Most of us make mistakes, it is great that we eventually learn from the mistakes. In an article Terry Cain asked financial advisors the common mistakes or errors people tend to make in regards to their portfolios.

1. Paying too much attention to Your Investments.

Years ago, a story was heard that a reasonably wealthy individual was convinced to buy some stock. He bought the safest security Bell or AT&T. The company was heavily regulated, had a monopoly and was a company people bought for its dividends. The gentleman use to phone his broker everyday and ask for the price and when it when up 25 cents was happy and when it went down 25 cents thought about selling. The stock had a trading range of $5 dollars a year, no one bought it for capital gains in the year. Eventually the individual was convinced to sell and stick with interest rate products.

You can spend too much time on your investments, think about the size of your portfolio and your income. If it generates the same as your day job, perhaps considering retiring or working less. If the income is less than you day job, buy things you follow on a regular basis to know when you expect the downturn is coming. Then you can do things for a defensive (not to lose money) as well as offensive (make money).

2. Chasing a Hot Investment

At some point there is a hot investment, sectors which have gone up 100% and more and you look at your portfolio doing 10% and want to invest in that sector. Knowing what goes up typically comes down, if you chase the hot investment do so with money you can lose. Perhaps use your dividends or interest payments to buy then you are protected and the bulk of your funds are doing what they are suppose to do. Earning money for you.

Being Afraid to Take a Loss

It is seemingly easier to do this on a self directed portfolio, but if you own a company that is losing money, look at alternatives. You bought the company for a reason, go back to it and see if that is the reason to continue to hold. If not sell, wait and buy a quality company when the price declines. When the price increases you are better off.

Assuming that Bigger Companies are Better

The easiest method to change your mind is look at the Fortune 500 from 25 years ago, 15 years ago and last year. The names change at the top of the list, some of the companies you will not know or remember. Unless you buy an utility type company, most companies change over the years and this is why as much as you begin to really like a company, a review each year to see if alternatives should be examined is a good idea.

Misunderstanding Diversifications

Many people buy funds and ETFs including the writer, however some funds and ETFS follow the same type of companies. That can be great while they are doing well, but understand if you were attempting to  diversify, you have actually become more focused on one sector. Often times, reviews by portfolio managers are free, so if you are doing all the work ask if you are really diversified?

Pursuing Yield above all else

If you look at the companies which pay higher yields, 2 or 3 times higher than treasury rates, you have to wonder how sustainable they are? How does the company generate the cash to pay the dividends and grow their business?

Linking to dividend paying stocks, one of the reasons the writer likes them is they are relatively easy to analyze. Is the company profitable? are their dividends sustainable? what needs to change? If you are reasonably happy with the answers, then there is little to do but collect the sustainable dividend from the profitable company. If there is a major change look at alternatives.

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

The President will be known as the tariff President because he seemingly loves to impose tariffs on everyone and anything being imported into the US. Interesting in years gone past, tariffs were used to stimulate production inside the country, so far the main impact of increasing tariffs is higher prices which have been passed along to consumers. At some point, tariffs will affect the profitability of American companies who do the importing.

In an article by Stephen Nellis and Sonam Rai of Reuters who talked to analysts about the President imposition of 10% tariffs on $200 billion of Chinese imports. One has to remember companies similar to Apple were importing 98% of the product to the US – the design and what the Apple products do are done in the US, the manufacturing is done in China and Taiwan.  For Apple if the President expands the recent tariff increase, it will affect them directly.

The latest tariffs tend to affect cloud computing – companies such as Amazon who cloud business is doing very well including having multiple US departments and agencies using the services. The companies involved woth cloud computing issued a warning the proposed duties will impede the development and adoption of cloud based services and infrastructure.

Linking to dividend paying stocks, the President for reasons unclear to most is playing with the supply system which was built for to benefit US companies and people wonder why? If employment costs are about a $1 or less than $5 an hour in outside country, for the employer to bring jobs back to America, tariffs have to be greater than 10% or even 25%. Seemingly all the President is doing is the opposite of Wal-Mart – raising prices everyday. Similar to many large companies, the consultants and lobbyists rush in to say tariffs might be important to the country, but for our company we need an exception and many exceptions have been asked for and given by the Commerce department. Sometimes the headlines are not exactly what is happening.

