If you invest the goal is to have more and the easiest and hardest way is to buy low, hold on to your investments for a period of time, sell some of it when it is high and buy more when it is low. That is a cycle. The way a cycle works is when you look backwards, it is easy to see. When you look forward it is very hard to know what and when the top or bottom is. One person who has tried to use cycles as an investment philosophy is Howard Marks, the founder of Oaktree Capital Management. Mr. Marks has written a number of books and every once in a while, he publishes his thoughts on Oaktree Capital Management website. Mr. Marks has made money buying low and selling high and wrote a book called Mastering the Market Cycle, published by Houghton Mifflin Harcourt Publishing Co, NY, 2018.

Superior investing does not come from buying high-quality assets, but from buying when the deal is good, the price is low, the potential return is substantial, and the risk is limited. The slammed-shut phase of the credit cycle probably does more to make bargains available than any other single factor.

The economy runs on credit or bank financing. When it is plentiful the door is open to give loans and increase loan sizes. When it is closing, few loans are given (banks will have a number for their loan officers to give – usually it is less than the demand for loans). and only those seemingly without need of the money will be given credit increases. When this happens the economy contracts.

The key to dealing with the credit cycle lies in recognizing that it reaches an apex when things have been going well for a while, news has been good, risk aversion is low and investors are eager. That makes it easier for borrowers to raise money and cause buyers and investors to compete for the opportunity to provide it. The result is cheap financing, low credit standards, weak deals and the unwise extension of credit. At this time investors should proceed with caution.

When the reverse is true and it is very hard to get credit, the lender has all the options. It is at this time, investors should be moving into an aggressive mode.

The opportunities to profit in distressed debt are highly cyclical and determined by developments in other cycles. An example of this high yield debt:

At the start, appropriately risk-adverse investors apply stringent credit standards to the issuance of high yield bonds.

the same healthy economic environment that facilitates bond issuances makes it easy for companies to service their existing debt (or defaults are scarce)

the returns convince investors that high yield bond investing is safe, attracting more capital to the market

Increased capital for investment translates into increased demand for bonds. Wall Street never allows demand to go unmet, more high yield bonds are issued.

The same conditions that allows larger amounts of bonds to be issued – strong investor demand – invariably also allows bonds of lesser creditworthiness to be issued.

Something happens in the economy which cause corporate profits to decline such as a recession. Profits decline, those bonds that had little lack of margin begin to default. Due to the outlook for the recession, credit window closes up and debt can not be refinanced and more bonds default.

The default leads to investors who were risk-tolerant not becoming risk-adverse.

Buyers become scarce and sellers predominate.

Eventually the economy begins to recover and the credit market reopens. The default rate slows and prices begin to rise rather than fall. Balance sheet restructurings restore companies viability and value is unlocked. The cycle begins again.

Linking to dividend paying stocks, most investors are interested in higher values in the future or the stock price increases after you bought it. As long as you are positive in the stock, it feels good and you can sell at a profit. All stocks throughout the year move up and down in price, in addition depending where you are in the cycle they will move up and down. Quality stocks tend to bounce back first after the market falls, which is why you should own the best in breed or profitable stocks in your portfolio.

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

If you invest the goal is to have more and the easiest and hardest way is to buy low, hold on to your investments for a period of time, sell some of it when it is high and buy more when it is low. That is a cycle. The way a cycle works is when you look backwards, it is easy to see. When you look forward it is very hard to know what and when the top or bottom is. One person who has tried to use cycles as an investment philosophy is Howard Marks, the founder of Oaktree Capital Management. Mr. Marks has written a number of books and every once in a while, he publishes his thoughts on Oaktree Capital Management website. Mr. Marks has made money buying low and selling high and wrote a book called Mastering the Market Cycle, published by Houghton Mifflin Harcourt Publishing Co, NY, 2018.

There is a theory that investors are rational people. It can be true based on doing your research and knowing what value is, then you reach the investor psychology. Investors will bounce back and forth or have pendulum swings between: greed and fear; optimism and pessimism; risk tolerance and risk aversion; credence and skepticism; faith in the value in the future and insistence of concrete value in the present; urgency to buy and panic to sell. These pendulum swings are seen most at the top and bottom of the cycle. Somedays it will feel everything that was good yesterday is bad today and vice versa.

