As an investor, one hopes to buy a stock as an investment and see its value grow as it does good work selling its products and services to customers which results in a profit and then can pay a dividend. There have been many stocks which have done this and this is why buying the S&P 500 index and holding it for a long period of time, typically will give you more wealth. As an individual investor what you are hoping for is the lottery ticket gains, but still to buying a lottery ticket they are hard to win the jackpot. In the past 20 years, 5 stocks have become worth a trillion dollars – Apple, Alphabet, Microsoft and Amazon, the latest is Nvidia.

In an article by Akash Sriram and Samritha A of Reuters, Nvidia has been on the radar of people ever since gaming has become more popular. The revenues from people playing games on line is equal or more than people who go to the theatre to watch movies. For those who play games, they might have bought game makers companies, the movie people likely bought movie companies and some bought the chips that power the computers. Nvidia’s graphic chips power the graphics to play games and during the crypto run up, Nvidia’s chips were powering the chips to allow the crypto industry to grow. Recently, ChaptGPT was launched to the public and Nvidia’s graphic chips were adapted to allow AI to do run the programs.

The AI capabilities needed by all companies has pushed up the share price of Nvidia by over 240% since October.

All Wall Street, there are multiple analysts that cover all the stocks, which means when Nvidia beat the estimates by more than 50%, the professionals on Wall Streeet were amazed by the performance of Nvidia and the stock rose over $100 the next day.

According to Refinitiv data, Nvidia’s forward price to earnings multiple is 47.79, which tops the sector median of 18.09. Is it overvalued? or are we in disruptive situation?

The computers which run AI are powered by chips called Graphics Processing Units (GPUs) which Nvidia has a 80% marketshare. All the other trillion dollar companies are large purchasers of the chips for their AI software.

Linking to dividend paying stocks, Nvidia pays a small dividend, but the growth has a high potential. They produce the chips that will run AI. Most of the time, by purchasing dividend paying stocks, you do not expect great growth, just consistent growth year over year which allows them to make profits to pay dividends. Once in a while, it is nice to have a growth stock in your portfolio.

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

Years ago, a small farm mutual insurance company wrote in its annual report, there was a rash of barn fires which meant the company had to pay out insurance and lost money for the year. The company was ensuring all its insurance holders with barns have preventable measures to lessen the risk of barn fires. The next year couple of years, there were fewer fires and the company paid a rebate back to policyholders. Insurance companies have a valuable role in the economy, but if they pay out too much, the company does not make money. If the company does not make money, they determine is the cause a one off or on going and what should be the risk assessment.

In a article by Christopher Flavelle, Jill Cowan and Ivan Penn of the New York Times News Service, climate change brings good and bad weather events to the US. However, when the bad weather event happens from an insurance company’s perspective, they will determine if they still want to be a provider in the market. Private companies have the right to choice who their clients are, companies owned by the government have little choice.

In California, the company with the largest market share in homeowner insurance – State Farm, announced it would stop selling coverage to homeowners. State Farm and other companies are trying of losing money to wildfires, floods and the negative effects of climate change.

The negative effects of climate change include storms and fires becoming bigger and lasting longer than in the past. The storms have always happened, but when the 100 storm becomes the normal or every 5 years, insurance companies both run for the exit and raise prices out of reach for the average mythical homeowner.

In most states, there is a desire not for the state government to be in the insurance business, but in Louisiana there are incentives for insurance companies to write policies. In Louisiana, the state’s Citizens Plan increased prices 63% to an average of $4,700 a year.

In coastal states, Congress created the National Flood Insurance Program in 1968, and as floods are more common, less private insurance companies are providing coverage. The intent of the program was to keep prices reasonably low and have averaged $888 a year. Under the new risk-based pricing the average price goes to $1,808. More and more private companies are leaving the business to the National Flood Insurance Program.

