In the last two weeks of October the markets went down, and while there is no precise reason, Stan Choe of the Associated Press writes for a long time, investors did not care if the stock was cheap or expensive, what mattered was it growing?

If the answer was yes, then higher prices. because investors were willing to pay higher prices for growth.

Suddenly, every thing investors learned in investing 101 – price earning ratios, what is a value stock was back in vogue and value stocks have fallen less than growth stocks.

When Amazon and Google parent Alphabet report strong earnings but not as high as analysts had expected, the stocks went down.

To show how the ratios were working in the Russell 300 Growth Index  which includes Facebook, Visa and Home Depot, investors were willing to pay 29 times earnings or for every dollar the company made, they paid 29 times for one share.

In the Russell 300 Value Index the ratio was a more modest 16.46 times earnings.

As the Federal Reserve raises rates, stocks are not the only option which is why bonds look more attractive than risker stock investments.

Linking to dividend paying stocks, it is important to remember the reason why you are buying them is for the dividend. Eventually investors will gravitate to the better dividend companies because they are making profits. Shares in companies which make profits will over the long time increase in value. The dividends plus the increase in stock price will make a good return on your investment.

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

Many investors are biased towards large businesses and for the most part as companies merge and grow to dominate the business, we tend to believe because of the resources behind it, they can generally make reasonably good decisions. Then along comes some foolish thinking that the company makes worse. If you were to place small rocks on the ground and put a small layer of dirt on it, then begin to pile garbage do you believe the run off from the garbage or leachate would go through the soil, through the rocks and into the land and water beside the rocks? That is generally why a dump particularly a mega dump needs to be on a strong clay based ground, placing a dump on limestone is foolish. To make a mega dump on limestone will mean the runoff of the stuff we are throw in the garbage will make its way into the rivers and streams around the dump. All mega dumps leak, the question is how much?

The above situation is the book Fighting Dirty by Poh-Gek Forkert published by Between the Lines, Toronto, 2017. The book is subtitled How a Small Community took on Big Trash. The writer was an advisor to the group fighting a small dump which became a regional dump which became a megadump. On the other side is the company Waste Management aided by the government. If you are in one of these fights, the book is worth reading.

Most of us believe for the most part, while people working for the government have a bias, they generally are on the side of what is known as the public interest. Companies have ideas, implement them badly and the government goes to the worst offenders and tries to change their ways to not be a bad corporate neighbor. It turned out in this story the government helped facilitate the bad decisions of Waste Management.

If a small organization wishes to take on a large corporate concern, besides people’s expertise, they will need to do much fundraising to offset the company’s ability to hire consultants who say it could be or there may be a risk, but it is limited risk. The other aspect is this fight took 10 years, that is a lot of time to volunteer to fight on one issue. On the company side never under estimate the people in the rural area – it may take some time for them to get up to speed, but when the basic decision can be seen as good and bad, they will win.

Linking to dividend paying stocks, when we buy shares we favor management and the business it is in. In the case of Waste Management, we all throw out garbage, it needs to go somewhere and we trust the company does the right thing with it. It this particular case, the dump was enlarged because the company owned land, the foundation was the problem. A matter of fact, after the company lost, they applied for a new dump beside the old one – the foundation was still the problem and the application was turned down. All companies make good and bad decisions, but doubling down on a bad one is still a bad decision and shareholders should advise management.

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

One of the groups which are consistent dividend payers is drug companies or Big Pharma. After they bring out a drug, it costs drop dramatically for each pill sold within the patent period. While Big Pharma is far from perfect for all drugs have side affects, but many do more good than harm and given an aging population more will be consumed. All bodies as they age begin to break down or slowly heal from aches and pains. The good news is some of the drugs help us all live longer.

