If you own dividend paying companies, you will eventually look at some of the Big pharmaceutical giants because although it takes millions to develop a drug, if a drug is successful and can be prescribed by doctors to millions of patients the cost of the drug falls to pennies while the cost for the patients and the insurance companies keeps going up. The big pharma companies have convinced all of us, they need the 20 year protection in order to keep producing life saving drugs. As an investor you like the 20 year protection and one of your analysis of the companies is what is in the pipeline?

Ben Hirschler of Reuters reported the leading drug companies are embracing Artificial Intelligence to improve on the hit-and-miss business of finding new medicines. The aim is to use supercomputers and machine learning systems to predict how molecules will behave and how likely they are to make a useful (profitable) drug thus saving time and money on unnecessary tests. The goal is reduce the time from an average of 5 years to one year. Understanding the human body is complicated and what happens in the computer will not be the same as what happens in the body, it is worth doing the experiments. In the near future you should see more start ups of AI companies.

Linking to dividend paying stocks, when you read these types of reports as an investor you will be glad the company is investing in everything that needs to be done because most research is not finalized because of complications along the way – the tests go through multiple Phases and it is important to understand the Phase cycles of Big Pharma when you invest. If AI works as well as it is hoped and the average drug can be done in 2 years, then Insurance companies will push for cutting the 20 year protection length. With everything in life there is good and maybe changes in the future

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

On July 4^th it was reported by Reuters the French oil giant Total signed a deal with Iran to develop South Pars which is the world’s largest natural gas field. Iran had some economic sanctions lifted upon the country and the French through Total , the Chinese through China Petroleum and the Iran oil company Petropars will develop the gas field. The noting of July 4^th is the US government is still making comments about Iran while other companies jumped into the economic development. The US changed its sanctions list from everything to things involving ballistic-missiles which does not include natural gas. If the US wishes to invade, the world became more complicated and tied together.

Linking to dividend paying stocks, economics and generating revenues by its self does not have any morality but countries do. They try to get along, but if one country wishes to be outside of the market which is their right to do, about country and the companies headquartered in it will step up. In the case of South Pars natural gas, it is the largest in the world and for a major oil company it is very hard not to be involved. The world and electrical generation runs on natural gas for the foreseeable future which means the gas will be sold. The cost to develop will be in the billions but so will be the revenues and Total will be able to generate the kind of returns investors like.

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

 

General Electric is a large corporation and similar to other large corporations they look around from acquisitions and an opportunity to leave other divisions. The company moved away from financial services and decided to buy the oil services company Baker Hughes. There are good reasons to buy into the oil services field as the US continues to drill for oil and gas and more wells are successful. Thanks to technology, the success rate is up; in addition the cost to drill is up. Baker Hughes is headquarter in Texas and the image of Texas is they go by the gut. GE is headquartered in New York, they go by the numbers which means on the surface there is going to be a culture clash. The new President was quoted by David Wethe and Richard Clough of Bloomberg News that he is counting on more predictable income such as equipment maintenance contracts to help compensate for the up and downs of the US drilling outlook. It provides continuity and stability in the earnings and less volatility.

Linking to dividend paying stocks, those words are pleasing to the ear of a dividend stock buyer for as much as you want the ups and successes; you have to live with a cycle in every industry. Continuity and stability of earnings allows for scaling upwards and the discipline to cut back when the cycle goes down.

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

 

In our economy we have more and more small businesses which is great thing, however most small companies would love to have relationships and orders from big companies because they pay their bills on time. When they pay their bills, the revenues increase and more profits can be made. However Larry Ginsberg wrote a column called How small fry can attract elusive big fish and he notes to reap those rewards, entrepreneurs have to understand a few things about big companies and how they make their buying decisions.

Understand the organization – companies continuously change people and processes. If an entrepreneur does not understand how actually makes a decision, it will be a long process. Know it is a long term, multiple relationship that requires patience.

Understand goals and objectives – companies have a window of opportunity to buy something new and then it essentially closes. Most companies have spending restraints around the end of the third quarter to make the next quarter even better. Trying to sell at that time is wasted effort. Budgets tend to be approved after the second or third month of the fiscal year. Without an approved budget, managers cannot approve your purchase.

Understanding the individual – employees are often overworked, constantly stressed and they often do not know have the experience to solve the problems, thus they are looking for solutions.

