In late January, President Trump signed an executive order to ban the entry into the US from 7 countries in the middle east. He used a variety a reasons why, but one was a campaign promise to extreme vetting. It might have been a very good thing to do, except for it seemed nobody in the room told anyone else the ban to go in place. Since a large organization has many parts, including Foreign Affairs, Department of National Defence, Homeland Security, many internal security agencies and Border Patrol. How would these groups interpret the executive order? The presidential authority is overriding so they took it at its face value and implemented the ban. It turns out, there was supposed to be some exceptions and the ban is not really a ban, because no one was positive what extreme vetting had changed, was it a ban or not a ban? The reality is the government does extreme vetting, which means the process is measured in months and years, rather than days. The process is slow, but has never had a ban. The communication process was a disaster and that is putting it mildly because all the other interested parts had to be informed of the proper procedures and what they mean or did not mean.

Linking to dividend paying stocks, when new management comes in, they have their agenda or things that they would like to do. Like to do and can do often need to be adjusted and similar to every large organization the people want to hold onto their jobs. The new way is implemented but not effectively and things go back to what it was. Change takes a great deal of communication for people to buy into. If you see management is not communicating, then results will not be remarkably different. This is when you can see if management is any good or the company continues to make profits without the noise of management. Chaos is not the best method to run any organization. It might work in a small business but size and complexity matters.

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

One of the first things we do when we go outside is gauge the power of the wind – in the northeast at this time of the year is the wind coming from the Arctic or the north wind; what we are looking forward to is those southern winds which brings warmer weather. For most of us in the urban environments, the wind will add or subtract from one of many things to do in our daily lives. In the 1800’s the wind was one of the most important elements to daily lives for the wind allowed sailing ships to sail and turned windmills. The wind is something you that happens to you, to describe it means to observe something else. One of the most used table of wind is called the Beaufort Scale and there is wonderful book about how the scale became to be known. The book is titled Defining the Wind by Scott Huler published by Three Rivers Press, NY, 2004

Mr. Huler loves the simplicity of the Beaufort Scale which was adopted by the British Navy in 1862 and can be seen in Webster’s New Collegiate Dictionary and a host of other places. Mr. Huler was a copy writer which requires to pick the exact words to tell a story and when he reads the scale he was wondering how and why does the Beaufort Scale come to be written. The wind has to be observed to be felt; it had to go through regular science authorities to be adopted and it had to come about at the right time by the right person. Mr. Beaufort was an Admiral in the Navy, he was one of those people who like to draw maps of where everything is. This was extremely useful to the Navy – the ships need to miss the rocks and reefs around the ports. Mr. Beaufort was educated in the latest science and navigation equipment.

According to Mr. Huler, the words of the scale do work. Those works have a job – to make you understand how the wind is blowing, exactly how the wind is blowing, in comparison to other winds. They express perfectly a fundamental thing about language: Language is technology. It is a tool to accomplish a task.

It turns out there were other scales, other people had tried to quantify how the wind could be placed on a scale, however Mr. Beaufort tightened up the language so everyone would know and understand and that is a good gift.

Linking to dividend paying stocks, when you pick these types of stocks, many people will have picked them before. You will not necessarily be breaking new ground but you will be following the principle of trying not to lose money. If you do not lose money, then overtime your wealth grows both in terms of the stock price and the dividends you receive. Simple is hard to do, but simple often works.

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

 

Last year, the United Kingdom voted to leave the European Community to be more independent. In many ways, the idea is appealing to the individual. However to companies, they follow the rules of the land. One company looking at the new rules is Ryanair – the home of inexpensive flights across Europe. It is cheaper to fly through Ryanair than drive your car, so many short term flights are done. Ryanair is Europe’s largest airline by passenger numbers, the Irish carrier flies over 120 million people from British airports.

According to Connor Humphries and Victoria Bryan of Reuters, Ryanair has been going through a  number of possibilities including “Armageddon”. In breaking from the EU, England will have to negotiate with the EU and similar to divorce settlements some are easy and some are hard to work with. At the moment no one really knows which way it is to go. Will England still have access to Europe? under what conditions can people and goods and services be moved? While  Britain is part of the EU, it operates under the open skies deregulated aviation market which allowed all EU airlines to fly to and from any airport within the bloc. Once Britain begins to break from the EU, the open skies will no longer be allowed and Ryanair will move its planes to Europe which means people in England will be unemployed and it will cost them more to travel. Will the Europeans want to fly to England in the numbers the English hope to bulk up their tourism?

Linking to dividend paying stocks, people in a democracy have the right and ability to vote anyway they wish to. There are generally business consequences to the actions – sometimes it is favorable, sometimes it is unfavorable. There is a big picture and there is a picture for companies. The companies might prefer to be in one place, but they will move on a dime, if market conditions are more favorable to them.

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

 

Last year England voted to leave the European Union, which as a country is has the right to do. It has taken a little while before the reality is beginning to set in, London is one of the banking centers of the world including Europe. The other cities have banking operations but London had an advantage in terms of language (English tends to be the international trading language); reasonably stable governments  and good life style for the bankers.

