The Medici family were successful bankers and at this time in the life of Europe, it had recently come out the Black Death (where a 1/3 of the population of Europe died), people were looking for something else. There began a Humanist ideas – where does the individual human fit in? prior to this the theory people had was to live a good life and you will be rewarded in the afterlife. After the Black Death reign of terror, people were asking where do I fit in? Florence was the place for a variety of reasons and it started with the Medici family for they had wealth. It was easily possible to keep it to the family, but the Medici’s family starting with Cosimo spent time reading philosophy and engaging in artists to reflect the new era. Cosimo was the one who loved reading and collecting books, understanding at the time much of Europe did not read, as his library grew he opened it to the public which brought in more ideas and people to Florence. Eventually he endowed a university in Florence to teach about Humanism. At the same time Cosimo Medici was connected to some of the greatest artists of the time. In many pictures of Florence you will see a large dome over a church, the church is Santa Maria del Fiore and the architect was Brunelleschi who discovered how the Romans did what they did and brought the technique to Florence. Along the way he had to invent new methods and try, but he had a good idea of where he was going and was a friend of Cosimo. When you are on the streets one of the masterpieces is the Lorenzo Ghiberti’s bronze doors on the Baptistery of San Giovanni which took over 20 years to complete – new techniques had to be discovered but when artists saw it, changed their lives to what could be done.

Cosimo passed has beliefs to his sons including Lorenzo who was a patron and friend of Botticelli, Leonard da Vinci and Michelangelo whose art people still love to this day and counting. At his time of the world, the scientist was the artist. The empirical method allowed Leonardo to looking at everything in the world and trying to see how it worked. Machiavelli (author of the Prince) examined politics of the day and maybe still today. The Humanists method started with art, poetry and philosophy and moved into politics and science.

Linking to dividend paying stocks, the Renaissance was about seeing the world and the individual differently, in order to happen it needed a patron and the Medici’s were the biggest patron but in a movement there were others. Everyone at one point tries to understand where they fit into it and some will change; some with change it at the borders and others will be content with what is. There is no correct method, but looking at stocks is similar, some you buy for growth; others you buy with income in mind and others will try to find a happy medium which can be dividend stocks – profitable stocks over time leads to higher stock prices and an income (dependable and ideally increasing) which allows you to buy more; be patient and see.

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

 

If you read books about the Renaissance and Florence, eventually a name will come up that was not an artist but a benefactor. The name is Medici and their profession was banker. Florence is in the northern part of Italy and for a long time there was a healthy wool trade. There was sheep, shearing stations, the wool was made to cloth and fabrics to be shipped across Europe, the center was Florence, Italy. Part of the shipping of the wool was the need of a banker and various banks supplied the trade. This was the origins of the Medici Bank and to serve its customers had a operations across Europe, although the branches in Rome and Venice made the most profit. According to Paul Strathern author of the book The Medici – Godfathers of the Renaissance published by Vintage Books, London, UK, 2007 the secret to the bank was caution, do not overreach themselves or the bank. Some of the loans were to kings and when Kings went into debt, they often threatened the lives of bankers and did not pay their loans – loans were written off to start again because the King was the King. The Medici Bank never had a large expansion, unless they had clients already; they were steady bankers. The Medici Bank did not invent the bill of exchange, though they likely had a hand in the invention of the holding company. As the Medici Bank was profitable and remained one of the leading banks of Florence, it did have larger ambitions. In Italy at the time, the Pope and the Church were the leading income source for Europe was Christian. The Cardinals of the day lived similar to Hedge Fund Billionaires and the Medici Bank serviced the Cardinals. The big money was made if the bank was the banker to the Pope and the Church, however given the competition, the object was to ensure the Cardinal(s) the bank backed became Pope and thus would give the bank the lucrative job. The task was to ensure the Pope saw the bank was loyal in good and bad times. Eventually, the Medici’s backed many Popes and had the account for 20 years.

