After you have made money, there are numerous opportunities to invest your money – stocks, bonds, money market funds, real estate, private equity. The reason why you are interested in venture capital funds is the possibility of gaining multiple levels on your investment. You can pick up the stock for pennies and sell it for in the high 30’s and more. That is the good news, the bad news most of your investments will not even make money, but you only need one or two to make multi millions. If you want to put it in baseball analogy, singles are for dividend investing; doubles are for real estate; triples are for private equity and grand slam home runs are venture capital firms. There is an interesting book called The Power Law – Venture Capital and the Making of the New Future by Sebastin Mallaby published by Penguin Press, NY, 2022.

If someone says Silicon Valley, the images of the San Francisco, California will come to mind. Other cities will try to stay they are open to venture capital but what makes Silicon Valley the number one leader and likely to stay there which brings the issue why there?

If you were a government influencer, you would likely have said Boston before San Franciso. Boston has MIT and Havard or many people who could do the work. Boston has a long history of research and development including military contracts, however Boston largest companies were large, secretive, vertically integrated corporations. Hierarchical organizations are very good at coordinating people when the objectives are clear: think of an army. A cluster that is dominated by large, self-contained, secretive companies will be characterized by tight relationships among insiders at each firm, but few links between professionals at one firm and similar professionals at another firm. How do ideas spread?

In California, there were many small firms (think of the story of Apple founded in a garage), there is plenty of competition, but the business owners were capable of alliances and collaborations. When it comes to commercializing applied science, Silicon Valley’s culture of cooperation has proven more creative than the self-contained vertically integrated corporations. Shifting coalitions of small ones conduct myriad experiments until they find the best path forward.

It helps that California law prevents employers from tying up employees in non-compete agreements: talent is free to go where it pleases.

Another factor is colleges and universities as part of the ecosystem, the university at the center of Silicon Valley is Stanford University and it allows professors to take sabbaticals and work on startups, this fosters ties between academia and business. (for Stanford the benefit is when companies are very successful, the professors tend to donate money to Stanford). In contrast, MIT in Boston, professors risked tenure if they spent too much time on outside projects. MIT was more dependent on research and development government grants.

In personal relationships, how money is divided is a challenge and the more money at stake or potentially at stake, the bigger the challenge. Venture capital firms over the years had senior partners who could reasonably and fairly make decisions that both sides trust.

A venture capital fund not only offers money for a piece of equity but takes seats on the board of directors to help manage the company and finds a senior operations officer to bring a great disrupter idea or dream to reality. In the life of a company, it begins with an idea to make something better, then the company has to decide does it want to grow? if it does different skill sets are needed to move to next levels and possibility national or international in scale.

Linking to dividend paying stocks, potentially after you have accumulated wealth, you could use your wealth to be involved in venture capital. If you are correct, companies can generate grand slam home runs or 40 times plus what you invested. However, venture capital tends to need conditions to allow that to happen. Some of it is management, trust in the company to eventually go public and trade on the stock exchange, it is possible, but a lot of things need to go your way. Remember even at the best of firms, most of the investments do not make a good return on your investment. but it possible to have less than 10% success rate because that success is very good. If you stick to dividend paying stocks, the rate of return is lower and the total return – capital appreciation plus dividends you will rarely lose money and that is the number one rule of investing – try not to lose money.

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

In all countries, but particularly the larger ones the importance of the military is a key player in the civilian economy. As soon as the boundaries of a country are established, a military is needed to protect those boundaries. As the country grows and its companies established global reaches, so does its military, because the interests of the companies becomes the interests of the country. In the US ever since WW II, due to the destruction of Europe and Asia, the US took the leadership role in the protecting the world from the enemy and protecting American business around the world. In the US, although many of the military companies are in the western part of the country, the links to the military through the Ivy League educational institutions such as MIT and Harvard go back a long way. In the west, the latest tool to improve the world is artificial intelligence or AI.

In an article by Tara Copp of the Associated Press, while most people think of AI it is from American business perspective, the reality is the same need to use big data and generative AI is found in military applications. In the article, 2 Air Force fighter jets recently squared off in a dogfight in California. One was flown by a pilot, the other was not.

The second aircraft was piloted by AI. (you have heard about self driving cars – this is the next thing self driving jets in warfare).

Admiral Christopher Grady, Vice Chairman of the Joint Chief of Staff, noted both China and the US are working on using AI in a future battefield.

In the early 60’s and 70’s, the Navy was using Aegis missile defence system. The system was designed to be faster than humans can respond, but it was human programmed on the bases of if/then rule. That is not machine learning according to Air Force Lt-Colonel Christopher Berardi, who is to MIT to assist with the Air Force’s AI development.

AI needs big data and advanced computing power and this has been around since 2012.

