Amazon bought Whole Foods and everyone in the retail environment knows and understands Amazon is disrupting the retail environment. When Amazon bought Whole Foods it had expectations for both expansion and new services that Amazon could bring to Whole Foods. This expectation raised the stock price and lowered the price of food retailers . Whole Foods has run into barriers that were not expected. Recently reported by Jeffrey Dastin of Reuters, Whole Foods wanted to lease space in a mall in San Francisco but similar to most malls, the largest tenant tends to pay less more in rent but tends to bring in people to the mall. In San Francisco, the City Center Mall lead tenant is Target and they said no to Whole Foods because they did not want to compete against Amazon. Whole Foods is making concessions if it wants the location.

Reuters was wondering is this mall an exception or the norm? It turns out, the strings attached is a norm part of the retail environment which was overlooked by most analysts. In the online world of Amazon, there are few constraints, in bricks and mortar there are many constraints.

Linking to dividend paying stocks, as our economy changes companies that disrupt one sector may not fit into the old sector where the rules are often tougher or seemingly under the radar. One can not take for granted just because a company is successful in one area, it will be successful in another area.

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

 

Recently attended a horticulture meeting about plants and animals preparing for the winter. In the northeast, the leaves have changed and with the November rains the leaves will fall and the weather will turn colder. For people in the Northeast – we all look towards going south for the sun and warmth. Birds fly south, but not necessarily because of the weather. The real reason why birds go south is follow the food. For every type of animal and birds, if you look at what they eat or what they like to eat, you will see the food change and the animals and birds simply follow the food.

Linking to dividend paying stocks,  there usually are simple reasons for many questions but finding the simple answer is not as simple until you know the answer. In investment, if the number one real is try not to lose money, then investing in profitable companies who can pay a dividend and ideally raise the dividend on annual basis. This should be simple, but it is complex because the investment industry loves growth and large organizations will have smaller growth than small companies. Consistent growth is better than quick growth if the growth is profitable growth. For smaller companies, there is hope to gain market share and then increase prices to make the company profitable. Watch the smaller companies but put most of your assets in profitable companies.

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

In what is considered the developing world, one of the most important institutions is the World’s Bank. Most people in the developed world believe the World Bank is a valuable institutions but we really do not know what goes on within the bank. A book about the World Bank was written by Sebastian Mallaby published by Penguin Books, London, UK, 2004. Although the book is a few years old, the issues really have not changed.

The World Bank was created after World War II, to help the reconstruction and development of the economies of the world and ideally not to go communism. What is now considered the G7 countries do the bulk of the funding of the World Bank. It lends about $20 billion a year and has a great influence over the developing world’s policies. If you are interested in development around the world – the World Bank has a great amount of information – work done by the World Bank professionals’ report – check out their website.

In the book, the author writes about the Jim Wolfensohn Presidency and his desire to change the World Bank to more proactive. The desire of Jim to change is evident, how he does it led to many stories about his form of management. When Jim arrived, the Bank was essentially lending money to pay the interest of former loans and not being proactive. Change happen and two success stories were in Bosnia and Uganda.

Framework for development includes 3 planks: The government should be clean or  limited corruption: an effective justice system to fight corruption; and a properly supervised financial system. If the 3 planks are not there, money will go to tax haven countries.

In the book, because it was focused on Jim and one can see how critical personal relations are to trying to achieve something good.

Another chapter discusses when countries currencies decrease. All countries currencies move up and down, but some will collapse faster than others. The currency of the country begins to go down; the IMF and the World Bank are supposed to buy the currency but often the process does not work. When a currency goes down, there is a linkage between corruption and a number of banks that gave loans to cronies of the President and many of the loans realistically will not get paid. This means the bailout goes to the banks who continue to loan money which is not going to get repaid. The system eventually collapses. The pattern has been repeated in many countries around the world. The next it happens short the currency.

Linking to dividend paying stocks, the corruption aspect of the countries are repeated in companies. When corruption occurs, companies revenues will drop and dividends will not be paid. If you see the pattern in a country or a company, look to short the stock or currency otherwise you will need to quickly seek alternatives.

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

If you back at the economy of the middle ages there were Lords and workers (serfs) as well as independent craft people. The names changed in the industrial revolution to owners and workers and in our service economy we are going back to the middle ages with exceptions. There are more service workers who own their own business or are entrepreneurs. 95% of them will make a living, only a few of them will become very rich but it is possible. If you ever worked in the government or corporate world – there was a wide variety of jobs but there were departments to take care of your needs. If you are an entrepreneur you need to do everything, until your company reaches a size where you have to learn to delegate more.