Another source of revenues was the control of Alum trade was is a mineral salt used in the textile industry to fix dyes on cloth. For many years, the principal supply was a mine in Asia Minor now Izmir originally controlled by the Genoese until the Ottoman Turks took control. They raised the price of the ore and papal authorities reacted by suggesting anyone dealing with the Turks would be excommucated from the Church. Eventually an amendment was found as the Alum mines were depriving the Turks of income, they were technically being used to further the cause of Christianity; the end justified the apparent illegal means and in this case monopoly trading was therefore not a sin. The Medici Bank gained the monopoly and imported Alum for the textile industry. The first thing the bank did was to double the price and for many years was guaranteed a source of income.

Linking to dividend paying stocks, the Medici Bank had many opportunities and exercising caution or saying no to the many opportunities is and was very hard to do. In your everyday life there are many opportunities but you can not say yes to everything. For the Medici is was to concentrate on what you know and add as time goes by. The Alum trade came about because the bank had offices in countries due to the textile trade. To gain the Alum trade, needed the Pope’s permission and the bank had backed him. The cards were in place to take advantage of the opportunity and perhaps that is the lesson.

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

 

Warren Buffett has a traditional pattern to buy companies, he waits patiently, his insurance companies build up cash reserves, he buys a company at decent price which tends to have a monopoly or near monopoly and then waits till the company regains its growth as the stock rises. One of the cases which fit the Oracle fashion according to Tara LaChapelle and Liam Denning of Bloomberg News is Berkshire Hathaway Inc purchase of Oncor – an electrical distribution company in Texas.

Oncor has an interesting history its parent company is Energy Future Holdings Corp formerly known as TXU Corp and back in 2007 was one of the biggest leveraged buyout in history. This means a lot of debt and since 2008 energy prices have soared, collapsed and flatten out. Berkshire group owns a number of utilities in the Midwest and Oncor is expected to be integrated into them. The 10 million Texans who are customers will be reasonably happy the company is doing what it is supposed to do; the energy regulators will see Berkshire as a well capitalized company and will not fleece the customers and will continually invest in infrastructure.

In terms of Berkshire Hathaway stock a $ 9 billion dollar deal is wonderful, but with an estimated $100 billion in cash to buy acquisitions, the street was looking for something bigger to be announced.

Linking to dividend paying stocks, Oncor has 10 million customers and distributes electrical energy to those homes and businesses or is a plain utility. There is consistency in customers; consistency in energy usage; the regulators will give an inflation plus increase every year; the company can be boring but highly desirable to own. Boring often works.

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

 

In a column in Bloomberg News Dani Burger and Sid Verma examined quant funds. These funds are built to look for momentum in the markets and take advantage of short term fluctuations. They work well when there is high uncertainty in the financial markets. Unfortunately this year has been relatively calm and at the moment they are down money. According to Pravvit Chinawongvanich, head of derivatives strategy at Maco Risk Advisors the funds are not living up to return and diversification expectations. Three reasons for this change are: overcrowding (many firms chasing the smallest of changes); the continuing central bank stimulus which wants some growth but not too much volatility; and lows in cross-asset volatility.

The money managers continue to attract funds for over $350 billion in assets are being managed and a recent decision by Retirement System of the State of Illinois invested $100 million with KeyQuant SAS a Paris, France based company. The reason is research by AQR Capital Management going through the annual reports of the Chicago Board of Trade shows since 1880, time series momentum – having a long positioning in markets with positive returns and short positions in those with negative returns – has on average posted gains with low correlations to traditional asset classes. The Quant funds look forward to the Federal Reserve lessening so volatility in any market begins and profits can be made.

Linking to dividend paying stocks, with the markets there are all kinds of strategies, some work better in choppy markets, some work better in smooth markets, and some work best knowing how the market has performed. The reality is we do not know, but we do know the market tends to pay more for profitable companies and if they have a dividend so much the better for the investor.

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

 

Ben Carlson works for Ritholtz Wealth Management and Bloomberg columnist in mid July wrote a column called this time really is different. Sir John Templeton of Templeton Mutual Funds wrote 16 Rules for Investment Success and one of them is this time is different. Often when people do not know they tend to say, well this time it is different to reflect something has fundamentally changed. What has changed is the metrics the street tends to use:

The CAPE (cyclical adjusted price-to-earnings) ratio is above what it tends to be. The CAPE has been used since 1871 and started at 16.7. The average from 1960 moves to 20; the average in 1980 is 21.7. The current reading is 30, is that too high or normal?