According to Jesse Keenan, a professor at Tulane University in New Orleans and an expert in climate adaptation and finance, it the past it has been possible for communities to pass on housing from generation to generation with no mortgages and no banks demanding insurance, which allowed them to go without insurance. However, as storms are more intense and do more damage, there is just not enough wealth to continue to rebuild, storm after storm.

Linking to dividend paying stocks, some of the companies that pay regular dividends are insurance companies. Most of us pay and hope never to collect, just the dividend payments are fine. Private companies have a right to pick their customers and it means not to do business with too much risk. Insurance is a risk business, and if the risks are too high or not enough profit, expect the insurance company to limit its business and focus on prevention.

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

Most people and companies try do the right thing and doing the right thing involves staying on the correct side of the laws. We all know countries have alignments and various political parties do things for their benefit but generally it is supposed to help the average mytical person. When Russia invaded Ukraine, even though the economy is a large one which means there are many areas of interdependence, there were sides to be taken. Europe and the US imposed sanctions on Russia, and the issue is how well is that doing?

In an article by David McHugh of the Associated Press, after sanctions were imposed on Russia, companies tried to unwind their holdings writing off billions of dollars worth of factories, energy holdings and investments.

A year later, it is clear, leaving Russia was not as simple as it was first announced. Increasing Russia is becoming the biggest hurdle. If a company want out, they have to require approval from President Putin which in reality can take years.

Many companies are simply staying put, because it is easier and everyone is hoping for a reason resolution to the invasion.

For consumers in Moscow, what they can buy has not changed much. Some of the companies names have changed but the products remain very similar.

Over 1,000 international companies have publicly said they are voluntarily curtailing Russian business beyond what is required by sanctions, according to a database at Yale University. However the Kremlin is adding more requirements plus an understanding that companies would sell at 50% discount. The buyers tend to be friends of Mr. Putin or well connected to his government.

Linking to dividend paying stocks, you like the company’s products and services are bought by a diversified country base which limits the potential of economy cycles on the sales. However, each country carries a potential risk and leaving can be difficult unless the country’s structures fall apart. When the economy’s structures remain, the market functions and it is difficult to leave because in this case the sanctions could be eventually lifted, then what? The decisions are often difficult to make but the company has to rely on its ethics and governance for guidance.

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

For decades, the world has seen China as one of the world’s top growth economies and there was much to celebrate. China has about 1 billion people, many were in the rural areas and the leadership of China has transformed the country from an agarin economy to urban economy first focusing on manufacturing and now services. In general, there has been a great uplifting of people from small rural plots to urban paychecks and correspondingly middle-income lifestyle. Part of the way China did this was to build infrastructure. From an engineering standpoint – the roads, the trains and the new cities are things to marvel at.

In an article by Daisuke Wakabayashi and Claire Fu of The New York Times News Service, the infrastructure included vast building of apartment towers. The Chinese government encouraged property developers, particularly large ones to develop vast apartment towers and office complexes. With the shutdowns from COVID, the government imposed, cracks in the economy are to be seen including the real estate market is overbuilt and vacancy rates are up.

China’s housing boom started in the late 1990s in the biggest cities and spread to smaller cities in the 2000s. In 2,000 China built about 2 million apartments a year, by the mid 2020s, the number was 7 million apartments a year. Real estate was accounting for 25% of China’s economy.

To stimulate the economy, China in the past encouraged real estate companies with easy credit, but this time many large property developers are saddled with debt, cities have empty dwellings and local government finances are down because of COVID funding. In China, people can buy their apartment and in the past, buying an apartment was a good investment, now prices are now because of oversupply or high vacancy rates. Although prices are up in Bejing and Shanghai, but away from the largest cities, the rebound is more muted or non-existent.

In one of the smaller cities, Nanchang has had building boom for decades and it has the same number of buildings over 60 stories as Beijing although Beijing’s population is 3 times larger. Beijing is the 2nd largest city measured by economic output, Nanchang is 36th, this translates to a vacancy rate of 40% in the office towers. In terms of apartment towers, many of the newer towers are not finished and empty because developers ran out of money.