Within the rules of European Union was all companies had similar access to the other countries rules or a seemingly passport to sell financial services to the others. With Britain leaving the European Union the passport will be revoked. Thus those traders will have move to an European Union country to continue the business. It was reported by Pamela Barbaglia of Reuters at the annual economic forum in Davos, Switzerland, the CEOs of HSBC and UBS and since then Citibank and Morgan Stanley have announced they are moving people from London to another city, unless Britain can negotiate the status quo. HSBC is looking at Paris, other companies are looking at Frankfurt. Every other city in the European Union are lobbying for any of the other jobs the banks provided – either front end or support services. There will be office space for rent in London as well as other changes as the years go by.

Linking to dividend paying stocks, all democratic countries are allow to turn inward or go outward as their citizens choose. In England, the country decided to be independent, as soon it will be facing more consequences with the change. Some will be good, some will be bad depending on your point of view. With President Trump’s speech he is going to focus on what is good for the US, rather than what is good for the US in the worldwide context. It will have an effect if your company has operations outside the US. The more the US tightens its borders and regulations concerning the borders, the less the diversification of business to over countries will be a good thing. Time will tell.

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

When President Trump says the US is going to place a 35% tariff on imports from China and Mexico, he may have been thinking about the automobile industry but he has not thought about Silicon Valley’s products. One glaring example is Apple and in a recent article by Eric Reguly titled Apple deserves to feel Trump’s pressure on jobs.

Apple by market capitalization is one of the most successful companies in the world, its shares at $120 are worth $630 billion. It has helped define the Silicon Valley and is building a new round office building in Cupertino, California which is termed the spaceship and will house 13,000 employees. From the perspective of highly educated and paid workers, it is good thing.

Apple builds almost none of its hardware in the US, most of it is done in China. If President Trump is talking manufacturing jobs, he can look at his iPad. Apple is better at design, packing and marketing than coming up with breakthrough innovations.

What powers the iPhone, iPad, and iPod? Lithium-ion batteries developed by the Department of Energy. The liquid crystal displays came from the National Institutes of Health, the National Science Foundation, and the Department of Defence. Apple devices are connected to the internet which is not an Apple invention.

Nor is the micro hard drive, the microprocessor, GPS, Siri or DRAM cache which emerged from the US Defence Advanced Research Projects Agency and other government departments.

Apple benefits from government research, benefits from Research and Development tax breaks, and benefits from government subsidized university graduates. In 1960 a law was passed that allows companies to avoid paying a 35% federal tax on profits made outside the US until those profits came back into the US. Apple has $216 billion in overseas accounts. President Trump is considering lowering the tax which will benefit Apple.

One can look at the good Apple has done and continues to do for millions of people have a device that works almost flawless and gives them a communications and entertainment device. Shrinking the size of the laptop to a phone size was genius.

Linking to dividend paying stocks, when the government offers rhetoric it offers a broad brush which many companies get painted by. Apple is a successful company with a well paid and growing workforce in the US, but it does no manufacturing; it does take government research into the private sector to make money (should it pay a royalty to the agencies?), it does not do manufacturing in the US – will prices go up 35%? and it does have billions in offshore accounts paying little or no tax on. Similar to most things in life, what seems simple is often complex.

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

 

 

Today is Valentine’s Day and love is in the air. One method to ensure love is in your portfolio is to start with companies with a high quality of good management. Warren Buffett believes that when you find companies that possess excellent businesses that are run by managers who are both talented and shareholder oriented you should increase your holdings in them. The question becomes how do you access the quality of management?  Jennifer Dowty wrote an article titled How to access the quality of management?

Experience: Research management’s background and read their biographies on the website from the perspective of how that background helps your investment. What have they done successfully in the past? what challenges are you expecting?

Execution: Find out whether management delivers on its promises. Ideally you want to under-promise but over-deliver, for when the street hears and reads about it, they will react positively.

Management’s objectives: Are your objectives and management’s objectives similar? Do you want the company to focus on growth or income?

Ownership: who owns the shares of the company? does senior management own shares and how much of their wealth is tied to the shares? You can check with the website http://www.sedi.ca.

Linking to dividend paying stocks, as a part owner, the company becomes a partner in your finances which allows you evaluate management. If you like the management, then the other analysis of the business needs to be done. If you are buying for dividends, you will want to ensure the company is profitable and earns enough free cash flow to continually increase the dividends or at least as long as you own the shares.

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

 

Wal-mart recently released a press release that it intends to create about 10,000 jobs in the US. The press release feeds into President Trump’s position that companies need to create more jobs in the US. On first glance, that is good news.

According to Nandita Bose and Sruthi Ramakrishnan of Reuters this would represent less than 1% of its US workforce of 1.5 million. Many of the new employees will include hourly employees (the bulk of them part time workers), some full time managers and supervisors in 59 stores the company expects to open. The stores are part of a $6.8 billion capital budget which will include construction jobs.

President Trump tweeted he was happy the jobs are coming.