Scott Clayton of TSI Network recently examined Big Pharma to find alternatives, his criteria was:

US listed pharmaceutical stock

the company has a rating system in such if a company achieves 10 to 12 points, they are deemed to be the most secure dividends or they are very sustainable

1 point from every 5 years of continuous dividend payments and 2 points for more than 5 years (this will be why many funds have some Big Pharma in them)

2 points if the company has raised the payment in the past 5 years

1 point for management’s commitment to dividends

1 point for operating in non-cyclical industries

1 point for limited exposure to foreign currency rates

2 points for a strong balance sheet, including manageable debt and adequate cash

2 points for a long term record of positive earnings and cash flow sufficient to cover dividend payments

1 point if a company is a leader in the industry

Company                   Points           Div Yield %    Mkt Cap  $B       1 Year Total Return

Pfizer                               10                3.1                   261.5                    23.1

Merck                              10                 2.7                   192.0                   13.6

Johnson & Johnson       10                 2.6                  366.4                    -0.9

Eli Lily                             10                  2.0                 119.2                     32.0

GlaxoSmithKline             9                  4.9                    98.7                     -2.7

AbbVie                              9                  4.2                   139.2                      0.3

Novartis                           9                   3.4                   198.7                     -1.2

Bristol Myers Squibb     9                  2.8                     94.5                     -8.2

Amgen                               9                  2.6                  131.0                       8.9

 

Linking to dividend paying stocks, all the above pay dividends and are very sustainable. If you buy any of them, there is no wrong answer. The beauty of the markets is some of the best have done better than their piers. The ideal of investing is to find great companies and over time they continue to do well. Whether you like Big Pharma or not, the stocks are worth looking at.

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

 

 

 

 

If you are a reasonably average person, you bought bananas. For most of us, we eat them but do you really know much about them? A book called Banana – The Fate of the Fruit that Changed the World by Dan Koeppel published by Hudson Street Press Penguin, NY, 2008 offers insights into the banana. The banana grows on the banana tree which is not a tree – it is the world’s largest herb and the fruit is a berry. There are many varieties of bananas found around the world but the type which made an industry was called Gros Michel and the type that most of his buy at the supermarket is called Cavendish.

The reason the first type disappeared was a fungus and the second one had to be invented. When you eat a peach, you will find a large seed in the middle. When you eat a banana = there are no seeds. This means when the fungus or disease attacks banana plants, researchers have a very difficult time finding a replacement or making the existing type more disease resistance while keeping all the good attributes we consumers want and enjoy.

Bananas made their way into the US around 1870, when Captain Baker brought back some bananas from the Caribbean and they sold out making a profit. This meant a next shipment and soon an industry and by 1900 bananas were available around the country. The two dominant companies were United Fruit and Standard Fruit. The heyday of the companies was in the 1950’s, the US government overthrew a country’s government to prevent land reform or to protect the landholdings of the banana companies. The name banana republic struck and was for the most part accurate.

The first banana was Gros Michel and among its many traits was when the banana was picked prior to ripening it did not bruise easily. After the disease affected the crop, a new banana was introduced – the Cavendish. It was very similar to Gros Michel but it bruised easily. The solution pack the bananas in boxes and that is the way you see them in the supermarket.

The history of the banana is also a great logistics story – within 7 days of picking, the bananas were loaded on refrigerated ships, came across to the US, unload and moved from port cities to supermarkets to be sold. The price was less than the price of apples, easily fit into lunchboxes and is good to eat. A staple was born and continues.

Corporately United Fruit had a near monopoly, but they were tied to Gros Michel and suffered losses when their monolithic crop suffered disease. Standard Fruit because it was smaller, made to be more innovative discovered and planted the Cavendish. United Fruit had great profits and paid dividends for many years, it operated as all the land in the country was for them, which meant as soon as disease attacked the estates, the company moved further down the railway line. The company had built railway lines, port facilities, ensured no labor unions so pay was low, and picked up and moved. One wonders did the company enrich the soil or allowed the banana plants to deplete the soil when the trees were removed? I would suspect they did little and is one of the reasons the disease came forth. In later years, the use of pesticides was and is an important role in growing the banana.

Now days United Fruit lost money, went into bankruptcy and emerged as Chiquita which is controlled by Cutrale and Grupo Safra; Standard Fruit was bought by Castle and Cooke originally from Hawaii which became Dole of California; Del Monte which is controlled by IAT Group; Fyffles which is popular in Europe as it is controlled by an Irish company. The banana companies you see at the supermarket rarely own the land the bananas are grown on, preferring to buy or act as a middle man.