In North America, overbuilding happens on a regular basis but there is absorption of space over the years, free rent incentives and a host of other programs before banks will lend to build more. In China, the economy depends on building more buildings which is a different scenario. In addition, in China the property developers are linked to state owned companies which provided low cost financing. Essentially the taxpayer was subsidizing the property developers, at some point someone has to pay the debts, who will?

Linking to dividend paying stocks, in the early 2000s, people were evaluating stocks and everyone said the reason why the stock would rise was China. The country was a powerhouse economy and by selling goods and services to China who would not win? The Chinese government can move people in and around China, but it is likely China will not be the growth country it once was for a few years. The decision to buy and sell a profitable stock will have to be based on its business plans and execution of the plan, not that some of its market is in China.

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

When the sun shines in the morning, we often feel good about the prospects for the day. When the sun shines on solar panels, electricity is generated for the grid and now many utility companies are doing net metering which means the electricity from the solar panels mean smaller bills for consumers. All this has taken time to become a normal circumstance, for 20 years ago, utilities had to set up the system and at first they were not really interested. As times change, new realities come into place.

In an article by Noah Browning of Reuters, the International Energy Agency from Paris, France says investment in clean energy will extend its lead over spending on fossil fuels in 2023. Most of the new spending for solar is coming from advanced countries led by China.

For every dollar invested in fossil fuels, about $1.7 is going into clean energy. 5 years ago, the ratio was one to one. In dollar terms, $2.8 trillion is set to be invested in energy worldwide, with $1.7 trillion to renewables meaning nuclear power, electric vehicles, efficiency improvements. The rest or $1 trillion with go to fossil fuels – oil, gas and coal.

In 2023, solar spending is about $1 billion a day or $380 billion on a yearly basis. The irony is the places in the world with the most sunlight, have the fewest dollars being spent on solar.

Linking to dividend paying stocks, as we move forward, there will be a combination of both, as the world will continue to use oil and gas, the issue is always about price and supply. The higher the price, the more innovative are the oil and gas companies; the opposite is true of solar, the lower the price of solar panels, the more adoption of the solar. As an investor, it is easier to make money in oil and gas companies or utility companies rather than solar panel companies.

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

After a product becomes the standard, eventually everyone believes that it was the standard all the time. The assumption is wrong, even though all products have some sort of industry lobbying group, but the process to make something standard makes and losses money for many investors. The classic case is VHS and Beta cassettes were introduced and each of them had their positive aspects, but a consumer needed to buy a machine for each. Then the machines evolved to play both and consumers did not pay attention to whether the video was VHS or Beta. Behind the scenes, each of the companies had spent millions of dollars on both the videos and the machines and the companies were JVC and Sony, both Japanese companies. One was a leader then came compact dics and now streaming, which means fewer people use either VHS or Beta.

In an article from Reuters, Ford CEO Jim Farley announced Ford had reached an agreement to use Tesla’s supercharger system. Tesla has built up superchargers in malls, hotels and office buildings but they only charge on Tesla. In the agreement, Telsa will allow Ford electric vehicle owners to book an appointment at their charges and use them. Ford will supply the users an adaptor and all will be good to the consumer. It was announced in early June, GM would follow Ford with Tesla charging adaptors.

In every new industry, there are multiple methods to do what the task is required and companies have to choose one of them. US Transportation Secretary Pete Buttigieg said the Biden administration would not dictate an EV charging standard. The two largest systems at the moment are Tesla’s EV charges and the Combined Charging System (CCS). Access to charging systems is considered one of the hurdles to broad acceptance of electric vehicles.

Linking to dividend paying stocks, one of the reasons you like them is they tend to be industries where the standard is set and the companies are profitable and can pay dividends. The company can work on enhancements, but not changing the standards. All new industries face what will be the standard? waiting till the standard is set tends to be less risky for investors.