Now consider the composition of the corporate and financial markets – they are different

In 1957, the S&P 500 consisted of 425 industrial stocks, 60 utilities and 15 railways

1988, the S&P 500 consisted of 400 industrials, 40 utilities, 40 financials and 20 transportation stocks.

In 1902, US Steel was the biggest US Company with 170,000 workers generating sales of 3,340 sales per employee (90,000 in today’s dollars). Today Facebook generates $2 million in revenue per employee.

50 years ago, retail investors had 90% of the market; now 95% is professional investors.

The first stock market index fund was not created until 1976.

All the above illustrate things change and things changed rapidly in the investing world. Most of them are good, but the street decides. This means making mistakes is a normal, but learning from them is what can be the difference next time. In the market with hindsight everyone can beat the market, but in reality the landscape changes and we are all mere mortals.

Linking to dividend paying stocks, in general the street will value profitable stocks higher than non profitable stocks and those that pay a sustainable dividend will be in business longer than those that do not pay dividends. Part of investing is try not to lose money, a sustainable dividend helps accomplish that goal. Within the dividend world there are many alternatives, the world changes but some things tend to remain constant.

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

In mid July Vitaliy Katsenelson of Investment Management Associates in Denver recently wrote an article that when you buy a stock even high quality dividend stocks you must remember there are two parts of a stock. The Price/Earnings Ratio and the Dividend, when the PE Ratio rises the stock price rises and that is a good thing, however at some point investors have to look back and think is this a growth stock or a dividend stock. Mr. Katsenelson used the example of Coca-Cola and you may have drunk some of its beverages this summer. The stock pays a 3% dividend but similar to many stocks the PE Ratio has risen to 23 times earnings. Should you buy it for the dividend? Mr. Katsenelson says while the stock is a secure one with a global franchise, it will likely decline in price to reflect its growth prospects to a PE Ratio of 13 to 15 times earnings. At that range, because the stock is mature and will continue to be profitable, you are not paying for growth but collecting the dividend. For Mr. Katesnelson this is a stock is to be bought when the price moves downwards and at the present ratio can be partially sold and other alternatives bought.

Linking to dividend paying stocks, all dividend stocks have a dual role – growth and dividends and it is up to you to choose which is the better role. If you pay a high price, at some point the price should fall perhaps with a market correction. If you are going to hold the stock for a long period of time, the PE Ratio becomes the less important for eventually the street will pay more for profitable companies.

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

 

 

In the 1936, General Francisco Franco lead the army and his forces against the government of Spain. In simple terms it became the Fascist vs the Republic. On the side of the Fascists was Franco, other generals, and support from Germany and Italy. On the other side was the Republic who was everyone else and the moral support of the western powers. During the Spanish Civil War people were encouraged unless they were from Germany and Italy (as they provided troops and arms) to help one side or the other. Most people from western countries and Russia supported the Republic. During the Spanish Civil War many journalists and artists offered their views.

The war starts similar to all other wars, while there is a dispute with the existing government, other factors in the background have been boiling towards the tipping point. With the support of Germany and Italy, those countries were looking for spoils from what they thought would be a short war. Germany wanted access to raw materials and minerals of Spain; Italy wanted to create a Fascist Europe. The importance of the Spanish Civil War was it was preview of World War II.

In all wars, people die; in all wars technology and systems improve dramatically. In the book Hell and Good Company – The Spanish Civil War and the World it Made by Richard Rhodes published by Simon and Schuster, New York, 2015, Mr. Rhodes an American focuses on the Republican side of the story. In war, people are shot and will be maimed by surrounding explosions which means medical facilities are very needed. On the Republican side, the Americans and British brought new standards to the operating theater which because medicine changes slowly, the Spanish were not doing. Remembering the time was the 1930’s and medicine is a craft learned profession which means not everyone was doing the best for the patient. The profession had recently learned about blood transfusions, sterile tools and not causing infections. The war helped bring the advances to the world and saved lives.

One of the conditions of World War 1 was Germany was not suppose to rearm the country, they did and Spain was testing site for the new breed of armaments as well as carpet bombing. The town of Gernika was the first town destroyed by carpet bombing. As long as the generals can live with destroying the town and the people, it continued into World War II as an effective strategy.

