In every industry, there are investors and users of the product and services, most of the time both believe or tend to believe the price is set by what the market can bear, but once in a while people think something is off. If they invest millions of dollars, they send in their lawyers to investigate.

In an article by Jonathan Stempel of Reuters, US District Court Valerie Caproni in Manhattan, dismissed a long running litigation by investors who accused HSBC and Bank of Nova Scotia of conspiring to fix silver prices.

Investors had accused HSBC, Bank of Nova Scotia and Deutsche Bank of manipulating silver prices from 2007 to 2013. The litigation began in 2014, Deutsche Bank settled for $38 million in 2016, the others kept the law suit moving on.

In a 24 page ruling, the judge found the investors unable to trace their losses to bank’s alleged effort to depress the fix, which set the prices for silver bars and trade derivatives based on advance knowledge of the price fix.

The Justice said the investors did not show it was plausible, as opposed to merely possible.

Linking to dividend paying stocks, all profitable companies are sued and they all have a legal department. Just because they are sued does not make them guilty, it has to be proven in court. For investors, if the company is sued, money is set aside in case they are found guilty, but generally it takes years for lawsuits to go to court and the court make a decision. Investments should not be made on what the Judge will decide, often you will be wrong. If the lawsuit is material, it is best to look at alternative investments and wait till the settlement is handed down.

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

If you invest in industries where there are monopolies or two major competitors, eventually all the roads lead to Rome. That saying is from the Roman Empire when Rome was the center of dominant empire of the Mediterranean Sea and the Roman Empire used infrastructure or building of roads to keep the people busy. (in China they built a wall which used thousands of people to work on, to keep the Mongols out). In the case of Rome, roads were built across Italy to foster faster communications at the end of the roads was Rome, over time the expression all roads lead to Rome came into being. In the passenger airline business, there are 2 companies competing against each other Boeing and Airbus. While there are other planes, the dominant players are Boeing and Airbus.

In an article by Valerie Insinna, Padraic Halphin and Tim Hepher of Reuters, the largest low-cost carrier in Europe is Ireland’s Ryanair and they signed a deal to buy 300 Boeing jets. For the past 18 months, Ryanair and Boeing have been having a public feud.

As a low cost provider of flights, some flights are less expensive than driving, Ryanair’s CEO Michael O’Leary has a very sharp pencil when buying planes. Ryanair flew 168 million passengers and expects to fly 300 million by 2034.

Ryanair uses Boeing 737s for its mainline fleet and is one of Boeing’s largest customers with more than 600 planes in its fleet or on order. The new order is for 737 Max 10 which seats 230 people.

In the early 1990’s and 2000’s, the country with the biggest increase in planes was China, in the 2020’s it is India. Air India recently put in a order for 500 Boeings.

Linking to dividend paying stocks, in all industries there tends to be a market leader and others fill in the gaps. If you can invest in an industry which has a long standing 2 or 3 companies dominating the market, eventually the biggest customers must come to them. In an ideal world, the manufacturers and buyers have a very good relationship as the manufacturer continually tries to accommodate the needs of the major buyers, but reality is reality and sometimes buyers and manufacturers have public spats. In the end, they are brought together to find solutions and the public is served which allows for investors to hold onto the stock for the long term as profits turn into dividends.

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

If you think about inflation, you think how is inflation measured? There is a mythical average consumer who needs housing, food, vehicle costs, and often it is not very hard to see the average mythical person because it is someone on the street where you live. We all need food, we all need someone to live and move around, but all of us are now buying a new car every year, however vehicles do not last forever. If you own a vehicle and it begins to cost more to repair than to buy a newer version, you know it is time to upgrade.

In an article by Lydia Depillis and Jeanna Smialek of the New York Times News Service, they examined why car prices have remain high both new and used. During the pandemic, it was easy to see because a global shipping problem happened, at the big 3 – the cars are put together but the parts are shipped in from a variety of sources. The new vehicles have more semi-conductors in them and there was a shortage as well as given the age of the average vehicle there was strong demand to upgrade. Those supply and demand lines you learned in economics helped explain higher prices.

The pandemic is over, global shipping is approaching normal, domestic automakers are producing more vehicles, particularly the popular ones, prices should fall, correct?

Inflation is not going to be a smooth path downward: there are going to be bumps along the road, noted Blerina Uruci, chief economist at T Rowe Price. There are many idiosyncratic factors at play right now.

In terms of the auto industry. it is useful to examine how did they make their money?

Automakers produced more cars than the marketplace demanded, offering incentives to clear inventory and compete with low cost imports. Dealers made their profits on volume and financing. After the pandemic, semi-conductors were allocated to trucks and SUVs which offered lower volume of sales but higher profits per sale. About 5 million cars that normally would be produced never were. Dealers increased their margins and vehicles became more expensive.