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

Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

Risks are around everyone, the important issue is how do you manage it?

Rules to Live By

The 1st rule of preventing and coping with accidents is understanding the risks that you face.

An example of this is – a fire department responses to a fire. Prior to the fire at an industrial facility it knows what chemicals are keep at the plant. If the data is given the fire department before, on the way to the fire they can prepare for what they expect to deal with.

The second rule is avoid being in denial. There is often a gap between our intellectual understanding of a risk and our emotional acceptance of its danger. An example of this we all know there are accidents on the highway, but we drive for a living.

The 3rd rule is pay attention to weak signals and early warnings.

Contrary to intuition, accidents do not just happen and often not accidental at all. Many complex machines and system exhibit hints that they are about to fail, and many poorly designed systems experience near misses before the big one hits.

The 4th rule is it essential not to subordinate the chance to avoid catastrophe to other considerations.

The final rule do not delay by waiting for absolute proof or permission to act.

There never is perfect information.

Avoiding the Bigger Mistake

We all have to make judgements regarding risks. Figuring out the right thing to do is usually not that difficult. The problem is we must go against our intuition, expend money or time we would rather use elsewhere or go against the grain of the organization in which we work. None of these choices are easy, since the costs in money and trouble are guaranteed, the benefits are not.

Disasters can be partitioned into before, during and after. The bulk of the damage will be in the after, but a tremendous amount of harm can be reduced in the before.

When the event happens, the key which fire departments around the world have perfected, the key to effective real time response is preparation. If you go by your local fire station, whenever there is a shift change they check out the trucks, they spend time doing what could happen. The important aspect is to think through what is possible and what is most likely, aw well as you can and what you should do in each instance, including the worst-case scenario.

Each type of risk requires a different response. Everyone has heard Willie Sutton’s famous answer to why does he rob banks. That is where the money is. If you want to save lives and prevent injuries, look first at those activities that kill and harm people. One example of rating risks is the John Paulos’ Danger Index from his book Innumeracy: Mathematical Illiteracy and Its Consequences.

The most important lesson to learn is that constant vigilance is required in all high-hazard categories. If there is a loose carpet, fix it; if the driveway is icy – sand or salt it before someone slips on it or prevention works.

Professionals and managers in many large organizations face many of the same dilemmas as do ordinary employees. They do not set policy and often have an arm’s length relationships with high-level decision-makers. What can they do? As much as you like information to flow one way, the correct method is to find a method which allows for some dissent. To do this all for dissent when things are going well, if they are not going well, very few will do. One method is to informally appoint a person to challenge the assumptions in a meeting. The person can be rotating but the idea is for people to understand what the risks are. Silence and agreement are nice, but what you are looking for is good feedback to make the decision-making better.

There is sage advice for every organization, what gets measured, gets managed.

Pay close attention to the design of the system. The likelihood that things will go wrong is closely connected to the design of the organization’s equipment, software, training programs, maintenance procedures, and hazard defense systems. When the design is faculty, accidents happen. In addition, how are bonuses given?

Leaders need to know the near misses, the weak signals, we missed biting the bullet. Relabeling problems as opportunities has become a cliche, but there is wisdom in the saying if they turn out to be learning opportunities.

Linking to dividend paying stocks, in the book there is greater detail and you are encouraged to read it, but as an investor you want your company to operate above the saftety requirements to generate profits and pay dividends. Asking what is the company’s safety requirements, some companies advertise x many days without an accident. The better the safety record, the less corner cutting and the better the end product which are all good things. Everyone is involved with risk management and every year it becomes more important to ensure companies are profitable.

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

Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

When an incident is labelled an accident, then the issue is could it be prevented? In a perfect world it would be, but the issue is in many instances, the alarms were ignored by those with the power to disregard them? Why? How do smart, high-powered people get it so wrong?

