mukherjee@mcgill.ca.

Mr. Mukherjee uses the latest research in consumer psychology to highlight the 5 hidden costs to living online – Too Many Temptations, Too Much Information, Too Much Customization, Too Many Comparisons and Too Little Privacy.

Too Many Temptations

Desire is the wish for something – the stronger the wish, the greater the desire. Most of do not live in ideal world, we live in the reality we have based on our income. When you look for things on the internet, the presentation will be in the ideal world and thus the gap between the ideal and the actual strengthens our desire to spend money and time online.

Our minds are wired to keep the ideal above the actual state through a psychological process called the hedonic treadmill (Loewenstein, 2005). This state helps explain why we upgrade to the latest model even though the model we have works fine.

The internet makes us vulnerable to temptation by reducing self control. The self control is often lower because of goal clarity, the foot in the door effect, lower energy and product pricing on the Internet.

If you are browsing the internet without a particular reason you will often go on tangents. The more you browse the higher the opportunity to buy on impulse.

The foot in the door is the psychological process whereby taking a small step towards an object increases the chances we will take a bigger step towards the same object later. One method used by car sales people is – you are interested in the price of a vehicle. The sales person offers you a lower rate than expected, you fill out the paperwork. The sales person goes to his/her manager and the manager says no to the price and says the final price is higher. Many people say yes to the higher price because they filled in the paperwork.

The greater you energy, the more self control you have. If you browse and are tired, the chances are higher you will buy on impulse.

As consumers we love all inclusive. We think we will take advantage of all the offers, later you find out life came in the way and we only take advantage of some of the features.

Linking to dividend paying stocks, the above helps companies sell products which makes profits. An aspect of every consumer retailer is to have an active internet site which increases sales, this is good for the company. It may not be great for the consumer, but you want to ensure companies are doing what is necessary to have consistent sales to make profits. How does their internet site enhance the company?

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

In our economy there are many trends going on, for many of them we will not know how to profit by them because we are not positive how to make money from it. However in the economy somebody will try and if they succeed, the companies will be on written about. One of the methods we can try to figure out what companies to invest in or to try to avoid is read books such as Microtrends Squared – the new small forces driving today’s big disruptions written by Mark Penn with Meredith Fineman, published by Simon & Schuster, NY, 2018. The book is divided into 6 sections – Love and Relationships; Health and Diet, Technology, Lifestyle, Politics and Work and Business. The great thing about the topics is we can able identify with some part. The more difficult question is what do you do about it? The problem is for every move or desire to move in one direction seems to inspire a countermovement by another group in the opposite direction.

You will likely have or heard people talking about watching a movie on Netflix. In the book, the author says 40% of all internet traffic today is generated by Netflix alone. But Netflix does not have the only business model – Cable TV made people pay for a tasting menu with lots of courses, whether they wanted them or not. Netflix has a similar all-you-can-eat model for the cord-cutting generation. iTunes illustrates the pay-per-unit business model. Amazon created a mix of both, giving Prime members the older content for free and charging per piece on the new stuff.

In the internet bandwidth, one minute of video essentially uses all of the internet bandwidth that years of email would require. In the third quarter of 2017, Netflix reported having 109.25 million streaming subscribers compared to 11.17 million in 2011. Since 2012, Netflix has been producing its own content and reaped major rewards. At the moment the average American is watching 5 hours of TV a day. This means TV producers can win big, even if the show has a small following.

When the baby boom generation was young, many of them read comic books. Comic books turned to movies and Marvel Cinematic Universe has brought in $12 billion in worldwide box office receipts – to say nothing of the billions more in merchandise. The movies also created conferences or comic-con events. Thousands of people spend millions of dollars on their favorite movies and pay to take pictures and autographs of the actors who portrayed the characters.

There are many other trends covered in the book, but these ones highlight why technology companies including Disney need to be either in your investment portfolio or on your radar. Does anyone believe they will not be around in 10 years plus?

Linking to dividend paying stocks, when a company consistently earns a profit it is easy to sit back and continually collect it. However the economic world continues to change and the issue is how does the company adapt to the changes. In the book microtrends there are forward trends and pushback to the trends. What aspect do you think the companies you invested in are doing? how well are they capturing the trends in the industry as you see them. Most of do not know which trends will lead and which trends are not very profitable for the average investor and this means you need to keep doing your homework.

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