Typically there would have been a generation of cars that would have come off their 3-year lease and put either bought out the lease or traded in for a new model. The number is less than normal, which means at auctions, prices are higher than normal for used car dealers.

Higher interest rates mean car payments have increased according to TransUnion, the average monthly payment rose to $736 from $585 two years ago. Used cars are averaging $523 up from $413 two years ago.

At the high end of prices, demand remains strong. At the low end, because fewer vehicles were made, demand remains strong. The only good news for car buyers is according to Kelley Blue Book data shows that average prices has fallen below list for 2 months.

Linking to dividend paying stocks, in economics 101 you learn about supply and demand. It still means a great deal to most industries. While there are alternatives for everything, supply and demand does provide reasonable explanations for what is happening. The issue for you as an investor is what are the alternatives? will they affect the profitability of the company?

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which resulted in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

In all cities, everyone is drawn to the office towers with the names of corporate clients and that is a good thing. It is good for the city for tax revenues, it is good for the office developer to collect rents on a consistent basis, and it is good that companies can grow and become part of many consumers lives. As investors we are often attracted to the big names, and it is a good place to start.

In the book, there is the example of San Francisco and the California gold rush. Hundreds of thousands of people travelled to California by ships and wagon trains. After California became a state, the railroads were built. Gold fever brought in many people and most did not find gold to change their lives, although some did. However, there were other opportunities.

Levi Strauss did not find gold, but he did open a store selling dry goods. One of his customers, a tailor figured out a way to fashion metal rivets on the pocket and zipper of the denim. Levi fronted the tailor money to file patents on the new design and both became millionaires. Many of us buy Mr. Stauss’s jeans to this day.

There is an old book, but well worth the read called the Millionaire Next Door, if you go to the industrial part of your city, you can look in the parking lot of a HVAC company and count the trucks, consider the inventory in the truck, the inventory in the plant and you will soon see the owner has over a million in assets. There is money to be made that may or may not be in the shiny office towers of downtown.

Another example is Chet Pipkin of Belkin International which is a consumer electronics maker. Mr. Pipkin first thought about being a PC maker but there was too much competition. Instead, he found his niche by immersing himself in the scene and hanging out at computer store. What he watched was people buying the PC and then asking how do I make this work? it was a very good question because at the time, there were many different manufacturers with different connectors on them, it was difficult task to do until you had done it enough times. There was a niche market.

Why did not IBM fill in? because they had their hands full making enough PCs. For years they did not concern themselves with how the printer was connected and by who? Belkin was small enough to take advantage of this niche and was not a threat to IBM because it was small. Belkin help make the standards because their goal was to make more PCs work with more peripheral devices for more consumers. Eventually the business was sold for $800 million.

Linking to dividend paying stocks, it is important to start with the big shiny company that is in the media that you read, however it is almost important to remember money is money. Sometimes you can find a relatively smaller company what is profitable and can pay dividends and has a healthy market share in its niche. There is always competition but niche markets can be similar to near monopoly aspects of ability to raise prices to maintain margins. This is why you need to do your homework and trying to discover the diamonds in the rough.

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which resulted in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

In every business, it starts off with a small selection and eventually the selection becomes larger as the company grows and expands. There are rational reasons why, people ask for more products and services and sometimes the new products are the growth areas for the company. In the book are a couple of examples which are described in greater depths. One example is Stacey’s Pita Chips. The company started off as offering pita sandwiches from a hot dog cart and because people liked the sandwiches there tended to be a line up. Someone thought it would be nice if they offered chips from the leftover pitas to people as they stood in line. Soon people were asking for the chips in larger batches and the owner had to decide which path to take – pita sandwiches or pita chips. The pita chip company was eventually bought by Pepsi and you may have seen them in a supermarket.

Another example is Justin.tv. The company allowed for lifestyle live streaming and various categories were soon up and running. The company founders noticed one video category was outdrawing all the others combined – gaming. The division was spin off to a sister site called Twitch Interactive.

There are many other examples, the issue is it takes an immense amount of emotional maturity, no matter how old you are, to recognize the business you are leading is bigger and more important than your idea on which that business was originally built.

If you work for someone else, one of the things in the back of your mind is if I won the lottery (became rich) I would not have to work anymore. Anyone who works for the lottery always says this type of expression. What if you owned a business and made lots of money, would you keep working? If you were wealthy, what motivates you to stay involved with the company? The answer eventually turns back to the reason why the business was started or the mission first. What is the purpose of the business? The answer is the reason why you turn up to work, to stay with the business when times are tough and you wonder if it will be a success and once the business is a success, why you stay.