Linking to dividend paying stocks, for a long time United Fruit was a very profitable stock headquartered in Boston and contributing much to the institutions of the city. Over the years, the industry changed, mergers and demergers happened and alternatives were needed. In every industry there are players, but it does not mean they are the largest players forever. How and why does the company make money are still very important questions to understand.

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

As an dividend investor, your interest is over the long term which means you are not necessarily selling every week or month, but there is always the questions when do you take profits. For dividend investors, as long as the dividends are sustainable and the company is profitable, there is not a heavy need to sell. You can either reinvest the dividends, use the dividends to buy other companies or use it for your life, hopefully there are options for you. If you look at Fortune 500 companies 20 years ago and compare them with today’s companies, the names change which means you will have to do something.

Recently Terry Cain wrote an article about how and when do you sell? Most of us invest to make more money. what happens when you do. Do you let it ride? allowing you to know your research and decision making was accurate and the market agrees. Do you sell some? There is no perfect answer.

Professionals who run firms have different ideas: some not do like to sell winners, there key is sell losers as soon as you determine they are not working out. (in many ways this is a method index funds work – the S&P tosses out the losers and keeps the winners).

When you buy a stock and it goes up, does your homework show the stock is above its intrinsic value? Extraordinary few stocks go up in a straight line, so if your company does why does it? what is the competition doing? what is the market seeing? should you take some money off the table because invariably the price will fall.

The reality is if you can buy a great stock after the price has fallen, the stock will eventually rise back to its heights and likely surpass it. You will have made money by having cash available to buy low. Fortunately dividends help ensure you have some cash available to wait for great opportunities.

Linking to dividend paying stocks, the wonderful thing about selling is there is no perfect answer but it is much nicer to sell after profits have been made than before hand. Hopefully you had good reasons to buy a stock and if those reasons still are valid it is worth keeping. In simple terms of a dividend stock if the company is profitable and can continue to pay dividends, ideally increasing the amount every year, then you have the wonderful luxury of taking your time to make a decision.

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

 

The death of Jamal Khashoggi in Turkey by agents of Saudi Arabia around October 17th allowed many issues to come to foreground/ Mr. Khashooggi was a member of the Muslim Brotherhood who would like to see more democracy in the Arab States, the present rulers of the Kingdom of Saudi Arabia do not. There is a religious component and for investors there is an economic part. It is easier to comment on the economic aspect – a few years the leader of Saudi Arabia announced great plans to transform the country from receiving 95% of its revenues from oil to great diversification. In keeping with this vision – the state oil company Saudi Aramco was going to go public. Besides the biggest IPO or initial public offering in the world, the company is one of the most profitable companies in the world and institutions and individuals would love to buy the shares. Prince Moammed bin Salman (MBS) decided to cancel the IPO and investment bankers and the financial markets were not happy. However, Saudi Arabia still has lots of oil and as long as they have money, the hurt feelings would go away.

Linking to dividend paying stocks, the hurt feelings and large bonus cheques of the investment bankers were seeing caused many to cancel going to a Saudi conference. Next year, they will all be back. With a dividend stock, often there are other issues going on it which the company becomes part of. It may or may not be a major player but international issues come forth. Remember the reasons why you bought the company and as long as it continues to make money, issues will pass into the background. All companies have to face some level of criticism. How they do it is whether you keep the stock or look for alternatives.

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

 

On the weekend, did you go into or pass an art gallery or museum? Hopefully many did and the art can help you see things or be a little creative. The art helps you see things because you stop in front of the art and after deciding why you like it, you ask yourself or the person you are with about the painting. If it is portrait do you like the person? what income do they have? what is in the background? why this one? Some of the answers will lead to other questions and something you have been thinking about a different solution may pop in – you are creative.

Another question to ask is how did the museum receive the art it shows? Some pieces were given or donated, but all of them? In some museums, there are collections governments stole from other countries to view them in their homeland because they wanted to protect the art. For many years, when governments or miltary commands went into another land to the winner went the spoils of “rape” and pillage. The pillage is what we are interested in – that mean gold, what could be sold including art. Some of the world’s greatest museums have collections that pillage played a part. As art became a commodity for people to buy and sell at higher prices, art theft came into the world. In a book called the Museum of the Missing – A History of Art Theft by Simon Houpt published by Sterling Publishing Inc, New York, 2006.