Mr. Gerstein examines accidents such as Chernobyl, Hurricane Katrina, space shuttles, an Asian tsunami and the monetary crises of East Asia. All these accidents had long buildups and numerous warning signs. They also had many common elements and misguided intuition analysis. The book focuses on how to reduce the chances that anything similar will happen again.

The outlines in the book include the Columbia space shuttle is a story of how organizational pressures, public relations concerns and wishful thinking contributed to a phenomenon known as bystander behavior – the tendency of people to stand on the sidelines and watch things go from bad to worse.

Chapter 2 explores the human biases and distortions in thinking that affect each of us in a way that contributes to risk. Many accidents are natural outgrowths of human characteristics, but that does not mean they are inevitable.

Chapter 3 is about Hurricane Katrina, arguably the best predicted accident in American history. The central question is why more was not done before, during and after a storm that so many saw coming. The chapter is also the irrationality in financial decision making, since it was clear preventing the flooding of New Orleans was less expensive than rebuilding the city.

The nuclear meltdown in Ukraine is an example of faulty design as the source of many disasters.

The chapter on Vioxx, a drug from Merck is how the lure of profits and compromised regulation inhibited the company and the US Department of Food and Drug Administration from need action, despite considerable evidence Vioxx caused death.

Chapter 6 is about the BP Texas City refinery explosion that killed 15 and injured 180 in 2005. There were many warning signs and financial – BP management believed that investing in better and safer equipment and practices was unjustified.

Chapter 7 is about friendly fire caused a F15 shot down 2 Black Hawk helicopters carrying peacekeeping troops.

Chapter 8, the Texas legislators inadvertently destroyed a vast amount of their citizens’ wealth by applying naive commonsense logic to a complex dynamic system.

Chapter 9 and 10 are about Enron and the collapse of Arthur Andersen. The result of the corrosive effects of envy, greed and divided loyalties. It shows the possible consequences when watchdogs become consultants.

The other chapters offer suggestions to do better, because when ignored, most risks do not somehow take care of themselves or cease to be an issue.

The lesson from the book is while not all disasters are preventable, a surprising number of them are.

Linking to dividend paying stocks, in an ideal world, we are thinking prevention and very few accidents happen. In reality, accidents do happen and then the issue could it be prevented and what is the reaction to accident. If the company is involved in manufacturing, as an investor you want to know the safety record, are accidents prevented. When something happens what does the company do or not do? If budgets are cut what items are on the chopping block? How does the company handle risk?

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

If you think about Disney, you think of the wonderful method they interconnect the successful movie franchises to multiple other money-making entertainment ideas. If you like Star Wars the movie, you can go to Star Wars rides, you can cruise with Star Wars characters and the list is endless, but it is something Disney does very well. As an investor, when you look at other entertainment companies, you will tend to ask how do they interconnect their successful entertainment ideas?

In an article by Nicolas Van Praet of the Globe and Mail, Cirque du Soleil is pushing out from the big top into the digital world with its first video. Since 1984, over 180 million tickets have been sold and millions of people have watched some of the shows on TV.

Cirque did a market survey and the results told them to use its enviable reputation and significant intellectual property to engage with its fans more frequently and draw in new followers. Nickole Tara, a New York City based sports and entertainment executive who is leading the brand monetization strategy, noted what people told us, we want more.

Catalyst managing director and partner, Gabriel de Alba noted there were a lot of options that were never explored outside the live event business, as well as they could have been.

Ms. Tara leads a team of 50 is tasked with developing Cirque’s partnerships, branded content, consumer products, social channels, music catalogue, film and TV, and immersive entertainment.

Cirque is betting the video game with help kids and parents bond, for some of the most fervent fans often have one or more children in their household.

Linking to dividend paying stocks, in our era if a company is not developing partnerships to enhance its brand(s) then it is worth seeking alternatives. After a company has built a reputation and is profitable, it has to build on that reputation to service its existing customers and potential new ones. When you examine the reputation of the companies you invest in, how do they enhance that reputation to generate even more profits?

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