A number of years ago, there was a movie made about Roy Kroc the former CEO of McDonald’s. He was a salesman for milkshake company and went to California where a restaurant run by the McDonald brothers ordered more milkshake machines than any other customer. Mr. Kroc loved the business and eventually brought the franchise system to the US with its headquarters in Chicago. The franchise system revolutionized the restaurant industry and most people have eaten at a franchised restaurant for some of their meals. The concept is going strong and will continue.

In an article by Dee-Ann Durbin of the Associated Press, McDonald’s expects to open nearly 10,000 restaurants over the next 4 years to have over 50,000 restaurants in operations. In the US, the number will be 900, in the other G7 countries about 1,900 and 7,000 in international markets with over half in China.

The company took 33 years to open its first 10,000 restaurants and 18 years to grow from 30,000 to 40,000 and expects 4 years to go to 50,000. The company has the formula down pact.

In comparison to Starbucks, it has expects to grow from 38,000 to 55,000 stores by 2030.

McDonald’s announced a multiyear partnership with Google Cloud to speed things up in the restaurant. Chief Executive Officer Chris Kempczinski said the cloud will speed things up such as menu recommendations on ordering kiosks or drive thru lane. The new system will allow managers to optimize staffing.

Chief Financial Officer Ian Borden said the company has the confidence to invest in new stores and new technology because of the strong performance of its stores. Worldwide sales are up 9%.

The company is focused on its core menu items which make up 65% of its sales. It is selling about $34 billion in beef and $25 billion in chicken annually with the chicken sales are rising faster than beef. In turns of coffee, sales are 8 million cups a day and the company is moving towards one brand the McCafe and ensure consistency across the globe.

Linking to dividend paying stocks, McDonald’s is a company that continues to grow and people enjoy the food. Their revenues allows the company to reinvest into the company and there are many robotic options for the future for example one chain of restaurants using robotic frying. If a company can continue to reinvest in operations and grow, as long as you like the food it is worth investing in.

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

If you have ever seen a WW II movie about American GIs you will notice many of them had cigarettes. It turns out, an American General wanted to ensure the GIs had something to remind them of home in their rations. The thinking was if the soldiers were reminded on a regular basis of why they were fighting, the war would end sooner. The rations included a Coke, this helped Coca Cola establish bottling facilities around the world on the government funding. In addition, all the GIs received cigarettes.

One of the consequences of the actions of the General was after the war was over and the GIs came home, they drake Coke and smoked cigarettes more than a previous generation. It was not long ago, a standard piece of office equipment was an astray for people smoked in the office. Smoking has been legal since the British came to America and the native people introduced them to tobacco. Much of the country was founded on growing tobacco for one of the negative aspects of tobacco is the plant uses the nutrients in the soil and if there is no method to add fertilizer, farmers had to move westward to find new farmlands to grow tobacco.

From an investor’s point of view, Warren Buffett said to the effect it is an industry that produces cigarettes at pennies and sells them for dollars and that is an industry I want to be an investor in. It took to close to year 2000 when it was disclosed cigarettes were designed to deliver nicotine to smokers which ensured the smokers would continue to buy as they were addicted to the nicotine. Lawsuits followed and cigarette companies paid fines, could not advertise directly and fewer people smoked, however the companies paid a healthy dividend, and the product is legal. It was not till this year that Phillip Morris company said the effect of raising prices has meant fewer sales as consumers are switching to lower priced cigarettes. (After the announcement, my shares were sold).

All companies do 5 year and more plans, because the number one job of executives is capital allocation to the divisions which will make money to shareholders.

In an article by Emma Rumney of Reuters, the largest cigarette company for global cigarette sales is a company called British American Tobacco (BAT) of London, England. The company is taking a $31.5 billion write down of its US tobacco brands. The executives determined in decades to come the US brands will still be legal and will be selling, but due to a wide range of factors, the brand value will be low. BAT has 5 global brands of Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. In the US brands include Newport and Camel.

The cigarette companies are some of the leading marketing companies in the world building brands and encouraging consumers to be loyal to them. (if you want to study marketing study the tobacco companies) and the companies have stakes in smoke free solutions including vaping.

It is noted by analysts if you own cigarette company shares directly, they are a very profitable business paying high dividends and the company regularly buying back shares to enhance shareholder value.

Linking to dividend paying stocks, for decades owning shares in cigarette companies came with a very healthy dividend and guaranteed profits even as the companies were paying large fines to the government. Society changes and while smoking is legal, there are fewer people smoking which means the pie is getting smaller. For a number of years, companies could see increase sales in foreign markets but competition is getting harder. There are many good reasons to own shares in cigarette companies but as you plan for 5 years and 20 years down the line at some point you might want to find alternatives for US marketed companies.