Linking to dividend paying stocks, companies begin for multiple reasons and once in business, most try to add on to satisfy customer needs and expectations. Some of these needs are done in house and when they are done in house, once in a while the business grows and soon dwarfs the main business, what does the owner do? Many companies will spin off the divisions, while retaining a significant ownership and let the division do as well as possible. Part of the reason this is done is everyone once in a while Wall Street likes everything to be done in house, then they change their minds and want companies to focus on the core business. Often the business that are spun off become profitable in their own right and as a shareholder you own one business for almost free. When the business is spun off, as a shareholder you have a choice keep the shares or sell them in the open market, what is the best option?

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which led to a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

One of the important elements of any company is their culture and in particular, how do they handle things when something unexpected goes wrong. All companies say they are run by wonderful people, but the reality is something that approaches a bell curve. Inside a company people will come and go for a wide variety of reasons, will you remember any of them as the company continues along? The answer is some. Companies come and go, and if they provided a needed product or service another company will offer a similar product or service. The issue is if something unexpected happens, how does the company respond. The classic case is the drug company J&J lead by James Burke. Someone tampered with Tylenol bottles and J&J was in a crisis situation. The company decided to recall all its product and introduce the foil seal which is still used today to ensure no tampering could be done again. To do that, CEO James Burke was in daily contact with the media, the company had to make decisions and then implement them in the manufacturing plants to do the foil seals and other measures. The cost was over $100 million, during the crisis market share fell, but the more important result is within 8 months they had recaptured and increased their market share. The values of the company shaped the decision making.

Another example in the book is Jeni’s Splendid Ice Cream which is based in Columbus, Ohio. The chain dominated the market and owner Jeni Bauer obsessed over the best ice cream for her customers. Then an outbreak of foodborne bacteria called listeria happened. The company had to recall all its ice cream, shut down the factory, eventually determined where the source was and then make ice cream again. There were time delays, when the recall happened, sales went to zero. When they found the source and it was cleaned up, Jeni announced that a new quality control leader had been hired and an increase in testing which is 1,000 times beyond the industry recommendation was standard operating procedure in the plant. Jeni’s sales came back and Jeni says it is the trust of your customers.

The classic case where companies tried to hide was Ford and Firestone tires. There was always a strong relationship between the two companies and one of the Ford’s sons and a daughter of Firestone were married. However, some Firestone tires used in the Ford Explorer SUVs at prolonged highway speeds and high road surface temperatures, the tread would separate from the tires’ sidewalls and in some cases send the SUVs into a roll.

Ford and Firestone executives knew this, but because it was some, did not tell the public for 4 years, ending up being sued and settled billions of dollars in lawsuits. Ford and Firestone’s executives were fired, and the Ford switched to a different tire company resulting in job loss at Firestone. Both Ford and Firestone lost billions because trust was seriously eroded.

Linking to dividend paying stocks, all companies will and do go through unexpected circumstances and the issue is how does it handle it? Send in the lawyers to pay off those who sued or take responsibility, fix the problem, communicate with the public and continue on. There are always examples of both responses and part of the response can be seen in the culture of the company. In your homework, one aspect you are looking for is the company culture, you like when it makes a profit and pays a dividend, but what happens when there are mistakes or unexpected events occur? what does the company do or not do?

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which resulted in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

For smaller companies to grow, after the friends and family stage, then government loans, the next stage is venture capital funding. One of the founders of Andressen Horowitz is named Ben Horowitz. Two piece of advice he gave to one people who job was to develop and evaluate new ideas.

First what usually look like good ideas are bad ideas, and what look like bad ideas are good ideas. The problem with a good idea is that everyone tries to do them and as result there is limited value to be created. Second, you need to the do thing that you believe you are the best person in the world to do, where you have a unique proposition, given your story, to solve a problem.

If you are going to use venture capital funding, it is important to understand the VCs on the other side.

The first thing to understand is that raising venture capital money is about making a promise. A promise that you have a product or service that people will pay money for, that you have a plan to reach as many of those people as possible, and that in exchange for lots of money, you will bust your butt to reach them.

The next thing to understand is that good investors know the promise you are making to them is just that – a promise. They know you cannot make any guarantees. You can everything right, but if the world shifts under your feet, there’s nothing you can do about it. Venture capital is by its very nature a gamble. The mitigate the gamble they ask lots of questions –

How do your expect to scale this? Where is the growth coming from? Who is the customer for this? Doesn’t something like this exist? How will you get costs down? Where will you manufacture? Where will you be based? What is your marketing strategy? Why does anyone need this? Why would anyone do this?

