In early October, the L.A. Times wrote a story about Disney and its influence on Anaheim, California. The city is home to the California Disneyland and its multiple theme parks for Disney movies this year include: Beauty and the Beast, Guardians of the Galaxy Vol 2, Thor: Ragnarok and Star Wars. The combination of traditional Disney movies, Marvel comics and Star War franchise and trying to use all form of multi-entertainment from each franchise makes Disney a powerful force. In the L. A. Times article, the story examined whether Disney pays its fair share of taxes – often for a large employer for it to operate at continuing levels and increase its investments in the host city, the company asks and often receives Civic improvements which benefit it. If you examined the quest for the next Amazon headquarters – it was amazing what cities and states were offering for potential 50,000 jobs. The question is do the benefits outweigh the incentives offered and how strong is the loyalty bounds. There tends to be no specific answer but large organizations always ask for more and the opposition is not allowed to ask what happens if the company moves or shifts its investments?

In the case of Disney which is headquartered in Los Angeles, they were mad at the L.A. Times and said their people would not longer talk to them,  the silliness was over in 3 days and now each go about their business.

Linking to dividend paying stocks, all companies which earn a profit and can continue operating on a consistent basis have a great deal of influence over where they locate their facilities and given the internet and the ability to work almost anywhere – locking the companies to a location is generally a one sided negotiation. Companies can do it above board or they can enter into what they bleed from the government. These are the same people who then say we pay our taxes (heavily subsidized) and expect others to pay the full rate. As investors, we often do not know what the company is paying or not paying, but we believe it is paying near full rate. Often times listening to the senior management will give you an idea of how close to full rate they pay or would like you to believe they pay.

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

One would think that having a contract with a large profitable company, the supplier would do all is possible to keep the contract for it can be renewed for many years. One may think that but a supplier to Norfolk Southern Corp – one of the largest railway companies is suing a supplier Boatright Railroad Products Inc. Boatright supplies rail ties or the wood underneath the rail and a large company needs millions of ties. Norfolk has to replace them faster than normal because many of them were not coated with creosote. A memo by Boatright ordered workers to make the ties black by any means necessary including using motor oil, antifreeze, black paint and other chemicals. None of these you would use on your fences to treat them against the weather. One would think a company which has the name right as do it right in their name would actually do it right.

Norfolk will find another supplier and Boatright Railroad Products will be out of business with the reputation gone. All because people decided it was better to try to fool the big railway company. Big companies are often in the business for years and have people to worry about how long their products are lasting and how long they should last. It was stupid for Boatright to do and they will see the consequences.

Linking to dividend paying stocks, a reason to buy these companies is they have a long history of making profits which means they can be ethical or as ethical as possible in their dealings. Will mistakes be made, some but they should not be institutionalized and often can be corrected without the company going out of business or being sold. Sometimes making the correct decision is hard if profits are on the line, but having a long history of making profits should allow more correct decisions.

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

Every time the markets reach new highs for most of us it is a good thing. Our assets have climbed higher but at some point one needs to ask is the glass half full or half empty. When the markets go up, understandably we know markets will go down, the issue is how much will it go for a correction and when. Unfortunately we only know the answer in hindsight. David Stockman who was the former Budget Director under President Regan is warning that the time will be when the fed raises interest rates. The fed and other central banks around the world have increased money supply by buying and issuing bonds, at some point they will slow, issue less and raise interest rates. Interest rates will make credit more expensive. One of the many concerns David Stockman has is the amount of leverage or speculation there is in the bond market – if rates go down, bond prices fall and more collateral must be put up by speculators – who try to leverage as much as possible without putting up their own money.

Coming back to how to sell. It is complicated because if you sell and the market goes up you feel you have missed opportunities. If you sell, what alternatives do you buy?  Barry Ritholtz of Bloomberg View wrote a column about when to sell.

What is the basis for making a sell call? Most of the time it is emotion and that is a terrible strategy because the market has already reflected the news in the pricing.