A little bit of reality, Amazon recently had a banner year with its e-commerce, Wal-mart is still far behind and has let thousands go it can focus more on e-commerce. The next reality is many of the jobs at Wal-mart will be part-time starting at the minimum wage or within a $1.00 of it. Minimum wage is $7.25 in Nevada and generally less than $12.00 a hour across the country. Part-time work is 28 hours or less (7.25 x 28 hours is a gross of $203), that income is not going to stimulate spending in the country. Given the size of Wal-mart, an increase in 10,000 jobs while individually a good thing, the reality is the company is essentially not growing.

The other reality check is many of the items in the store come from China or South east Asia. Every time President Trump mentions tariffs, it will mean higher prices at Wal-mart and other stores. Will Wal-mart be lobbying the government not to include retail items?  In seems there are some cities devoted to supplying Wal-mart stores, what happens to them? will China sit on its hands?  Will Wal-mart start sourcing in the US, remember the buy in the US campaign, the main thing in the store was the store is a an American owned company, not the goods inside the store were not American-made. What will the reality be?

Linking to dividend paying stocks, Wal-mart is a leader in the retail space and similar to all large organizations can easily send out announcements which on the face of it seem to be good. It is good Wal-mart is growing; the not so good aspect is that is slow growth rate and although it is a giant in retail, there are many challenges. Read the press releases for the good news, but then look behind the headline to what it really means for the company.

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

For a number of years, and you may still hear stories the time England ruled the seas. England became the world’s leading sea power from 1763 to early 1900’s. In many ways it was a long time, but how did the country emerge as the leading country on the sea? There are a variety of answers to the question for it is a combination of factors. One author who offers guidance is Tim Clayton who wrote TARS published by Hodder & Stoughton, 2007, London.

One of the factors is up until the 1750’s French is the international language of the seas – maps were in French and the English captains learnt French.

There was inventions or better design of sailing ships for the Royal Navy. The Royal Navy similar to much of Britain was a combination of upper income or socially upward were the captains and did the strategic planning; while the common folk did all the other things needed to make the ship run, including use of cannon. As the ships became larger, they had more fire power.

In the end of the 7 years war with France in 1760’s, the English used their bigger ships to blockade the French ports. Putting your ships in the harbor of another country is a relatively easy thing to do; keeping them there for the blockade to be effective is a different matter. The English had a supply system which was better than any other country. The efficiency of the naval supply system and the quality of food had improved. Partly with the ability to do it themselves – they manufactured their own victuals; the Navy had flourmills and other mills to grind oats. The navy owned a slaughter house for meat and its brew master was top notch. The ships at the blockade could be reloaded with food and drink, so the men could stay out longer. In addition to the food being replenished so was the gunpowder which must have hurt moral of the French.

Another aspect to the Royal Navy was if the boats captured opposition ships, part of the value of the bounty would be distributed to all the members of the crew. This was part of the incentive to stop Spanish ships from taking gold and silver from Mexico and Peru to Spain.Not surprisingly the admiral and captains took a larger share, but everyone received a healthy bonus relative to their normal pay. One effect is in every port city there are pubs and brothels nearby, for the ladies and gentlemen to take the money from the sailors.

Linking to dividend paying stocks, whether it was 200 years ago or now the reasons why organizations develop remain similar. A combination of the innovations and updating the method in which the organization does business. Profit to ensure some risk is taken rather than resting on the past laurels and a vision to become the leader. There will be challenges along the way, for example after England ruled the waves – it received healthy investments in ship building and financing of the slave trade. There will always be some trade offs.

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

 

 

To gauge the overall economy, the easiest way is to examine railway stocks. Railways move goods over a long distance at a relatively inexpensive price. The companies were built to move grains from the farms in the plains to the markets in Chicago and beyond; consumer goods to everyone – think of containers and Wal-mart; all the big coal electric plants need coal; you car needs oil – where the companies have made extra money, until the pipelines get built. The railways move things those of us in the city need.

Norfolk Southern has been on a roll since Feb 2016 when its price was $70 and now it has touch $110 and was highlighted in an article by Gordon Pape. The company perates 20,000 route miles in 20 states serving every major container port in the eastern US and is a major transporter of coal, automobile and industrial parts.

The railway has been doing many things right including earning more money  $1.25 billion ($4.21 a share) compared with $1.2 billion ($3.90 per share) in 2015. The reason for the increase per share is the average number of shares has decreased as the company has purchased 7.2 million shares. Since 2006 the company has bought back 158.3 million shares.

In terms of operations, the operating ratio is 67.5% and the achieved $250 in productivity savings. The stock pays $2.36 dividend a year to yield 2.1%.

Linking to dividend paying stocks, Norfolk Southern has paid a dividend for 134 quarters or over 33 years and over the years the company’s share price has moved from $50 in 2009 to $70 in Feb 2016 to $110 now. It just shows dividend paying companies can both have price increases and decreases; but if you buy a good company and as your expectation for the future improves there are opportunities to be made. One of the reasons the price has moved is the expectation of a growing US economy particularly on the east coast. As the economy improves, so does the strength of the railways.

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