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

 

 

If you were asked about the Nobel Peace Prize or Nobel Prize for Literature or Chemistry or Medicine or Economic Science, hopefully you had ever heard about the prize or maybe even know  someone in your community that has won one. The prizes have been awarded since 1895. Did you ever wonder who are they named after or who the person was? The answer is Alfred Nobel who was born in Sweden. There likely are many books about him but the one which was read was called Alfred Nobel – The man and his work by Ehik Bergengren published by Thomas Nelson and Sons Ltd, London, 1960.

Alfred’s father Immanuel was a natural genius with the manufacturer of equipment and inventor. He was fortunate all his 3 sons were interested in the same skills and they all could and did work together. Immanuel had many ideas and some involved mining and explosions. Imperial Russia was interested in his ideas and he moved there. After a sickly childhood, Alfred matured to be a young man through his Dad’s firm he was trained as chemist, he learned 5 languages – German, English, French, Russian and Swedish, he enjoyed literature.

While in Russia, Immanuel had many ideas which were useful to the Crimean War effort and along the way he continued to experiment with powder-charged mines trying to find something that is more effective. Eventually father and son were introduced to a remarkable, violently explosive substance called nitroglycerin. There was a long road from experimentation to production to selling because the material is violently explosive. Eventually it lead to Nobel’s patent detonator. With the blasting cap, the Little Ignition Principle was introduced it made possible the effective use of nitroglycerin and to study their explosive properties. The year was 1864 and Nobel was 30 years of age.

Inventing a better mousetrap and selling it are two different skill sets. Alfred Nobel had them both. Upon perfecting the blasting cap so the explosive could be used outside the laboratory, factories were set up in Europe and America. In is noteworthy to consider the big American gunpowder industries lead by DuPont fought back. However there was a boom in railway building sweeping Europe and America and the best way through mountains was with Alfred Nobel’s Giant Powder Blasting Caps made in factories in New York and San Francisco.

The history of the company was made safer when the nitroglycerin was mixed with kieselguhr which combines the lack of chemical reactivity with great porosity and thus power of absorption. The net effect is to make the transfer of material to the worksite safe. You will know the product as dynamite.  Nobel’s factories went from 11 tons of production in 1867 to 3,120 tons in 1874.

In 1882, the Standard Oil Co trust was formed to ensure there was a monopoly by Standard Oil to control the oil industry. Shortly afterwards most industries moved in the trust business and The Nobel Company went into the Anglo-German Trust. For years Nobel’s assistants Paul Barbe and Henry de Mosenthal ran the operations.  In the 1880’s owning the shares of Nobel’s companies and trusts with their large dividends were in great demand as investments.  Alfred Nobel while keeping track of his investments and ensuring those that went astray ( and it did happen – he had placed a great deal of independence with his partners) for the most part Nobel was happiest in the lab for he said I have a 1,00 ideas a year, if one turns out to be good, I am satisfied. After Nobel’s death the trust became known as Imperial Chemical Industries Ltd (ICI). and the Nobel companies were a division of the company. The World Wars inferred with the trusts, but afterwards conditions improved (there must be interesting stories about this relationship). The Nobel name still is strong today, the parent company ICI was taken over and is now called Azko Nobel N.V.

Linking to dividend paying stocks, in the 1890s till the early 1900s trusts were an effective use by companies to keep out the competition and to make profits. For the most part they are illegal but quasi monopolies do exist. There is always been a great challenge to move from inventor to manufacturer to seller in the marketplace. It is rare than someone has the skills to do them all, it is much easier to be inventor and allow someone to sell and the inventor receive a royalty. When investing try the easier way.

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

 

 

One of the bright young stars in the US is a gentleman named Adam Braun. He tells a simple story because we all love simple honest stories – when he was in his teens travelling and studying around the world he would ask a child if they could have anything in the world, what would you want? The first child said dance, another one stand to walk with a parent who had health issues and another said a pencil. Adam would go on to think about the and this lead to education and construction and operations of schools around the world. The book the Promise of a Pencil is about the for purpose Pencils of Promise charity which Adam started and has written a wonderful book called The Promise of a Pencil by Adam Braun published by Scribner, NY 2014. The charity has built over 450 schools since being founded in 2008.

While building schools is a great thing, the more important aspect is the sustainability and for each school to continue to operate. The premise starts with the local community has to be involved – most help with construction and gaining the materials because the question is who fixes the school when something needs repairs? It is the local community which is invested in the schools through the parents and children.