The Pentagon has hundreds of continuing AI projects across its services.

In your cellphone is information based on GPS which means there is computer software embedded in using the GPS. If the satellites in space were destroyed what is plan B? The military is working with magnetometers and has tested the system with C-17 and the base of operations is MIT.

Vista, the AI controlled F-16 has considerable safety rails as the Air Force trains it. The algorithm cannot learn during a flight. When a flight is over, the data is transferred to a simulator where it is fed new data gathered in-flight to learn from, create new rule sets and improve its performance.

In the near future. the Air Force hopes to have over 1,000 unmanned warplanes under the development of General Atomics and Anduril Industries.

Linking to dividend paying stocks, the lessons learned by the military are eventually commercialized by private industry to become consumer products to the world’s consumers. The issue with the military is the nature of the organization being a top-down organization, the information will eventually come to light, but it takes time. In the private sector world, the idea is to see the information soon and begin the process to figure how to use the information to have better products. Learn from the military’s process is a very good thing to do but making a profit is the reason for business.

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

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In the world of investing, there are 2 important elements which describes the flow of money – if someone makes more than normal, money flows in that direction. If the same someone loses money, the lawsuits come out. This means when an investment manager or fund does better than everyone else, although the advertisements say past performance is no indication of future performance, money will flow to that fund or similar type of profits. If the fund loses money there are plenty of law firms and securities regulators who will investigate and occasionally charge the managers.

In an article by Brendan Person and Jody Godoy of Reuters, Sung Kook (Bill) Hwang founder of Archegos Capital is charged with racketeering conspiracy and 10 counts of fraud and market manipulation and the trial is happening in New York.

The firm Archegos Capital caused more than $100 billion in shareholder losses at companies in its portfolio. The firm is accused of using derivatives to secretly amas positions in multiple stocks that were so large they eclipsed that of the companies’ investors driving up stock prices.

The prosecutors claim Mr. Hwang then lied about the holdings to sustain their business relationship with global banks. (the use of derivatives means the use of credit). Prior to his selection of the stocks he picked, he had used the same strategy to make extra profits. Having made extra profits, the banks gave his firm greater access to credit.

Mr. Hwang used total return swaps to take outsized stakes in his favourite stocks without actually owning the stock. The family firm at its peak had $36 billion in assets and $160 billion of exposure to equities. Some of the favorites stocks prices fell which meant the global banks did margin calls and Mr. Hwang had no money to put up. This led to banks dumping the swaps which caused losses for Archegos and its lenders.

Linking to dividend paying stocks, for the average dividend investor, they own the stocks without any use of credit. Although it is possible to arrange to buy stock and use the dividend payments to pay the interest, depending on the size of the dividend. If a person buys the stock with no credit, then as stocks go up and down, it matters less, because the desire is to collect the dividend for a few years or more. If the dividend payment goes up, then it is even better investment. Mr. Hwang’s trail is a reminder that the most important rule for an investor is try not to lose money.

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

If you think about AI, the first company you think of is the chipmaker Nvidia, but it takes software and hardware to power AI. Some of the names in software include Alphabet (Google), Microsoft and Amazon. some of the names in hardware include IBM, Cisco and a host of others. What is normal is software companies once successful, while tend to continue to do well. Hardware companies tend to have more ups and downs because it is harder to stay up with trends.

In an article written by Irene Galea, Cisco Systems Inc, CEO Chuck Robbins says the company missed a major opportunity to expand 10 years ago as cloud computing took off. But he insists it will not make that mistake again with artificial intelligence or AI.

The networking equipment maker was a pioneer during the early expansion of the internet, but was late to invest in infrastructure underpinning the cloud. CEO Robbins said Cisco is well equipped to be successful with AI.

AI products currently represents a small fraction of the company’s total business. Cisco is investing in what Mr. Robbins foresees will be a decade-long run with AI. The company has built a pipeline of about $3 billion of orders for AI products.

To do even more in AI, Cisco bought Splunk for $28 billion. The company is a cybersecurity analytics platform that uses generative AI. CEO Robbins believes Splunk will be accretive to the company’s cash flow in year 1 and its earnings per share in year 2.

William Kerwin, an equity analyst at Morningstar, said the acquisition of Splunk will help boost the company’s cybersecurity business, which has been underperforming for the past few years. The investments in AI could help it win customers in the public cloud space, where it has been losing market share to competitors such as Arista Networks.

In the meantime, the company remains a stable leader in enterprise networks and data centres, growing in the low single digit range and generating good profits, while those markets are slower growth, they are not going anywhere.

In the near term, however, the half of Cisco’s income stream comes from non-recurring sales is experiencing what Mr. Kerwin called a COVID 19 hangover. During COVID, companies bought networking equipment to support their employees’ shift to remote work and now many have excess inventory.