Arlene Dickinson who runs Venture Communications and is seen on programs such as Dragons’ Den in Canada has written a book about what is it like to be an entrepreneur and the title sums it up All In published by Collins, Toronto, 2013. To be an entrepreneur, one has to live and breathe your business 24 hours a day, 7 days a week till you can learn to delegate to someone. Whether you are an entrepreneur, at some point in our lives we all act like one for a short time. Ms. Dickinson dismisses the work/life balance – it does not exist because you are tilted in one direction. The ideal is your partners and support network know this and accept you anyways. As your business develops you will be able to understand the cycles of it and learn what is more important to you. When do you give your time to others – family? friends? You can make it work because not every day will the sales and pressures of the job be the same – similar to all industries some months are longer than others.

You will need to embrace the mess and know how to clean it up. Along the way you will need to change your leadership over people. If you hire people, those people you hire are the lifeblood of your company and they want the company do well, the issue is do they want to work for and with you? why? do you offer them challenges and ability to make profits.

Linking to dividend paying stocks, the ideal for these stocks is after you have made a decision to do nothing and let the dividends flow in. The stock price will go up and down but your concern is the dividends and you can set your cash flow tables to know when and how much money is expected and comes in. Then your task is to determine will the company continue to produce the dividends, at the task can be more high level – if the company is a utility company – is the region or city still growing. Yes then it can be a keeper. What is the expectation it will raise its dividend the next time?

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

 

In mid October, Bombardier a maker of airplanes essentially gave the division to Airbus to fend off a fight with Boeing. To provide perspective, the next time you fly look to see who the manufacturer of the aircraft is. If you are in large plane, it will be either Boeing or Airbus. If you are on a feeder line, it can be either Bombardier, Airbus, Boeing or Embraer, these four companies are based in Canada, France, US and Brazil. Airbus and Boeing have the market for the planes which fly over the oceans; Bombardier was trying to move up to the Airbus and Boeing space. With President Trump in office talking about American made jobs; Boeing decided to increase the price any US carrier would have to pay to buy Bombardier newest and latest planes (Delta has put in an order) and thus limiting the buyers and trying to drive Bombardier out of the space. The government regulators agreed with Boeing (all governments support their aircraft industry including Boeing receives about $15 billion in tax breaks a year and supports from the government) however the consideration was not Boeing but Bombardier and 280% tariffs were issued. (although Delta said they were not paying).

Then Bombardier did something unexpected, at least to Boeing, they made a deal with Airbus which has a plant in Alabama and can finish off planes for US content requirements. Airbus is Boeing ‘s competitor world wide and now in the 100 to 150 seat planes. For the passenger airline industry, Bombardier becoming a subsidiary of Airbus means one less competitor or typically higher prices for airlines.

Linking to dividend paying stocks, in this case Boeing used its influence to affect a competitor and tried to kill the competition. It either failed to see the alternatives left to Bombardier or did not see the alternatives. It must have been focused on one objective, have higher tariffs to make the plane expensive so it would not be sold in the US. The plane could be sold to other countries, but in the airplane business having a US customer helps sales in other countries (as a passenger, one would like to believe it is the higher regulatory requirements to operate the planes and if they pass the hours testing then it would be safe in other countries). To summarize, everyone has alternatives, some of them are harder to do, but we all have alternatives and companies can easily drive their customers and competition to doing something else. Be careful what you wish for when you target your competition.

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

 

The stock market is setting new highs and no one knows when there will be a correction, although we do know the markets tend to run in cycles. Recently Richard Thaler who won a Nobel Prize in Economics was promoting his new fund and asked about the markets. He says he is nervous, which can be a good thing.  In an article by Gordon Pape titled with shares running high, it is time to diversify, Mr. Pape examines some of the reasons the markets may correct itself.

On the positive side there does not look to be a recession coming, corporate earnings have been good, low interest rates remain, global growth continues and consumers are spending money.

What could tip the apple cart or push the markets lower?

Disappointing earnings – stocks trade on multiples based on earnings and if earnings are lower, then the market should correct itself. At the moment given GDP growth that should not be a major concern.

A major international debt default – as you look at the balance sheets of the G20 countries do see any likely to default? back in 1998 Russia did, but unless oil prices drop dramatically problem not.

Collapse of a too big to fail company – large corporations are a symbol of the strength of a company and the economy. When Lehman Brothers was allowed to go into bankruptcy everyone asked who is next and why are they not like the ones that are in trouble. In Lehman Brothers case the problem was real estate valuations – too high.

Protectionism – every country wants to protect their jobs and have access to markets where their countries who can pay for their goods and services. The world is a balancing act but at the moment, the US under President Trump seems to want all the advantages of trade and no disadvantages.

War – depends on the war, the markets react differently.

Linking to dividend paying stocks, while we all want the stocks we own to go up, if you take a long term view many will but there will be adjustments. Methods to protect yourself include buying fixed income or buying stocks which are profitable and pay dividends as they increase them over the years. In this fashion you have protection on the downside and gain wealth as quality stocks bounce back faster when there is a correction.

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

 

 

If you watch the news, the first headline tends to be fear or something – natural disaster, political, health, family concern. It is there because we all have fears, for we are human, but can we understand them? In the book Risk – The Science and Politics of Fear by Dan Gardner published by M&S Toronto, 2008 the answer is yes we can understand them.