As an entrepreneur you have to expect these questions. The more you are asked, the better your answers are because of the additional research you have and continue to do.

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which resulted in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

If you are buying real estate, you know the expression – location, location and location. If you are investing in a small business, some locations are better than others for the operations of the business. In most industries, an infrastructure grows around the large businesses for example in software world, Silicon Valley has people engaged in all the levels of software companies. If you owned a software business, you would want people with a connection into the Valley ecosystem. Once in the valley’s ecosystem, it becomes easier to recruit and find talent for your company. It does not necessary mean you have to be there, but it means you have to connection into the ecosystem.

Every year 850,000 new businesses are established, only 80% will make it to the 1st anniversary. Most of those businesses will be one person based trying to make their dream come true.

In the app world, across the 5 biggest app stores, there are over 5 million apps available for download. In 2018 those apps produced nearly 200 billion individual downloads and $365 billion in revenue. In 2019, more than 1,000 apps were added every day to the iOS app store.

The above data shows great opportunity, however the top 5 apps account for 85% of all the in-app time spent by users on their mobile devices. The other apps vie for the remaining 15% of users’ in app time.

The difference between the top and bottom app is often the ability to get attention or ability to create buzz and to engineer word of the mouth. How to do get buzz is more art than science. It is always possible to generate buzz with money, but the product has to be very good and aimed at customers and potential customers.

Building buzz is about leveraging specific relationships (trend setters, media contacts) and resources (OPM, expertise) to your name out there in front as many people as possible. If the name is out there, people including your core customers will try and retry your products and services. The buzz is one source telling another – you need to try this. If they try and love the product, it is likely they will tell others. The company’s job is to ensure the product and service is done very well all the time. When the signal breaks from the normal noise of the marketplace, the company can reach farther than they could have been imagined.

Linking to dividend paying stocks, for large companies, they are what all the smaller competition desires, the ability to generate profits to pay dividends. In many industries, the competition is difficult to achieve that end which means the large company has to have consistency that consumers demand. As an investor, if you use the product you can determine does the product want you to use it again and again?

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which result in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

At every AGM, you are asked to vote on the directors of the company and compensation for senior executives. As a shareholder you are looking at the people which run the company and you are looking at the leadership of the company to allow the company to celebrate an anniversary of their founding for years to come. In most companies there is the founder, but who is the co-founder or the people that helped the founder realize the dream of the company?

In every company, they will need to rely on OPM or Other People’s Money – from bank loans, government grants or loan guarantees to people investing in the founders. Eventually that company went public and as a shareholder, you are investing with others. How did the company move from small startup to medium sized to the size you are investing in?

Change is a constant in business, because what works when you started can and does change over the years. In every industry they are constantly trying to evolve and sometimes what was not available a few years ago, is now available for different and better uses in products. The easiest place to see that is the fashion industry and what is the trend for the summer season. Many men will wear shorts and a golf shirt, but will they be the same style of last year? something will have changed. Companies change and that is ok if they change for the correct reasons. As a small business, if change is not part of their DNA, you would not likely want to invest in it.

Everyone loves small businesses, until they become a certain size. Once they reach a certain size the competitors notice them and will challenge them both legally and by the unwritten rules in the industry. The big fish will allow the small fish to eat the scraps they do not want to service, but once the fish start nimbling on their customer base, things will be different.

Large companies use pricing discretion, toll bridge and different methods to erect barriers to entry to limit the competition. Some of the barriers are natural forces that rise and shift within a market as competitors enter and exit, grow and shrink, evolve and pivot. Some of the barriers are conscious strategies deployed by old guard blue-chippers.

The trick for new companies is find the side door or path the least travelled where the gate is wide open. For example, the protein bar RXBar did not want to go onto the shelf space in the supermarket, they went to gyms first where they had no competition. The company 5-hour Energy did not want to be place on the shelf beside Monster, they wanted to be near the cash register in a new market category. (in the grocery world, shelf space matters and the large players have the most shelf space).

Wal-mart is a mass merchandiser, a retail company such as GNC is always looking for new products because if a product is in Wal-mart, few people will buy it at GNC. In the retail world thanks to the chain stores, retailing is slightly different for all of them. You will need to do your homework to understand the differences and which companies are open to new businesses or where is the side door in your industry?

Linking to dividend paying stocks, as an investor you enjoy the benefits of moats and you like them and look for them to invest in. The issue of all companies are they paying attention to the side doors and ensuring the moats stay. If they are not paying attention to the side doors or what gates are open, the result will be the larger company losing market share, they will lose margins and you will need to find alternatives. At the AGM ask what are the side doors to entry in your industry?

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