The company expects revenues to earn $52.5 billion.

Linking to dividend paying stocks, a company the size of Cisco will tend to make money the question is how much money and what is the growth potential. If you own the shares for 5 years you would have double your investment or you likely did not lose money, but there were better alternatives. If you bought for growth, not the best, if you bought for the long-term not a bad investment. When you are investing a key question is what do you hope it does short and long term? Are you buying for growth or long-term increase in asset value?

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

If you have a question, the overwhelming majority of people on the planet will start with google. Personally I like to start there because an alternative such as Bing has multiple stories on the page and they are distracting. If you start with Google, the algorithms will bring up what you are looking for along with the most popular sites. Part of the reason for sites to come to the top is to pay for or pay for advertising. Is that good or not?

In an article by Matthew Barakat of the Associated Press, one of the lawsuits going on in Washington is the US Justice Department versus Alphabet (Google) and lawyers for the justice department said is an illegal monopoly propped up by $20 billion spent each year to lock out the competition.

Google’s lawyers said the ubiquity flows from its excellence and its ability to deliver results customers are looking for.

The $20 billion is contracts Google has with companies such as Apple where the default search engine preloaded on cellphones and companies. (if a customer does not like it they can change the default).

Apple testified its uses Google because they consider its search engine to be superior to any other company.

Google says while it does hold a dominant position over general search engines such as Bing and Yahoo, it faces much more intense competition when consumers make targeted searches. Other social media platforms exist and people use them.

The Judge, Justice Mehta will make a ruling within the next 3 months.

Linking to dividend paying stocks, once a company becomes dominate in its field and can continue to make profits and pay dividends, some people will like it and others will not. The people who like it are investors, the ones who do not will be looking to break the competition and lower costs. Some areas such as utilities have a great deal of regulation or laws that take a great deal of effort to change the regulations. This is one of the reasons why large companies have large legal departments.

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

Every company in the world has added a service that will be forever needed, the cybersecurity costs. The internet has changed the way the world finds and uses information, however with all the good comes the possibly of negative or fraud on the internet. We all know the cybersecurity is needed, but do you really know what the companies that protect you do or how they think? A book called The Fifth Domain written by Richard A Clarke and Robert K Knake published by Penguin Press, NY, 2019 helps answers the questions.

The authors are well known by Fortune 500 companies as well as the Situation Room in the White House or are listened to by policy makers. The best strategy can be best summed up with a single work resilience.

The reality of the internet as we know and love it today does not lend itself completely to traditional national security approaches. Ultimately, what we want is to be able to ignore cyberattacks, to be able to slough them off and continue on with our business rather than being forced to escalate. We want to make our defenses so good, and our architectures so strong, that we do not care about whether we are being attacked most of the time because the attacks have no serious effects.

Cyber resilience must be built upon, rather than be seen as a replacement for sound security fundamentals. Resilience is about the ability to rapidly respond, return to a good state, manage bad outcomes, and learn from the incident so that the future incidents are less likely.

One of the people the authors interviewed was CISO Rogan Amin of the JPMorganChase who wrote papers for the International Conference on Information Warfare. The authors write the next time you think about JPMorgan, it is really a tech company that lends and invests money. The company has a workforce of 225,000 people and 50,000 are in the information technology field. (in comparison Facebook has 35,000 employees and Google has 60,000 people).

Often the cybersecurity as thought as catch and kill which means – reconnaissance – weaponization – delivery – exploitation – installation – command and control – actions. The offence always has the advantage because they know why they want to do itself the information. Do they want to copy the information – download the research and development? do they want to know the people? gain money? For the cyber security people they have to think like a hacker.

It is important to know the large cyber companies such as CrowdStrike and Palo Alto Networks share information about the latest information through Cyber Threat Alliance (CTA). Members share 4 million indicators a month.

The book discusses threats from outside the US – they are real. Often times organizations will expect to be compensated for the loss by insurance companies. However, some insurance will only insured if its act of war. This implies finding where the bad guys are based and what their motives are.

The book discusses policy questions for the government and how cybersecurity can be better for all.

One of the many ways you can personally protect yourself is to keep the limit on your credit cards low and do not answer all the information truthfully. Once in a while pick something that you will know but someone researching you will not know, a famous example is Citizen Kane and rosebud.

Linking to dividend paying stocks, one of the elements a dividend investor is looking for is recurring payments, we all know one way or another you need to pay for cybersecurity protection. Due to the recurring payments, that makes cybersecurity companies attractive, which one you pick is a matter of your homework. Recurring revenues to a profitable company is a good thing.

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

If you look around to see how people move around a common denominator will be the smartphone. People walk down the street with their phones, people put their phones on a stand in their vehicles, part of the clothing is given to the smartphone. The 2 biggest suppliers on phones are Apple and Android (powered by Google), but the more important company is Apple. For the past few years, before the growth of services, the company lived on the sales of iPhone.