What if you are wrong? Most average people with investments are not traders – if you are a trader there are a multiple strategies to reverse an error. Mr. Ritholtz has a rule which is draw a line in the sand on the downside, if the stock goes lower than the line you admit you made a mistake and sell. On the upside, it is easy to take profits, one thing you can do on the upside is as the stock gets to be a higher percentage of your asset allocation you sell to keep yourself reasonably diversified. An easy method if your stock has doubled, sell half which makes your remaining half cost 50% less and then you have lots of flexibility as the stock price goes up and down or fluctuates.

What if you are right? Assume you are right to sell everything and the market collapses. When do you get back in? How long before you buy back? It is easy to say buy low and sell high, it is much harder to do.

Do you have discipline? If you have a sell plan and a strategy for implementing it. can you stick to it? It is very easy to second guess yourself. You will always hear conflicting viewpoints which ones do you implement?

What is the cost-benefit analysis? If you sell high which is a good thing, you will have capital gains, of course part of the tax system is offsetting capital gains with losses and moving money into tax savings accounts.

Linking to dividend paying stocks, one of the good things about the dividend paying stocks is the reason you own them, do they pay a dividend? will the company continue to make money and pay the dividend? If the answer is no, then you can seek alternatives. The discipline of the dividend can your line in the sand.

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

 

 

 

Most people after working for a company have a sense of loyalty towards it, the company has paid them for their work, they may have worked upwards or had influence on the company as they years go by. All these feelings towards loyalty and doing right by the company are normal. What happens when you can see the future but senior management does not seem to get it? One option is to quit and do a start up, but what happened to the armed forces after World War I?

There is a movie called The Court Martial of Billy Mitchell staring Gary Cooper released in 1955 which asks the question what happens? The war was over and the setting was 10 years later in 1923 – unlike President Trump who increased the military budget, the military budget was slashed for the country was no longer at war. There were two branches Army and Navy and the senior brass thought the next war’s strategy when it occurred would be similar to the last war. There were others who believed technology had changed and the next war was going to be different. One of them was the Brigadier General Billy Mitchell who flew airplanes during the war. He could see as technology developed, dropping bombs from airplanes was going to be a strategic advantage. By 1923, the military had technically 669 planes. 600 of them were built for the war effort in 1912-14. 60 were used for training and 9 were battle ready. If you are fortunate enough to live near a air force base or been in the area – the number of planes are much different today.

General Mitchell was very loyal to the Army, but given he was near the end of career and was never going to go higher and could see the blinkers on senior leadership, the General caused a military trial to be held that was semi-public. He was hoping by having good people testify to the in-actions of the military, he could change policy and move on. The military was more interested in destroying his character and keeping the status quo. The movie shows loyalty to an organization has not changed and people are conflicted as what to do.

Linking to dividend paying stocks, in all organizations when something works people keep doing it, till it does not. Then the company asks the employees for ideas and most of the ideas will meet the standard something should be changed. It takes great management to recognize it and as shareholder while you enjoy the fruits of doing the same thing to make money, you want to ensure it continues. How does senior management see change and do you agree? If you do, you can keep the stock, if you disagree seek alternatives.

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

 

If you drink a hot beverage it is likely to be either tea or coffee, most of us drink it but have you ever thought about the source of the tea or coffee. In the book Darjeeling – The colorful history and precarious fate of the World’s Greatest Tea by Jeff Koehler published by Bloomsbury, London, 2015, the author did and does. Mr. Koehler describes the tea world from a perspective of an Englishman.

In the book, Mr. Koehler describes the tea process, the gardens and the history of Darjeeling. It was not always been easy, many people died trying to establish the plants for the hills were not alive with tea plants. All of them had to be planted, nurtured and the process to pick quality tea is very labor extensive.

When India achieved its independence in 1973, there was a push by the government to ensure India could grow more which lead to the use of chemicals. The chemicals increased yields but the soils needed increased amounts of chemicals each year. The tea growers have since 2013 been weaned off their chemical and are organic. In this case, organic and using compost enhances the flavor of the teas and when Darjeeling Tea is sold as a quality product, it was the correct decision to do.