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

If you watch Shark Tank, one of the people on the show is Mark Cuban and when he does a deal, he often thinks about links to Dallas Mavericks NBA basketball team he owns. This is a natural thing to do, whatever industry you are in, if something interesting came to you it all likelihood you would link it to what you do. Mr. Cuban announced this is his last season and it turned out he wants a lower profile with the Dallas Mavericks.

In an article by Ken Belson of the New York Times News Service, Mr. Cuban is selling a majority of his NBA team to Miriam Adelson of the Sands Corporation. The company owns the Venetian Resort in Las Vegas as well as gambling properties in Singapore and Macao (near Hong Kong). The cost to the Sands would be $2 billion. Mr. Cuban wants to build a new stadium in Dallas with a casino attached to it in the coming years or when Texas allows legalized gambling.

A number of years ago, the owners of gambling resorts were prohibited from being owners of professional sports franchises because of the 1919 Chicago White Sox scandal. The White Sox were in the World Series against the Cincinnati Reds and some of the players were paid not to do 100% on every play to ensure the Sox lost. The winners would be the Reds and gamblers who bet on the Reds to win. After the news came to the forefront, gambling was outlawed in the professional ranks.

However, since the internet, gambling could be done on phones and tablets or flying to Las Vegas to officially place your bets. Unofficially there has been many ways to gamble. With the changing of gambling laws in states, the gambling owners have now bought a team in NBA.

For the NFL, teams were not awarded to Las Vegas until the Raiders left Oakland to a brand new sold out stadium. The NFL held its draft in Vegas as well as the Super Bowl will be played in February. The MLB had a history of suspending players who were found to be gambling, now the rules may change, and Pete Rose might go to the Hall of Fame.

Linking to dividend paying stocks, it is important to remember society changes and rules change. One can easily argue not for the best, but rules can change. For your investment, are you aware of the government regulations which help your investments? Due to dividend paying companies tend to be profitable which means they have office and manufacturing space all over the 50 states and very often the local governments offered incentives to the companies for the jobs that would be created. The incentives are bound up in regulations and sometimes government change the regulations. This is why companies have operations in more than one state and use it to trade with each for the seemingly long-term jobs.

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

All over the world, music is important to people. Billions of dollars are spent on listening and making music and in gatherings around the world, they are much nicer if there is music being played. When the world turns to listening to music, one company is at the head of the list – Spotify, but that does not make them profitable.

In an article from the New York Times News Service, Spotify whose headquarters are in Stockholm, Sweden is laying off another 1500 people or 17% of their staff. This would be the 3rd layoff this year and CEO Daniel Ek said this should right size the company. Mr. Ek said despite our efforts to reduce the size of the company, our cost structure for where we need to be is still too big.

Despite being the largest music-streaming service, Spotify has struggled to profitable primary because of the terms of licensing deals it has with record labels and music publishers.

The company bought podcaster Gimlet for $230 million in 2019 and Ringer for $200 million. The company also bought audiobooks.

The company has 226 million subscribers and recently raised prices for subscriptions in 50 companies. The company has 360 monthly active users whose accounts are supported by advertising. This approach generates less revenue at a lower profit margin for the company.

The good news for an investor, the company’s stock has more than doubled this year.

Linking to dividend paying stocks, within the financial press are details about public companies. There are multitude of reasons to invest in a company, but it is important to know something about the company or doing your homework. Public companies have to give some information about, and it is up to you as an investor to determine what to do with it. As you do your homework, you can determine whether you are a consumer of the product or investor.

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

For individuals and companies, there is a simple formula which has to be examined for the long term health and that is revenue is greater than expenses. This simple formula is the lifeblood of all organizations and anyone that wants to invests will ask the question are the revenues greater than expenses. If the answer is yes, then one can move on to how much and details of the where the revenues are coming from. If the answer is no, then the issue is when does it change? If you examine countries, the variable is taxes, but still revenues still must be compared to expenses.

In an article by Keith Bradsher of the New York Times News Service, for the past 40 years, China had a surplus now it is experiencing a downturn and the large credit rating services including Moody’s are issuing a negative outlook for the Chinese government’s financial health.

For the past 30 years, the Chinese economy has been based on a strong manufacturing base, the Chinese government’s infrastructure program and a very strong real estate market. These forces brought hundreds of thousands of people to move from the rural areas to jobs in the cities and a very healthy housing demand. The property market was up to 25% of China’s economy and it helped make China’s largest property companies some of the largest in the world.