When wars go on, the countries art treasures are at risk and will be taken. After WW II the Soviets had a department to take art from Germany which looted most of Europe to sell and put in their museums. The Germans had a department which examined a country’s artworks prior to invasion of a country. After the Germans had taken over the country they looted the artworks. In the world of art, there has been many forgeries and as technology has gotten better, the history of the painting – who owned it has been made more important. The Gulf Wars included the looting of museums. People have stolen art for countless of reasons – to admire it, although if art is stolen, who can see it? As prices go up, security is more important.

Linking to dividend paying stocks, at least when you buy these type of companies there is no forgery, just an entry on your holdings and when dividends are paid either you will own more shares or your cash account increases. When the dividends are received in your account the money is clean and you can easily sleep in the evenings.

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

There are a great many theories about life in the marketplace and one economist Tim Harford wrote in The Logic of Life – The Rational Economics of an Irrational World published by Bond Street Books, Toronto, 2008. Mr. Harford believes as you look at irrational world you can begin to undercover how they are making rational decisions. If they are making rational decisions and trying to understand how rational decisions are made, better decisions can be made or allocations of money.

There are many example in the book and one is about poker. The game of poker is considered to be irrational because much of the game is about bluffing. People play poker and some cards are on the table and some cards are in the hands of the players. How do players bet – do they bet more when they have a perfect hand? less than a perfect hand? or do they fold quicker? What is rational or what is irrational? John Von Neumann wrote a book in 1944 called Theory of Games and Economic Behavior. Game theory came into play and players begin to be more analytical towards how players in the past played. It was and is possible to bring a rational approach to the game and win.

Mr. Harford examines cities. Most of us live in some form of urban environment which leads to most of us have ideas of how cities work or do not work. There was a study in London, England done by Charles Booth of the rich and poor areas in 1899. (Google his name and London and you will see it) If you take the same map in 1999, with very exceptions, the poor areas are still poor areas. The rich areas are rich areas, even though the city is richer than before. In this fashion the safer and livelier neighborhoods remain so, while the dull neighborhoods remain dull. Mr. Harford sees this as perfect, rational sense.

How to change the maps? One solution tried was called Moving to Opportunity and that helped but it showed the neighborhood was not the only thing in life that can hold people back.

Discrimination is a reality and it hurts people in 2 ways, directly by denying people opportunities and indirectly by sapping the incentive they have to study hard and aim high. Education is the key, for it reality those with a higher education tend to make more money than those than do not. Who are the role models? who do the kids see? what do they read?

Linking to dividend paying stocks, how do you see the rational in the irrational. Sometimes you will know a stock is on the verge of moving up, but how do you do it regularly? What metrics do you use to help make decisions? When is a good time to sell or buy? You are looking for rational reasons, perhaps Mr. Harford’s book can help.

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

 

In mid October, the US anti trust division of the Justice Department approved CVS to buy Aetna. In the world of health care, it was expected to be easier under the Trump administration to have these blockbuster deals be approved. Whether it is better for the consumer, we do not know. In terms of the investor, CVS believes it can cut costs by $750 million annually by the end of the second year. One method to do this is to ensure Aetna customers deal with CVS stores. The stores could offer more preventive care services and screenings in its clinics rather that visits to doctors or emergency rooms.

In an article by Diane Bartz and Caroline Humer of Reuters it was noted this was the second large health care merger to win approval. Cigna bought Express Scripts.

The Justice Department told CVS to sell its stand alone Medicare prescription drug plan known as Medicare Part D. Aetna will sell its plan to Well Care Health Plans Inc.

The Justice Department has stopped deals such as Aetna buying Humana as well as Cigna and Anthem merger.

Linking to dividend paying stocks,  while governments operate for the people, often times some governments are more willing than others to entertain mergers. While the government is in power, more mergers are likely than not. Just because a merger happens does mean they always work out. There are multiple reasons why mergers do not work out and as investors you need to watch out what is the reason for the merger and how are they going to make more money from the combination besides cutting costs?

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