With independence the British tea growers looked to other countries to grow tea in which they could control the production cycle. A country was found with altitude and rainfall  and room to expand. The country is Kenya and now 60% of the teas on the grocery shelf in England come from Kenya. The tea is good and used in blending.

In all mass markets, there is a demand for the general price and a higher price for quality and the teas in Darjeeling moved to the higher priced quality teas. Although not every tea leaf is quality, which means the markets have shifted beyond England. The world of tea is similar to the world of wine, where the tea comes from allows its flavor to be enjoyed.

Linking to dividend paying stocks, every food commodity has its mass markets as well as the quality markets. Doing your homework on whatever you enjoy will allow you to enjoy the food and see which companies are doing what. Some will be private, some will be part of larger companies or a division of it, but if you spend your time and energy it makes sense to see if there are public companies you could invest in. Then you can have a financial award (dividends) and a flavor award (the food).

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

 

If you drink a hot beverage it is likely to be either tea or coffee, most of us drink it but have you ever thought about the source of the tea or coffee. In the book Darjeeling – The colorful history and precarious fate of the World’s Greatest Tea by Jeff Koehler published by Bloomsbury, London, 2015, the author did and does. Mr. Koehler describes the tea world from a perspective of an Englishman.

In the 1600’s food made in England was not the most satisfying and to enhance the flavors spices were needed, There had been long established routes from India to Arabia across the Suez, into Italy then goods and services were distributed around Europe. Eventually the Portuguese sent a ship to India and Java (Indonesia) and when the ship arrived  – the investors made a fortune. Soon the Dutch and the British were sending ships for spices. The world was discovered on ships looking for cloves, pepper and other spices which lead to the term Spice Islands. For 150 years – the countries battle each other for the spices, peace was normal and steady dividends was the result.

In the 1750s, the Indian Raj did not like the British building a fort (military presence) and a battle was eventually fought. The leader of the British force was Robert Clive and with opposition Indian troops ought the battle of Plassey which is located outside of Calcutta. The English won and installed a new ruler who gave the East India Company a windfall of $2.5 million lbs. When Robert Clive left in 1759 with 300,000 lbs he was one of England’s richest men. The significance of the treaty originally for self defense lead the East India Company to have a private army which grew from 18,000 to over 154,000 by 1805. As the Mughal Empire declined the East India Company moved into its place to administer India which included growing to become the most powerful commercial company ever to exist. Cities such as Calcutta, Bombay, Singapore, Hong Kong became global cities. At one time a third of the British workforce was employed by the East India Company, the company controlled half of the world trade, and had the largest merchant navy in the world.

The company started with spices but eventually tea became the focus of its financial success and the cornerstone of the company’s trade strategies. Tea was originally imported from China and as time went on the tea market grew from the first order of 143 lbs to over 6 million pounds in 1766 which was over 60% of the trade and tea was profitable to the company. Naturally, similar to all organizations, they seek alternatives as the British drank more and more tea, there was the cost of buying Chinese teas with Spanish silver bars from Mexico. Eventually the East India Company started importing opium to China which besides causing many opium dens but reversed the balance of trade and China was soon short silver.

In terms of tea, the Company wanted to grow tea somewhere it controlled and found an ideal place where tea plants were growing at the foot of the Himalayan Mountains in an area between Nepal and Bhutan called West Bengal, India. The Mountains provided the rain and mist coupled with the organic soil to enhance the flavor of a quality tea. The Mountains also provide difficulty in growing because the area is hilly, took time to get to; during the Monsoon rains is very difficult to travel, but the micro climate is ideal for tea plants. The original tea plants in India were cross bred with plants from China and the early days – how to bring out the flavor – the masters were Chinese. Over the last couple of hundred years, the people of India own most of the gardens and have become tea masters.