Play by their rules – Companies evaluate suppliers on multiple aspects such as on-time delivery, no short ships, quality of product, invoices match purchase orders and communication. This evaluation gives a point total and it is important to ensure your total is meeting the expectations.

Linking to dividend paying stocks, much of the above is the expected and the overall goals and objectives are given to shareholders how well it does on the rest of the scale is for investors to determine. The budgets have the effect companies tend to move in cycles, as much as you would love to see your company breaking records every month, it likely will not happen, it could, but there should be a reasonable cycle of prediction. If that does not happen, then it is time to investigate alternatives

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

in the Wall Street Journal in October 1998 Emily Nelson wrote about Bananas unlock key to Wal-Mart strategy. One of the great assets of Wal-Mart is its database which in 1998 was second in size to the US government or it has big data. What to do with the data is the key and 1998 the most common item US consumers bought was bananas. This is why bananas are in the produce department, the cereal aisle and by the cash registers. The idea is to make it easier for consumers to purchase products as well as complementary ones. Wal-Mart collects raw sales, profit margin, inventory numbers and market-basket data or what products are likely to be purchased together.

Since 1998, Wal-Mart has been sharing some of its information with buyers and suppliers for each of them to achieve what they believe is the best position for their product. Which aisle? what should it be near? how far done the shelf? This information or tailoring to the customer helps drive sales. The downside is if the supermarket fiddles too much and consumers can not find the products they typically buy 15% of the customers would rather leave than look.

Linking to dividend paying stocks, we all hear about big data and Wal-Mart has been collecting information for years – it is still very competitive in their environment as consumers change. People want convenience, the want something that might have never existed, but it is very easy to go beyond what customers want in the desire to help them buy your products and services. As you examine your investments what do they do with the data they collect? how are they evaluating you. what judgement do you see?

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

 

During the holiday, one of the tasks was to clean up and a old article from April 1998 was found titled Knowing rivals’ costs clears profit picture by George Salk who was at the time a Senior Vice President of Boston Consulting Group. If you start with the basic formula profit is the higher revenues than costs, how are costs set? All companies and many individuals spend many hours on tracking costs, which is a good thing to know. However, it is crucial to also invest in understanding what is driving their competitor’s costs.

If your rivals have a lower costs than you, they control how much money a company is going to make. The only escape is to know their costs and to act on that knowledge. The cost advantage can be based on economies of scale, depth of experience, overhead differences, supplier practices and local factors such as energy costs.

The process for determining competitor’s costs is called competitive cost benchmaking. If you are just starting it will involve work and tearing down customer products, reconstructing manufacturing and service processes down to the last machine. The information can come through public documents, surfing the internet, interviews with suppliers. The idea is to break down products and services to understand your relative cost position overall and for each section.

The result is decisions are made on Prices differently, Redesign of products, Redesign processes, Change a company’s positioning, Make different investment decisions, Involve customers, Restructure supplier arrangements.

Linking to dividend paying companies some of these companies are where they are because they have cost advantages over the competition. The key is to understand what cost advantages they have and knowing the competition changes so does basic costs – think the difference between Uber and Taxi companies, the Uber model is less. However if the industry is still relatively stable or systematic cost differences are not removed easily, why does your company continue to make money is still the issue.

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

In every project the three resources needed are time, people and resources. It is very easy to run into limited time, need more people on the project to finish and if we had more money (resources) we could have done more. We all tend to believe having more resources at the start would translate into better results. Is this true? Harvey Schachter reviewed a book called Stretch by Scott Sonenshein and the answer is not necessarily. Mr. Soneshein is a Professor of Management at Rice University in Houston, Texas. The key he believes is the ability to use the resources you have to their fullest potential.

Mr. Sonesnhein uses the terms chasing which means focusing on acquiring resources and overlooking how to expand what is on hand.

Stretching is ask what more they can do with what they have, rather than obsessing about what is missing. Many times it is better to have a frugal budget and people have to be creative with what they have. Having demonstrated results, additional resources to scale up are allocated. Stretching includes thinking out of the box; using existing relationships, asking more of your people; looking at the big picture; hopefully your team has a diversity of opinions and skillsets which can be put together to equal more than the parts. The book will help teams stretch better.