Risk and return is an important element of investing. There is a graph with return on the y axis and risk on the x axis and the line slopes up to the right. Mr. Marks says it should be interpreted as Investments that seem risker have to appear to promise higher returns, or else no one would make them.

The Chicago school of finance essential assumption is most people are risk averse or they would choose a 7% guaranteed rate or a possible 7% return. This risk aversion is the main element that keeps markets safe and sane.

After an investor has been exposed to risk, there attitudes can and do change.

When economies are doing well, people in general relationship to risk changes to taking on more risk based on the idea that things will continue to do well.

For Mr. Marks the greatest source of investment risk is the belief that there is no risk. The reason is cycles change and they are marked by the extremeness on both ends. Once the good times stop, investors become overly cautious which contributes to markets going down. This negativity causes prices to fall to levels from which losses are highly unlikely and gains could be enormous. But the sting of the prior declines tends to increase risk aversion and send investors to the sidelines just as prices (and their risk) are at the lowest.

(there are many examples but a recent one was during COVID, oil prices fell because of no travelling, and the oil stocks fell in price. Once travelling could be done, demand for oil went up, prices went up and oil price stocks essentially doubled.)

Linking to dividend paying stocks, investing is about risk and reward. Buying an equity and the price rising and receiving a dividend overtime is a good thing. If you pay more attention to the profitability of the company and its ability to continue the dividend then even the price moves, for the time you own the stock it is less important. The reason is total return on your investment – price increase plus all the dividends you collect every quarter.

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

If you invest the goal is to have more and the easiest and hardest way is to buy low, hold on to your investments for a period of time, sell some of it when it is high and buy more when it is low. That is a cycle. The way a cycle works is when you look backwards, it is easy to see. When you look forward it is very hard to know what and when the top or bottom is. One person who has tried to use cycles as an investment philosophy is Howard Marks, the founder of Oaktree Capital Management. Mr. Marks has written a number of books and every once in a while, he publishes his thoughts on Oaktree Capital Management website. Mr. Marks has made money buying low and selling high and wrote a book called Mastering the Market Cycle, published by Houghton Mifflin Harcourt Publishing Co, NY, 2018.

The investing dynamic will always be in a cycle. People will often ask me what caused the cycle to begin or are we close to the end of the cycle. Cycles neither begin nor end. Better questions might be what caused the current leg up to begin? or how far have we gone since the beginning of the up cycle? Cycles have no beginning or ending because they never end, the wave continues.

All cycles have a midpoint and when the investment world is there, is a happy medium or a rational midpoint. The further from the midpoint means booms and bubbles are followed by harmful busts, crashes and panics. Then the cycle turns. (in September the market fell and then came back after a week and commentors noted how fast it went down and then back up).

Although every industry has cycles, they are all a little different. For example: sales of industrial raw materials are directly responsive to the economic cycle of supply and demand. However, everyday necessities such as food, beverages and medicine are not. If you normally buy a loaf of bread, with more money in your pocket you will not likely buy 2 loaves, if there is less money in your pocket you will likely trade to a different brand at a lower price, but still only one loaf.

The linkage between economic growth and profit growth is highly imperfect. One of the main reasons is that most businesses are characterized by leverage of 2 types. These are elements that magnify the response to the profits to a change in sales. First is operating leverage. Profits equals revenues – minus costs. Both revenue and costs do fluctuate. Most businesses have some costs that are fixed, semi-fixed and variable.

Operating leverage means the increase in operating profits will be considerably greater that the increase in sales. In general, it is more for companies whom a larger percentage of costs are fixed and lower for costs that are more variable.

Operating leverage is great for companies when the economy does well and sales rise. But when the opposite happens, it is less good.

The second form of leverage is financial leverage. Given most companies are financed with both equity and debt. If a decline in operating profits affects equity first as debt is fixed which translates to a larger decline in net income.