Linking to dividend paying stocks, it is very rare to be able to buy a stock which essentially controls the government operations, for most of those conglomerates have been broken up to enhance shareholder value. For the East India Company importing profitable tea and the mechanisms to keep it going year after year was admirable. The East India Company has long disappeared particularly after India’s breakaway from England but it was a long run.

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

It is good to see GM making money for back in the 1950’s someone said as goes GM so does the country. For many years it was true because the production of cars lead to many people working. There were many spinoffs and GM had a number of lines which cater to people’s income and social status. For a long time many thought the lines would be true for as long as automobiles were being built. Then change came – prices of gas went up; people were interested in a quality vehicles and there was competition which slowly built up market share (the Japanese auto companies). Times changed but GM moved slowly.

In an article by Nick Carey and Joseph White of Reuters, GM is back on top and making money. There are still plenty of challenges, but GM is making money from high margin vehicles that have a truck base – trucks, SUVs, and crossovers. The US auto makers have sold more than 17 million units and GM expects that number to continue. In addition, the hurricanes in Florida and Texas caused many vehicles to be flooded which means new vehicles need to be bought as the insurance money comes in.

As an investor you need to look to the future and part of the future will be electric cars. Many years ago there was a movie called Did GM kill the electric car? the answer was maybe, this time the electric vehicle will be produced and where is GM in the mix? Some analysts believe GM test fleet of self driving cars can be converted into a lucrative robotaxi operation worth billions. The division is called Mavern which has plans for 20 new electric models by 2023.

Linking to dividend paying stocks, all companies go through cycles often they are highly influenced by the people in the boardroom, as you examined the companies ensure that the people in the boardroom have the ability to seek the best alternatives and not be content with sitting still or the status quo.

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

Coal companies are enjoying making money which they have not been doing for a number of years. In an article by Tim Loh of Bloomberg News who wrote about the coal industry in late October. US coal production is up and companies are trying to maximum shareholder returns rather than focusing on how many tons of coal they can dig out of the ground.

Investor interest is interested according to Jeremy Sussman of Clarkson Platou Securities Inc because the management teams are returning cash to shareholders as coal prices are at a level to make money. The other concern is from an operational standpoint are the results solid. Miners are benefiting from sustained high prices for both types of coal used by steel companies and power plants. The utilities which run coal power plants compare natural gas prices to coal, whatever is less expensive will get the larger share.

Coal’s long term future is unclear, it is helped by companies went into Chapter 11 bankruptcies and emerged with less debt and stronger balance sheets. Coal depends on China’s production (last year they slowed their production); it depends on electricity demand and demand has been flat and with alternatives of wind and solar helping to generate electricity, coal is needed but what are the growth prospects?

Linking to dividend paying stocks, coal is a commodity which means prices go up and down and when they are up companies make money, but cycles happen. There is and will be a demand for coal, but it is likely better to buy the customer or the utility which sells the electricity to consumers. The issue is the utility is regulated and often the regulator will raise prices and consumers have little choice but to pay more.

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

Most investors should know what the FANG (Facebook, Amazon, Netflix and Google) because these stocks have been some of the best performing stocks for the past decade. There is another group of tech stocks which has been performing extremely well and need to be on your watch list, if you do not already own them. The semiconductor stocks led by Nvidia Corp, Micron Technology, Advanced Micro Devices and Lam Research Corp have gained about 50% in the past 12 months. If your portfolio is not up by 50% then you need to consider these stocks.

Part of the reason for the chip sector is wherever you look there is a chip in the mechanical device. As consumers want their gadget to think for themselves or beginning of artificial intelligence; look beyond the phone and computer and you will see the potential for chips and the large chip maker.

Apple is designing its own chips. Google is designing its consumer-device chip and has designed its own co-processors to help with certain functions it its data centers.

Linking to dividend paying stocks, as our society transforms itself and all the devices we use there is money to be made and some of it is in the chip makers. If you do not own the stocks, put them on your watch list, and when there is a correction you can buy them at a lower price or use some of the dividends you receive to begin to buy. Then you will have the best of both worlds – growth and dividends.

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