The book discusses journalists and artists and their work because the war affected them.

The war essentially was a stalemate until Germany and Italy continued to send in troops and arms while the western countries looked on. After the war, some of the people who fought on the Republic side were not embraced by their governments when they came home. For example some Doctors and Nurses from the United States who volunteered to help were considered communist sympathizers by the House Unamerican Committee. The end of the war left Franco in power till Spain turned towards its present monarchy system.

Linking to dividend paying stocks, in some areas wars because of their intensity will cause new technologies and strategies, many of us would prefer a more gradual pace because that means there is no war where people die. Depending on the investments you make, sometimes war makes them better.

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

 

 

The story of the development of the globe is part explorer and part trader. Exploring to see what there is and how wonderful the countries of the world are and that continues to be the best and romantic version of why people go travelling. The other reason is to be a trader and look for profit and that transforms countries. In the book the Opium War by Brian Inglis published by Hodder and Stoughton, London, England, 1976 he examines the United Kingdom relationship to India and China. Ever since the Portguese and Dutch traders went to the Indies and brought back spices at great profit, there was a motivation to see what else can be brought to markets to make profits. In England,companies were set up to do that and the most famous is the East India Company. The company had the rights to trade with India and fabrics, spices and tea came to England. Orginally tea was expensive, but duties were lowered and soon the masses were drinking tea which resulted in tea imports went from 1 million pounds to 20 million pounds. This was good for everyone, tea became a staple in England, the farmers were benefiting from increased usage and the Raj or Moguls enjoyed the tax on the tea to remain living well. In time, the East India Company was not making as much money as they thought they should or wanted, they were making money but not the 40% return on investment. People found about the poppy plants and opium and originally it was used on a small level or a small market for the effects are the same as they are now. It turns out there was a small market but it could grow bigger in China who had 300 million people in the 1830s.

The traders were interested in profit, they began slowly at first to bring in opium chests to China for silver, then the silver went back to England and it was not long the revenues for the country of England were dependant on the East India Company. In the book, the author reveals various senior members of government and what their reaction is and should be to the trade. Officially it was we know it is being harvested, but once it went on a ship away from India (by this time, England had taken over the administration of India) it was washed from their responsibilities. What of course is interesting is when the British traders included the famous firm Jardine Matheson (the biggest seller) irked the Chinese who wanted the trade stopped for the Chinese were running out of silver to pay for the opium, the British sent in their Navy which was the most powerful Navy in the world to protect British interests.

Linking to dividend paying stocks, all investors want to have a good return and it would be nice to have 40% returns all the time, however to achieve those high returns means people lives in general need to suffer. If you have a good conscious try to achieve lower returns in which more people benefit from the products and services or the relationship although not equal is more balanced. If you achieve returns above 40% on a consistent basis you may begin to rational similar to the British and the opium trade with China. The same arguments are being used where marijuana is becoming more legal.

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

 

In late August many people will be watching a boxing match between boxer Floyd Mayweather and Ultimate Fighter Connor McGregor. The fighters are to receive close to $100 million each which stands to reason billions will or should be generated. Recently at lunch a conversation was overheard about the fight, the conversation centered around Mayweather is a pure boxer with a very strong right hand and McGregor comes from the world of Ultimate Fighting which other parts of the body are used. The discussion was animated because the speakers all seem to have relevant information concerning the fight. Through the channel of You Tube they were to offer suggestions why one is better than the other – the power of one, the speed of another. It was easily deduced the group had watched a number of the fights in the past or they were informed watchers. They had done their homework and could see advantages and disadvantages for both fighters. If the fight lasts longer than 5 rounds Mayweather will have the advantage was the consensus.

Linking to dividend paying stocks, if you do your homework with the passion the individuals put into the fight outcome, then picking a stock is relatively easy. Whether the statistic is throw ratio or number of win, it is easier to see if you use ratios. If you are relatively new to picking stocks, think about a subject you are interested in and relate it to stocks. Similar to sports a proven winner is a winner for a variety of reasons and if you cover your decision with dividend income – all your decisions will be winners.

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