Linking to dividend paying stocks, often those that own dividend paying stocks tend to use margin to buy the stocks, given it is a long-term hold. If you do not use margin, then what cycle in the market really does not matter, prices will go up and down and when the prices go down as long as the company remains profitable, the yields on your dividends go up. There are many advantages to holding dividend paying stocks in a cyclical market.

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

If you invest the goal is to have more and the easiest and hardest way is to buy low, hold on to your investments for a period of time, sell some of it when it is high and buy more when it is low. That is a cycle. The way a cycle works is when you look backwards, it is easy to see. When you look forward it is very hard to know what and when the top or bottom is. One person who has tried to use cycles as an investment philosophy is Howard Marks, the founder of Oaktree Capital Management. Mr. Marks has written a number of books and every once in a while, he publishes his thoughts on Oaktree Capital Management website. Mr. Marks has made money buying low and selling high and wrote a book called Mastering the Market Cycle, published by Houghton Mifflin Harcourt Publishing Co, NY, 2018.

From a practical point of view, the timing is very hard because we all hear stories or read stories about someone making a lot of money in the up cycle or when markets are going up and we want to ensure we get a piece of the rising prices. When prices go down, you need both cash or cash equivalents to buy low and wait till prices go up. To do that you need to have to be doing your homework on why a stock price has sold off too much and under normal circumstances will go back to the normal.

Both Ray Dalio of Bridgewater Associates and Mr. Marks believes in cycles. Mr. Dalio has done You Tube videos of cycles. Mr. Marks writes books. The books will help you determine how to manage the cycles.

The cycles can be as simple as following the weather patterns. More people go to the beach and enjoy the sun in summer than in winter. In the colder months, the sun shines, the beach is open but the weather is cold and there are very different aspects of the snow and how animals adapt to the cold. The weather plays a part in the construction field or if there is more work during the spring, summer and fall, this means stock prices should be higher. The time to buy is in the winter when the natural cycle means less revenue and lower stock price, but an anticipated stock price rising when the weather warms up.

The cycles Mr. Marks refers to is economic cycle relating to the markets which tend not to be tied to the weather.

Most people that invest will do a combination of 3 things

trying to know more than others about what Mr. Marks calls the “knowable” the fundamentals of industries, companies and securities.

being disciplined as to the appropriate price to pay for a participation in those fundamentals

understanding the investment environment, we are in and deciding how to strategically position our portfolios in it.

The first 2 are recognized by security analysis and value investing.

The third is calibrating your portfolio’s position in terms of risk between defensive and aggressive stocks.

Mr. Marks is speaking to a portfolio of stocks and what risk you should you have to both not to lose money and at the end of the year to be worth more than you are today.

Part of the answer, as Mr. Marks see it is understanding where you are in the investing cycle.

Linking to dividend paying stocks, there are many adages of how to invest and over time you will hear many of them. The simplest is to invest in profitable companies which pay dividends and over time the combination of the quarterly dividends and the stock trading at higher multiples due to making profits will help you be more wealthy than when you started. The great thing about dividends is you determine what you want to do with the money – reinvest it, expand your portfolio, use it to enhance your lifestyle, it is good to have choices.

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

Every company has a percentage of the inputs into its goods and services that employees can have. The company would like it lower than the employees and there are a variety of methods to do both. Over the years companies have used wage brackets (ideally keeping people between the low and medium; when the majority gets over the medium time to change the brackets), they have offered a competitive salary with bonuses; and the list goes on. For senior management, stock options are given. Employees tend to like higher salaries with benefits rather than tied to year end results. This is particularly true if the company has a monopoly like position in the marketplace. Stock prices go up and down and salary is going up over time.

In an article by Allison Lampert and David Shepardson of Reuters, Boeing reached an agreement with the union representing its Seattle workers.

The union originally asked for a 40% raise over 4 years, the company settled for 25%. The company also added benefits such as 12 weeks of parental leave, improved job security, enhanced retirement benefits.

Boeing Commercial Airplanes CEO Stephanie Pope said the Puget Sound region will build Boeing’s next new airplane. This will go along with our other flagship models, meaning job security for generations to come.

For Boeing, the accepted deal secures labor peace, and it can raise production of its 737 Max airplanes. The deal is considered a win for new CEO Kelly Ortberg and perhaps a change in culture at Boeing.