In an article by Stephen Nellis, Max A Cherney and Yuvraj Malik of Reuters, Apple reported for the quarter and Apple expects to return to a growth in the future.

In the 2nd quarter, sales fell to $90.8 billion beating the estimates of $90.01 billion. For the quarter, iPhones sales fell 10.5% to $45.96 billion compared to analyst expectations of $46 billion.

Apple executives note in February, Apple benefited from a $5 billion surge in iPhone sales as the company caught up with supply-chain snarls during the pandemic lockdowns. China is Apple’s biggest market and sales were $16.37 billion down 8.1% but above analyst expectations of $15.59 billion.

CEO Cook told the analysts, Apple had spent over $100 billion on research and development over the past 5 years and feel very bullish about our opportunities in generative AI. Expect to see the new iPhone will some capabilities in the September launch.

Apple also announced the largest stock buyback of $110 billion. The effect of a stock buyback is to reduce the shares which all things being equal will increase the earnings per share which means the multiple of earnings to price will be low or the stock price will increase to the old level multiple. Apple earned $1.53 per share, above the estimates of $1.50 per share.

Linking to dividend paying stocks, analysts evaluate stocks and for the larger companies, they tend to be close or within a slight margin of error. It is very rare that a larger more established company does remarkably better (it happened with Nvidia) or worse than analysts’ expectations. For your investments in larger companies, this means you can trust the analysts. You picked the company for a variety of reasons and being profitable is one of them. The company still needs to deliver or execute on their business plan, but will larger companies there will be fewer surprises and that is a good thing.

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

In every industry there is the hot aspect or exciting part of the industry or the elements which make the press. They elements cause excitement for outsiders who may not understand the basics of the industry, but it allows conversations to be held among the general public. For those involved in the industry, they look to the nuts and bolts of the industry to see opportunity.

In an article by Karen Weise of the New York Times News Service, 2023 was the year of the AI chatbot and 2024 is the year of the AI plumbing.

Companies such as Microsoft, Meta, Amazon and Alphabet disclosed they had spent more than $32 billion on data centres and other capital expenditures (capex) in the first quarter of the year. All the companies have a desire to spend more on capex.

Most people have heard about the California gold rush (for example the San Franciso Football team is called the 49ers) and the people who made the biggest fortunes were not the miners but those that sold the shovels, tents and jeans (Levi). This means for this type of capex, look to the companies such as Nvidia, Oracle, Intel and Cisco systems. Companies which ensure the data centres work to the expectation the leaders in cloud-computing need.

Analysts expect the capex spending to continue for a few more years which is founded in the supply and demand. Microsoft said its generative AI could be bigger if the company had enough data centre supply to meet the demand.

For the computing infrastructure, the key is the chip inside it. Infrastructure demands generally fall into 2 buckets: one, there is the building the largest, cutting-edge models which some AI developers say could top $1 billion for each new round. The second part is inferencing or querying the models to actually use them.

Start with the hot companies in the media, but more often than not, do your homework to find out which companies are the suppliers so the hot companies can do what they do best.

Linking to dividend paying stocks, it is good to have the hot companies in your portfolio but as an dividend investor you want to determine which supplier companies are consistently profitable and can pay a dividend. At some point hot companies cool off and the price will decline, however supplier companies tend not to rise as fast or fall, but be able to year and year out make profits to pay dividends. In the middle and long-term horizon, they are often the hot companies in your portfolio.

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

When public companies generate profits there is an expectation that after the company has invested in itself, the company will reward shareholders. The shareholders is rewarded by the profits which allows the company to buy back stock and pay dividends, often times both. For some investors, they would prefer stock buybacks which are not taxable, but does help increase the share price. Other investors prefer the cash, but if you own thousands of shares taxes plays a role in your decision making.

In an article from Reuters, for many years the big tech companies have generated billions in cash and most of the money has gone into large bank accounts and the reinvestment in the business. Last year, Facebook announced a dividend. This year, Alphabet has announced a dividend along with a $70 billion stock buyback. Buybacks work as follows: every share trades a price multiple calculated as EPS or earnings divided by number of shares outstanding. If the number of shares decreases, the earnings will increase on a per share basis which pushes the share price higher.

For Alphabet, revenue was $80.54 billion for the quarter, compared to estimates of $78.59 billion. The value of the shares increased with the quarterly results.

Linking to dividend paying stocks, there are a number of reasons to own stocks however once it can consistently make a profit to pay for dividends it allows for the holding to become years rather than the owning for the growth of the share price. It is a good thing for a company to pay a dividend because most companies cannot. The fact the company can means less risk as a shareholder for the cycles of the stock market.

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