Linking to dividend paying stocks, one of the great things about the companies is the ability to generate a profit and continue to pay dividends. The ability to generate a profit tends to mean the company can “throw money at problems” but does it solve it. Sometimes less money is needed and you need to see how management works being lean but not mean and continually come up with profitable ideas for the years ahead.

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

In late June, Alexander Corwell from Reuters reported Qatar Airways was considering buying 4.75% of the stock of American Airlines and then increasing towards 10% at a cost of $800 million. On the face of it, Qatar Airlines has partnered with One-world with a number of airlines and owning shares would cement relationships. Qatar and American could do something similar to Qatar and British Airways have revenue sharing partnerships with their respect hubs in London and Doha. In terms of business and helping the passengers who fly on their planes it could be a very good thing to do.

On the news pages, Qatar is being having a diplomatic dispute with its neighbors and that calls into question should American Airlines have a stronger relationship with Qatar Airlines. Can you separate the politics from the business of airlines? In many instances running an airline is very linked to the country of origin’s policies and government subsidies and at times government long-term plans.

Linking to dividend paying stocks, every profitable company has opportunities which come before it, some they do and many they wait and see because they can and often times saying no is the order of the day. When the news headlines begin to filter into your company, you always have to remember why is the company profitable? how does it generate its highest margin business? Then you can decide do I hold or look for better alternatives.

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

When American was founded by Europeans everything was linked to the sea – inland lakes and great ports. As time moved on and the great industrial revolution started railways were brought to America. Have you ever wondered about their financing. Most of the time, we hear or read about how railroads opened up the country and they did – crossing the states from the Pacific to the Atlantic took 5 days rather than 3 to 6 months on the ships. The boats prior to the Panama Canal had to go around South America and then go north to Los Angles and San Francisco. In time and the discovery of gold in California and silver in Nevada brought a need for railroads. Prior to the discoveries, there was a wish to cross the country on a railroad or ride the rails.

If you jump to the great interstate building of highways after World War II, the interstate highways were built by government, although the work was often done by private companies. In the railroad age, the bulk of money was made and still is moving commodities such as grain, iron ore, coal, and the like. If your town did not get a railway connection, then it likely became a ghost town. If it did gain a railway connection, there was good change to enjoy the prosperity of the country.

In a book called The Railway Game by J. Lukasiewic published by McCelland and Steward. Toronto, Ontario, 1976. The question of how were railways financed answered. The book uses Canadian examples, however the same practices went on in every western country. The age of the railway could open up the country, but it was expensive. The easiest method to raise money was not on the stock market, but the bond market. If you buy a US Treasury bond, it is backed by the government and unless it goes bankrupt it will pay interest and principal on maturity. If a railroad goes to the bond market in Europe (that is where the money was at the start of the industrial age – later it shifted to New York), why would European investors buy bonds on railways going across the country? The reason Europeans bought railway bonds is the government passed legislation which would backstopped the railroads, after all politicians tied rowth of the economy to the railroad. The government guaranteed loans; guaranteed interest rates; direct issue of bonds to railways against mortgages; guaranteed share capital; gave the railways lands; gave the railways the revenue from the lands; gave the railways a monopoly in the area; much of the railway infrastructure was exempt from taxes; municipal governments did the same as national governments in order to get a stop.

If you were in the railway company business, it was very possible to be subsidized by cash and land grants; have guarantees from federal, state and municipal governments. If commodities were discovered and people actually came to farm, remember the plains were not populated by farmers in a day. If all worked well, the service contracts to run the railroad made the promoters wealthy, but the government was on the hook in case of bankruptcy. The public subsidies by governments gave 80 railroads more than 187 million acres. Grants from states added 50 million more acres. Texas gave away lands larger than New York state. Other states which gave away lands included Alabama, Florida, Illinois, Michigan, Mississippi and Wisconsin.

Linking to dividend paying stocks, in the railway age when railways were being built governments encouraged the railway to build and open up the country. In many ways this was a good thing, although for the average taxpayer, maybe not. As time went on, many of the railways consolidated and now they are only a few and are profitable. Was it a good idea for governments to give away so much to have railways built? is a different question, but the history of the country is business is often subsidized by governments. Ideally, governments do not have to take all the risks, however quality dividend stocks work like monopolies and that is a good thing for an investor for low risk.

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