The vote was originally recommended by the union, but rejected by the workers. Perhaps after a month they will agree. As an investor, the stock has gone down partly because of the strike, if you believe they will sign soon, then the stock will begin to rise with labor peace or you could put it on your watch list for a 2025 investment.

Linking to dividend paying stocks, as an employee of a profitable company, you want to hear your job is safe and if you continue to do what you are do you will receive a raise. Profitable companies that deal in monopoly like positions have a history of reasonable stable labor force which means the employees need to hear that should continue. If it does, then other factors can be dealt with. When the company is not profitable, stock options are desirable for when it does become profitable. Everyone lives with a degree of hope that things will be better, for some it seems the odds are better they will be.

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

Most companies in the world are privately owned and when they decide to raise funds on the stock market they become partly owned by the public. While it often is easier to raise capital for the business when it is public, it does come at the expense of both regulations and the public has a right to know.

In an article from the Associated Press, the department store Nordstrom has decided to try to buy back all the shares outstanding to go private. Nordstrom family members own 33.4% of the company’s outstanding shares and are willing to pay investors $23.

The Nordstrom family has partnered with the Mexican retail group El Puerto de Liverpool, which operates over 300 stores in Mexico and is the 3rd largest credit card issuer with over 7.2 million active accounts. The Mexican group owns 9.6% of the stock.

Nordstrom which is headquartered in Seattle, Washington is run by CEO Erik B. And President Peter E. Nordstrom who are the 4th generation to run the company. It was founded in 1901 as a shoe store.

During the past generations, department stores would have commanded a high premium, however the offer is pretty much the current value of the stock, said Neil Saunders managing director GlobalData.

Nordstrom reported sales growth of 3-4% in the 2nd quarter. The company operates both the upscale Nordstrom and the discount Nordstrom Rack stores. Sales at Nordstrom Rack rose 8.8%.

To buy out the shares, Nordstrom has commitments for $250 million in new bank financing.

Linking to dividend paying stocks, just because a company is public there are no guarantees it will stay there and companies go back and forth on a regular basis. Often times when sales are down, a new owner or hedge fund comes in, takes the company private and makes cuts to bring the company back to profitability and then becomes public again with a windfall for its new owners. If companies are profitable, there is less chance they will go private because the premium has to be very large to entice the shareholders to seek alternatives, but it happens.

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

In financial advisors’ offices all over the world there is a chart which shows the growth of the stock market over the years. If you put your money in the market, it will grow over the years. The chart is based on the Dow Jones Index. What the chart does not tell you is every year the indexes can be changed and the stocks that are not doing well are replaced by stocks doing well. This means the index tends to capture whatever stocks do well in every market and over the long term – they go up. For investors, if you own the individual stocks, being in the index is a very good thing. If the stock is to be dropped from the index, it is another blow to the stock.

In an article by Arsheeya Bajwa of Reuters, the example of Intel is a very good learning tool. Intel (the chip inside your computer) joined the Dow Jones Industrial Average in the late 1990’s. In the recent past, the stock has a slow decline and is the worst performer in the Dow Jones Industrial Average.

The company has missed out on the artificial intelligence boom after passing on an OpenAI investment and losses are mounting at the contract manufacturing unit. The company has suspended its dividend and is cutting its workplace by 15%. Is it enough?

Summit Insights Group analyst Kinngai Chan said, End-market demand is not favorable for Intel, as well as the missteps on their product road map.

S&P Dow Jones Indices manages the Dow index. Changes are made as needed, the last change was Walgreens Boots Alliance was replaced by Amazon.

Stock price is a key element for inclusion in the Dow, unlike the S&P 500 index which takes into account market value.

Linking to dividend paying stocks, with the growth of people and institutions using index funds for long term investing, being in the index is worth something because all the index funds using the base must buy the stock. In this case whatever company is the replacement will be bought and Intel will be sold (the day will be announced in advance as indexes readjust for the changes). The firms that run the index tend to like profitable stocks because they will be in the index longer. If the profitable stock also pays a dividend so much the better if you own the stock individually.