Until recently, China has seemingly unlimited money to spend on the world’s largest bullet train network, a vast military buildup, subsidies to manufacturers and extensive overseas construction projects tied to the Silk Road and a build up in African countries.

The tide has changed and China has serious budget constraints, triggered by a steep slide in the real estate sector. The vast construction of apartments, factories, office towers was 25% of China’s economic output. Apartments are the primary investment for families accounting for 3/5s or more of their savings.

Technically the national government has borrowed less but local, state and and state owned enterprises have made up for the borrowing. In China, little of the borrowing is from non China borrowers. The national government sell bonds to the country’s state own banks. The country’s regional government and local governments and state owned enterprises sell the state owned banks.

The large real estate developers are becoming insolvent or unable to finish thousands of apartments and bills for the trade services are unpaid. One can image 25% of the economy has a large effect on small businesses, contractors and the service industry. In addition, part of state government’s revenues was the sale of land to developers who have stopped buying land which puts a hole in state governments budgets.

Moody’s believes the national government at some level with step in to ensure bills are paid.

China’s Ministry of Finance agreed that state’s revenues are down, but they are spending less on infrastructure than before.

Moody’s believes China as the 2nd largest economy in the world has the ability to absorb shocks in the system, but long-term positive fundamentals have not changed.

Linking to dividend paying stocks, one of the reasons investors tend to like these companies is they pay their debts. Whether the situation is for an individual or a company, debt can be a wonderful tool to use, but debts have to be paid. One expects in dividend companies have profits to pay debts and to distribute those profits to shareholders. Sometimes balance is the key to success.

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

Charlie Munger was the Vice Chair of Berkshire Hathaway and due to the success of the company, he was able to leave a great deal of wisdom for people to try or least have an opportunity to try to do.

In a recent article by Ian McGugan of the Globe and Mail, the writer wrote some of them down: Consider his advice about how to achieve success: you spend less than you earn, invest shrewdly and avoid toxic people and toxic activities and try to keep learning all your life.

Warren Buffett credited his friend from shifting his approach to the market, from his roots as a bargain hunter value investor who sought to buy fair companies at great prices, to focus on acquiring great companies at fair prices. One of the ways he did this was to ensure his companies always had cash flow and savings to use when a recession or recession type environment sent prices of great companies down.

5 lessons to learn from

The Cool Hand Wins

The challenge for investors is to remain sane when you lose money. Another challenge is to remain sane when you are making lots of money. Either can turn you irrational or impatient. To try to avoid this, focus on buying great businesses at low prices. Then you do not need to panic as prices go up and down.

Alway Invert

To boost your rationality, try to invert the problem inside out. Look at the problem backwards. One way to do this is if you want to boost your portfolio – what are the surefire ways to drive the portfolio down? buy on impulse, chase winners, pay too much in management fees. Solution try to avoid these responses.

A lot of success in life and business comes from knowing what you want to avoid.

Look at the Other Side

If you can state the argument against your position better than your opponents, you can have an opinion.

See both sides of the debate comfortably.

Big Bet on the Best

An investor has to dig deep to understand what type of edge a business has if any- a business possess. If you can determine the edge, you should be prepared to bet heavily on the insight. How many insights do you need? for Berkshire, the top 10 accounted for most of the gains.

Find a Smart Friend

Charlie and Warren agreed on the core values, not on every decision. However Charlie always ended the conversation with Warren think about it, you are smart and I am right.

The friend should be trusted but skeptical that forces you to state your assumptions and clarify your logic. The right alter ego can make the process fun and you might get rich along the way.

Linking to dividend paying stocks, one of the reasons they are profitable is they are great companies. When the market prices go down, it is a time to add more – have some power to shoot from is a term heard on Wall Street. The important aspect is doing your homework so when prices are down, you know what to buy and why and as you wait for the prices to go up you are paid a dividend along the way.

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

When Charlie Munger passed away in late November, he had many fans and over the years because Berkshire Hathaway was extremely successful, everyone wanted to know what they did so well.

One person who knew both was Tony Keller and he wrote an opinion about Charlie.

To be a successful investment manager you need to know accounting – how to read an income statement and balance sheet. But above all, you need to understand people.

You have to accurately with the genius and the folly, the potential and limits, of humans and their works. You have to see them – and their companies they are running, the schemes they are pitching, the dreams they are dreaming in a true light. You have to see through the marketing moonshine and sincerely held beliefs.

And most important person you must understand is you.

Knowing your limits, including the constrained circle of your own competence was the foundational investment practice underlying 6 decades of success at Berkshire Hathaway.

Both Charlie and Warren read a lot, they are gluttons for learning.