Adam has incorporated many metrics of how to define success and there are easily accessible to the public which gives great transparency to the organization. The book’s chapters are mantras or beliefs Adam has evolved into his thinking and everyone, unless they only believe in themselves first and foremost can find something in. Some of the other terrific things to motivate and educate the staff he used seminars (example of google talks – Adam was a guest of one such talk) bring in people and ask them about their lives and how they overcame challenges. Adam talks his failures and what and how he learned. How to use mentors and people who wish to help; how to ask for money to continue. How to close the gap – one lesson is once a week send a personal and company thank you. Whether the thank you was yesterday or years ago – the notes matter to people. You can learn more at PencilofPromise.org and/or AdamBraun.org

Linking to dividend paying stocks, reading how the organization was set up and considering many organizations what can easily compare and contrast what is good and why you think it would work particularly when the bulk of your assets are people. The sub headline of the book is how an ordinary person can create extraordinary change, it can also mean the company can do better. See if the companies in your investment portfolio are doing to create value for the company.

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

In September was the 10th year since the financial markets went down drastically and for a while it seemed all financial institutions around the word were at risk of collapsing. Thanks to governments around the world, all financial institutions were given money or received money directly and indirectly from the government. As an investor, what lessons were learned? In every financial model there is the desire to hold some cash or readily cashable assets – but if the stock market goes down 50% when was the good time to buy because looking back since the downfall large stocks have delivered a 250% return. In a recent article in the Globe, Ian McGugan asks what lessons can be learnt?

One first lesson to learn is doing nothing, can be good. The problem with rushing to safety is it is not always clear where safety lies.

If you had bought the S&P 500 when Lehman Brothers declared bankruptcy, for 6 months the market went down, before seeing signs of a rebound.

The second lesson is looking backward at valuations are an uncertain guide when everyone is panicking. When markets fall, the stocks look undervalued, but stocks continued to fall

A key factor in turning market sentiment was evidence that US policy makers were willing to take decisive action. The US Federal Reserve dropped its key lending rate to zero, stepped up to play lender of last resort to keep credit in the system. In addition, the newly elected government introduced a large stimulus package.  ( A book was read about how President Obama was being taught about the economic crisis a year in advance, so when he became President what actions he had to do. In thinking about the current President not positive if he would even know which questions to ask. Perhaps under the existing President different asset classes would have done better).

An investor who hopes to siwell during a crisis has to pick not just the right assets but also the right policy makers. The supremacy of the US stock market over the past decade owes a lot to the willingness of the Fed and Congress to experiment with at least a moderate amount of stimulus.

The situation in Euro is different, it is important to remember in a financial crisis – they tend to be relatively short life. Today’s winners are often tomorrow’s losers and vice versa. This means when the next crisis happens, chances are a different asset class will be the winner over the next  10 years.

Linking to dividend paying stocks, whether they lead the asset classes what is true when stocks began to make a comeback they were lead by profitable stocks which can and continued to pay dividends. It was possible to buy good companies and receive growth from them with low risk. In any crisis good defense will help you as you sort out when and how to go on the offensive or look at even better opportunities.

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

One of the issues President Trump discusses is NAFTA deals which he believes having a trade surplus with Canada is a bad idea, which begs the questions if a surplus is bad idea is a deficit a good one? Anyways, the President is willing to disrupt 70 year old supply chains with increased tariffs and a host of other things. NAFTA discussions are at the time of writing on going.

If you wish to invest in a blue chip stock which seemingly has very little connection to NAFTA which ones would you invest in? Hugh Smith of Thomson Reuters used their data to show how you can narrow any field you wish to.

His search criteria was:

in uncertainty try to ensure your defense is up – consumer staples, health care, telecom and utilities.

market cap of at least $30 billion to further limit downside risk

use of the Thomson Reuters StarMine Countries of Risk Model which breaks down where the revenue source of the company comes from. In this case, the criteria is 85% revenue exposure to the US and no more than 2% to Mexico or Canada

use of the Thomson Reuters Combined Alpha Model – which considers momentum, valuations, buy side sentiment, analyst sentiment, short interest insider transactions and earnings quality.  The score is top 10% relative to their peers.

Company                            Mkt Cap  Relative Revenue Exposure   Combined  Divid  1 Yr

$ Bil          US    Cana    Mexico              Alpha Model   Yield Return

Keuring Dr. Pepper        32.080          89     0.29          0.203              96                  7.5        58.5

AT&T                                235.216         93      n/a           1.814              94                  6.3        -4.2

HCA Healthcare               45.505           96    n/a           n/a                 96                   0.5         69.4

Cigna                                   45.353         87      0.34        0.1                 94                   0.0           0.0

Express Scripts                  50.675        100                                            92                0.0            41.0

Linking to dividend paying stocks, the chart shows many research companies have great data to mine. If you are looking or have a particular idea, you can find it and lower your risk  to increase your reward.