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

We all live in a country and hopefully it is peaceful and stable to support your hopes and dreams. That sounds like a soundbite but in reality, there are many countries which it is not true. The most glaring examples are the ones at war or on the verge of war on a continual basis. How does the government function? A real good example is Ukraine.

In an article by Marc Jones and Karin Strohecker of Reuters, when Russia invaded Ukraine all of a sudden from a financial point of view everything changed overnight.

Just a few months after Russia invaded Ukraine, the country’s financial advisor Rothschild & Co handed Kyiv’s debt chief a thick black folder detailing major sovereign debt restructurings for the past 30 years.

In August 2022, Ukraine agreed with creditors to pause payments on bonds. In September 2024, they restructured their bonds of more than $20 billion in debt which will save the country $11.4 billion over the next 3 years. This is important both in terms of the continuing war effort and its International Monetary Fund program.

Initial negotiations between the government and its lenders did not go to plan. The committee of bondholders complained the write down Ukraine was demanding was in excess of the 20% most had expected and risked doing substantial damage to relations.

In August, representatives of some of the world’s top asset management firms and their legal and financial advisors met in the Paris offices of Rothschild & Co. Ukraine long term legal advisors White & Case were there to.

Members of the key bondholders group, representing asset managers such as BlackRock and Amundi explained their demands, that Ukraine start coupon payments repayments, offer a path towards higher principal recovery and keep it simple.

The International Monetary Fund or IMF was represented and their job was to run the numbers.

The solutions was Ukraine offered a GDP-linked bond and creditors were offered the instant coupon payments they wanted starting at 1.75% and rising to 7.75%.

The deal is structured for the bonds to eligible for main bond indexes, therefore easier to buy and sell.

Bondholders approved the result with a 97% support. The bondholders could either stay a few days to watch the Olympics or leave the city.

Linking to dividend paying stocks, in the bond market, stability is the desirable outcome. Payments come and the bond eventually paid off. The same idea falls with dividend paying stocks, if profits are made on a consistent basis, dividends can be paid and all is good. Hoping for stability in all your investments.

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

Companies compete at various price points and as companies evolve they have various fixed costs. If they are a manufacturing type, they will own buildings and equipment, this is both a fixed asset and a cost. Eventually time goes on and sometimes manufacturing changes and the company has not changed the cost structure. The new companies evolve and they have lower manufacturing costs which puts the older one at a disadvantage towards costs. The older one may have goodwill that helps make up or they can charge higher prices, their customers are loyal and a host of other things. In the auto industry, the older companies have the legacy costs and the electric vehicle companies particularly coming out of China have low costs. What will the legacy companies do besides encourage their host countries to increase tariffs.

In an article by Victoria Waldersee and Christina Amann of Reuters, Volkswagen or VW is facing that question and they are considering closing factories in Germany for the first time.

In the case of Germany, one of the advantages and disadvantages is the unions. For many years the unions have been an advantage, but when it comes to cutting costs, different story. In Germany, the structure is a Works-Council made up of unions and Daniela Cavallo, a member of the IG Metal union and head of the VW works-council expects negotiations to be very uncomfortable.

The new head of VW CEO Oliver Blume is considered more of a consensus builder as opposed to the former CEO Herbert Diess who like to butt heads with the unions.

Analysts have in the past named VW sites in Osnabreck, in Lower Saxony and Dresden in Saxony as potential closing sites. The state of Lower Saxony is VW’s second largest shareholder and supports a review.

VW employs about 680,000 people directly has ended its job-security program which has been in place since 1994.

VW which receives most of its corporate VW’s revenues is the first of the brands to undergo a cost-cutting drive to target $15 billion in savings by 2026 as it attempts to streamline operations to survive the transition to electric cars.

At the same time there is an election going on in Germany and VW’s announcement does not help the ruling party.

Linking to dividend paying stocks, it is very easy to get attached to a company which has made profits for years and can pay dividends, then the industry changes seemingly before your eyes. There are many options and giving the size and complexity of VW to the German economy all options will be on the table or there tends to be breathing room. Transitions means many things to investors, but one thing it should mean is looking at alternatives.

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