Mr. Gardner points out Fear has two minds – natural selection and mutation Natural selection favors traits that help an organism survive and reproduce, while slowly weeding out those traits that hinder our survival and reproduction.

Mutation is genetic mutation which institutionalizes the natural selection. The line between what is positive and negative is never clear, with the classic example of sickle cell anemia . The positive is it boosts the child’s resistance to malaria. The negative is if the child has the DNA from both parents, they are likely to die before adolescence.

Our brain develops over the years based on the survival aspect is the Law of Similarity. Appearance equals reality or you may have the saying it is walks like a duck and quacks like a duck, it is a duck. This evolves into 2 systems of thought: System One is the intuitive, quick, and emotional. System 2 is the calculating, slow and rational. Mr. Gardner uses the terms Gut and Head. You like said or heard someone say I have a Gut Feeling which means I have a vague sense that something is true but it is hard to explain. The second expression you have likely heard is Use your Head – stop and think about it before acting.

The interesting and complex aspect is the two systems work semi-independently of each other. The two systems overlap which can be a great thing. We do something such as the 10,000 hours theory and we become good at it. We use both systems. The negative side is to move the public to an action or inaction, advertisers focus on one system or another.

Linking to dividend paying stocks, one of the offerings of a mutual fund is called a Balanced Fund and similar to balance we need in our lives. In general, the world most of us live in has never been better to live in despite of ongoing concerns. Think about the good things in life – receiving a dividend and it growing on a regular basis. Investing is about managing risk and lowering the risk is focus of buying profitable companies.

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

Although as investors we all want more, there are different methods to arrive or strive for more – the classic examples are growth and value investing. Growth are those stocks which have a great product or service and the world keeps discovering it, for these companies most of the money the company makes is reinvested in attaining more growth. If the company is growing, then the stock price typically trades at a premium or higher multiples than other companies because of the basic supply and demand curve. Many technology stocks are considered growth stocks. In the industrial category, where there are higher barriers to entry, markets are steady and it is still possible to raise prices to keep a good margin these companies would be considered value companies. Given there is plenty of choice on the markets, there are lots of other choices.

John Reese wrote about value investing and noted investors tend to exaggerate the attractiveness of some stocks, often at their expense. And it is only a matter of time until the shift occurs.

Columbia University professor Kent Daniel recently published a study of the analysis of stock prices as they relate to book value. He found the average large-cap value stock’s price to book ratio is half the average large-cap growth stock. The difference is even higher for small-cap stocks. Since 1959, the average value stock’s price to book ratio has been a third less than the average growth stock. The research was published for MarketWatch.

What to do with the information?

Ben Graham believed a stock selling at or below its book value was a bargain. (if the company went bankrupt sold off its assets, the investor still makes money).

Joseph Piotroski, professor of accounting at Stanford looks at the book value as it relates to the share price, keying on stocks that end up in the top 20%.

John Neff a former Vangard Windsor fund manager for 30 years used low Price/Earnings or PE Ratios to look for undervalued stocks. Mr. Neff would start with stocks with low P/E Ratios that were half what the market average was at any given time. Next he would look for companies that had steady growth in earnings per share and solid dividends. Mr. Neff would measure total return – the EPS growth plus the dividend yield divided by the P/E ratio.  The next aspect was compared the total return to the market average or industry average and pick the best ones.

Mr. Reese of Validea Capital believes 3 stocks are worth looking at Penske Auto, B Riley Financial and CVS Health.

Linking to dividend paying stocks, the great thing about dividend stocks if the price goes higher you can receive capital gains, if it stays flat you receive an dividend or income or yield for holding the stock. If the market goes down, because the companies are profitable, they bounce back before the growth stocks. In the stock market, there are many choices for dividend companies and as you do your homework you narrow the field to pick the companies that you can easily follow.

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

 

 

 

 

The best performing stock of the past decade has been Netflix, since 2008 the stock is up 5,384%, it closed in early October at near $200. To stay at is growth rate the stock would have to move to $10,660, will it? Well no one knows, however the gains it saw will likely not be repeated because it the US, 50% of the people who have internet have Netflix. Will the other 50% sign up, not likely, will some yes. Shira Ovide of Bloomberg recently examined Netflix and noted Netflix has been available for $9.99 a month and recently raised its price to $10.99 a month. If the subscriber base stays stable, the extra dollar will mean an extra $600 million in revenue or about 5% of the company’s expected revenue in 2017.

The company is expected to continue to spend billions to license or purchase entertainment programming or there is an expectation many will continue to subscribe. If the number shrinks, then Netflix has to increase its non US subscriber base in Brazil, India and China. At the moment, outside the US the company is not making money.

Linking to dividend paying stocks, while Netflix is not a dividend payer it is one of the FAANG stocks which is likely in most portfolios – either index or mutual funds because it has been such a good performing stock. Will it continue to be an excellent stock to own, likely if the shows which people love and watch are easily found on Netflix.

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