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

 

 

 

 

If you ask people how they are investing now, the answer tends to be look at the list of the stocks and which ones have risen. The theory is those winning companies will continue to rise and you will make money. According to Ian McGugan writing in the Globe the research shows recent winners have a tendency to go on performing well, for a while. Chasing performance can actually work if you do systematically and rigorously.

Nicolas Rabener, managing director of FactorResearch, a market analystics firm in London demonstrated some of the realities of the momentum approach in a recent study of what works for investors in US mutual funds.

Mr. Rabener examined what happened if someone invested in equity mutual funds, each month changed their holdings by selling and buying the top performing 10% over the past 12 months. It turns out, if you can figure out a low cost way to avoid fees, the strategy works. If you held redid your portfolio once a year, the performance level drops.

If you are a momentum strategy investor you need a strict strategy and rebalance your portfolio frequently at low cost. The downside is you need to invest in hot stocks of the day or month.

A different approach is to examine poorly performing companies to become average companies. Losers often revert to the mean or the average of their peers.

Linking to dividend paying stocks, stocks can go out of average for multiple reasons – to much debt, crisis in the executive suite, government policies but it is possible to see if these elements will correct themselves. If the company is making money, it has a good base to continue and the other elements will slowly correct themselves. As they do, the stock will be value higher which will push the stock up because it is trading at a lower multiple than its earnings. If you invest in losers, ensure you have good protection and a dividend is very good protection to start with.

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

In the President Trump’s wisdom about trade wars – they can be easily won, one of the tariffs, the President imposed on was solar panels. When the tariffs were imposed the first reaction of the industry was it would make the process of putting on solar panels on a house more expensive. According to Brian Eckhouse of Bloomberg News the tariffs showed not all solar companies are alike, some have benefited and some have not.

Sunrun and Vivint Solar are residential installers and their shares are up, while the panel makers who the President was trying to help, their shares are down.

The tariffs made panels more expensive in the US threatening manufacturers. The installers are faring better because panels are just one of their costs, and not the biggest one, because the tariffs were not as bad as it was feared.

According to David Arcaro, an analyst at Morgan Stanley both Sunrun and Vivint can better absorb tariff driven cost increases. Customer acquisition and installation tend to be the installers’ biggest expenses.

Manufacturers are dealing with a global  glut of panels which has driven down prices.

In addition, legislation in California which is the biggest consumer state of panels has mandated all new homes have to have solar panels beginning in 2020. An April ruling in Florida allows Sunrun to lease panels to existing homeowners. In addition, a key tax incentive was extended by US Internal Revenue Service.

Linking to dividend paying stocks, in every announcement the government gives to some and takes away from others. Sometimes it seems one hand does not know what the other had is doing, but that is the system we all live with. Announcements by government deserve doing analysis of who benefits and who loses. Similar the President may impose tariffs on solar panels, but states and the general public still believe solar panels are part of the solution to both greater electricity and climate change. When announcements happen, try to understand why someone benefits, then you can act appropriately.

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

Hedge funds play an important role in keeping managements lead and focused and for Campbell Soup,  Daniel Loeb’s fund Third Point LLC is leading the fight against the present board. Mr. Loeb believes the board either did not understand their job or did nothing as Campbell Soup made a number of acquisitions and saw $7 billion in shareholder value disappear (the stock is now 20% lower than it was 20 years ago.)

In an article by Svea Herbst-Bayliss of Reuters,  while the existing board has stated reforms and lowering debt are keys for the future. Mr. Loeb is nominating 12 people to the board because it is a mess.  The  new people would throw out the existing board. The problem for Mr. Loeb while his nominations would include a grandchild of the founder of the company – John Dorrance, the present board has two grandchildren and a great grand child on the board. The family of Dorrance owns roughly 41% of the shares and all they need is 50% plus one.

Linking to dividend paying stocks, when the general market goes up and the shares of older established companies go down, unless there is some very good reason, hedge fund buyers will want to change management and boards. There will be many reasons for the decline in shares although you will still see Campbell Soup on the grocery shelf. If you love the food, perhaps it is better to wait until after the proxy fight is over before buying shares. One way or another, the company’s will be in a restructuring mode and it may be a good idea to put the stock on your watch list to see what they do.

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