The second was the recognition that even though they were very smart, it was limited. The list of sectors that they declined to invest in was very long. Until recently they did not invest in online businesses. Not because the business was not good, it was because Charlie and Warren were willing to admit to their own uncertainty about how to value these companies long term prospects. They did not follow the crowd, they were on the sidelines for years.

Declining to invest is what Berkshire mostly did. On most days (or weeks or months), Berkshire did not buy or sell anything. It watched and waited and waited for a rare winning hand.

Both gentleman says the real success in investing comes to only a handful of decisions over the course of decades. Great opportunities – the right job, the right spouse, the right investment- arrive only rarely. To seize one of those infrequent great opportunities, you need to self discipline to avoid gorging on the all you eat smorgasbord of poor opportunities.

Berkshire decentralized the running of the companies it owns. Berkshire put in trusted executives with almost total autonomy and aimed the people stayed there for life.

On the investment side, Berkshire did the opposite, decisions about its investment portfolio were radically centralized in the Buffett-Munger duo. Recently a couple of younger portfolio managers were added, but when you have a friendship and two pilots working together for so long, it will take a while to adjust.

Linking to dividend paying stocks, one thing you can learn from Charlie and Warren is not to day trade. Pick your investments over time, and as they do well, you do not have to do anything every day the market is open. Let the market help your success. Read, discuss with someone, and think about something before jumping in. The dividends help you keep from trading, just looking for alternatives, if needed.

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

After you buy shares in the company, you become an owner of the company and being owner means there are responsibilities associated with your holdings. For most of us, our shares do not have enough swing over close votes, but the principle is the same. Management spends a great deal of time and effort to present quarterly reports and all shareholders can vote at the AGM. One of the votes includes compensation for the top 5 or 6 senior executives. One expects if something happened to the top people a replacement would be found to perform at or the same level as the present executives. If someone dies or retires or moves to another company, one of the senior executives would take the place and the company would continue to operate and make profits.

In an article by Jonathan Stempel of Reuters, the Vice Chairman of Berkshire Hathaway Charlie Munger passed away at 99 years of age. Mr. Munger had worked with Warren Buffett for over 45 years and they were great friends. Mr. Buffett is 92 years old.

The good news at Berkshire is they have a succession plan for a long time or since 2006 it was announced. While the people who are expected to move up will be very good, they will not have the same relationship that Charlie and Warren had.

It is noted that the head office of Berkshire Hathaway employs 26 people, the companies that encompass the conglomerate have hundreds of thousands of employees. Berkshire runs a very decentralized operation with great autonomy for the Presidents who run their holdings.

Linking to dividend paying stocks, as a shareholder, one of the concerns you have is the President has cultivated very good people to step in when a vacancy happens at the executive level. One of the elements you invest in is management and you will get a feel for how they work together and who are the expected candidates if people depart. If the company is not family owned, the Board backed by shareholders should have fewer dramatics of who should be in succession process.

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

One of the ways to find success in investing is to buy companies with a economic moat. What is an economic moat?

In an article by Jason Del Vicario and Steven Chen of Hillside Wealth IA, Warren Buffett of Berkshire Hathaway explained capitalism is all about somebody coming and trying to take the castle. A good business is like a strong castle with a deep moat around it. I want sharks in the moat. I want it untouchable.

At the same time, Mr. Buffett acknowledged the difficulty of gauging how big the moat is. No formula in finance tells you the moat is 28 feet wide and 16 feet deep, it drives the academics crazy.

An example of a moat is Microsoft’s Operating System or OS. It has a 75% market share. It is always possible to buy another operating system, but people would have to learn it and that is the issue.

When it comes to finding a durable moat, look for the obvious signs to begin with 1) consistent market dominance; 2) consistent market share gains; 3) consistent superiority in business financials (e.g. profitability, return on capital, per employee revenue, maintenance capital intensity).

Notice the word consistent, you are looking towards the future.

Looking back tells us about the past, but not necessarily about the future. note Warren Buffett owns the Buffalo Evening News, then the internet came along. Kodak had a great moat, then digital cameras in smartphones came along.

Traditional textbooks discuss brand, scale, intellectual property and network effect. Along with customer, supplier, competitor, regulator and corporate culture.

Linking to dividend paying stocks, a company with a moat is music to the ears of dividend investors because the company should be profitable to pay dividends for a number of years. If they can do that, then the monitoring is to ensure the margins of the company are being maintained and the company is profitable. If yes, then only regular monitoring has to be done, if something has changed then the process to look for alternatives begins. It is important not to expect just because a company has a moat, you can hold on forever, homework never ends.

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