In the ideal investment portfolio part of your asset allocation model should include gold because we know two things will affect risk – growth and inflation; what we do not know is growth going to be higher or lower and is inflation going to be higher or lower. Gold for a long time has been the all weather risk protection and if you consider Syria where internal strife has been going on for years, what is there banking system like? what if you had Syrian Pound and had to flee the country? if you had gold, then it could be exchanged for higher currencies in whatever country you end up in. Hopefully we will have fewer Syrian examples. In terms of gold, because the world did not know what would happen to a Donald Trump Presidency, it was thought when he won gold would go up in price. It may still because of inflation – if President elect Trump cuts taxes and spends money on infrastructure, unless he achieves much higher growth there will be a shortfall in the government’s bank account leading to a need to raise funds. Maybe growth comes at a higher rate, maybe consumers rush to spend their money, maybe or what is your macro outlook. Ian McGugan asked since gold prices fell, is it a buying opportunity? The answer is it depends on your outlook for America under President elect Trump.

Gold tends to move in the opposite direction of the American dollar because the metal is denominated in US dollars which means a stronger dollar and anyone outside of America is more expensive. When the dollar strengthens, the price of gold falls.

Moody Investors Services believes gold will trade around $1,250 but can easily fluctuate between the range of $1,100 and $1,300. At the time this article was written gold was trading at $1,181.

Another fund manager Charlie Morris at Newscape Capital in London believes gold is trading for the first time since the credit crisis at fair value. He believes unless the stock market goes down, stocks are a better alternative to owning gold. However, you can look at some of the better gold stocks.

Linking to dividend paying stocks, the world is connected which means economies at connected. Years ago, politicians could react in a manner which best suits their internal borders but now the world reacts. Look for cause and effect and be prepared, sometimes you can wait it out if you have picked the best companies preferably paying a dividend. We do not know until the event has happened but we can make educated guesses.

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

One of best known investors in the world is Warren Buffett and there is very, very good reason for the recognition – his rates of return on his investments have been great. Mr. Buffett offers advice – it is worth listening to and everyone who has a long term success is offered goodwill. To invest in Berkshire Hathaway you have to give Warren Buffett the benefit of doubt and to question him has been fruitless. In an article by Tara Lachapelle of Bloomberg News titled Can investors still trust Berkshire after Buffett goes? is worth considering. Mr. Buffett is 86 years old and his best friend and partner Charlie Munger is in the same age group. What would happen to the company if one or both died or became increasingly less active in the company? No doubt there are very highly respected senior management within the organization, but Berkshire has always had Buffett and Munger as the prime decision makers. The reason the issue has come up is unlike most publicly traded companies, Berkshire does not release as much information as the average publicly traded company. From an accounting perspective the companies are grouped together so you have an idea of how things are but not the true picture. Mr. Buffett because of his long success, can get away with it because of the long success.

Linking to dividend paying stocks, when a company has a long term success they are often scrutinized less because of the goodwill we as investors give it and there maybe nothing wrong with that. When management changes, the same goodwill evaporates because we know and trust management less, even though they maybe continuing with the same good policies and principles as before. One day it will happen to Berkshire, but in the meantime learn from Mr. Buffett and be aware when management changes for there will be an effect.

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

 

 

For every industry there are rules and one of the rules of the stock market is to lower your taxes you can offset losses against gains. No one tries to have losses, but the reality of hedge fund managers is they get 50% right and 50% wrong (but they make a lot of money on the 50% right). This means anyone investing in the markets will have some losses (or they tell big fish stories) and for tax purposes these losses can be offset against their capital gains. Each year there is a last day because of settlement issues – it use to 5 days now can be less, but the tax rule does not change. Hopefully, you have made gains no matter what party you supported and to ensure the government does not tax you on all the gains, you can sell some stocks to offset the gains. This is a time when it is financially rewarding to dump your losers and pick up potential winners for the new year.  This year the last date is December 23.

Linking to dividend paying stocks, the investors tend to follow the rules and sometimes the rules leads to a potential gain. As the last days to sell before locking in gains happens, it can send prices down a bit and you can buy them at slightly depressed prices. After the days of tax losses, the prices go back to normal. In all likelihood you have buy a lot of shares but it is one of those freebees on the stock market which are available for all those who read and follow the rules.

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

Often in our lives we encounter long serving Presidents be that of the countries or companies, as a long serving President they had their fights to get to the top and stay there. As time goes by, if the President of the country is half decent, there were be many that believe he or she is the correct person for the job. In the case of Fidel Castro when he took leadership of Cuba, the country was ruled by a seemingly puppet administration and the question was for whom? It many ways it was for the American mob for Havana was the Las Vegas of the Caribbean. It is blessed with beautiful weather, a large island of resources and at the time a government very friendly to those with money. The mob controlled the casinos and other aspects of the night life and all was good. When Fidel Castro came to power, he changed that and shortly afterwards the US put an embargo on Cuba for besides closing down the casinos, it took over all the land holdings of the American companies including Hershey which owned 65,000 acres of sugar plantations and a railroad. There were other US companies with large holdings in Cuba and this is called protection of American interests. If Cuba has taken them over and set aside money – there would be a debate over what s fair value or not, but if Cuba had bought out the companies, there likely would have been a short embargo.

If you ever taken or considering taking a Disney cruise, the cruise ship travels around Cuba to Mexico, now that America is opening up Cuba for tourists it is conceivable Disney ships will be stopping at Havana as part of the cruise. If Disney stops then even more tourists will visit Havana. The country they find will not be the same as America for Cuba has nearly 100% free health care and near 100% literacy rate, hopefully in the knowledge base economy, a country similar to Cuba should be able to do well if they are connected to the outside world, if not the internet providers must be salivating to come to the market where everyone is a potential high user of the internet.

Linking to dividend paying stocks, when there is a long period of senior management we all have our reasons why that is so. For some it is because of the power grab they took to get the power; for some it is what they did when they took power and continue to do; the perspectives are both right and wrong. As dividend buyers we tend to like consistent long term management which keeps the company profitable and increasing dividends and not dwell on how they got there but what they do when they are in the driver’s seat.

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

 

Last December people were lining up to watch the latest Star Wars movie – Star Wars – The Force Awakens and it was a monster hit. The movie goers pushed up Disney’s stock price and lead the box office holiday season offerings. A year has passed, will it do the same? Next week a new movie will be released and a question is will history repeat itself or will the movie be successful but not the box office leader? Will a different movie released in the holiday season do better? We never know until people have bought tickets but it is something if you are a movie fan you can make an educated guesses. As you look to see what movie do you think will do well also stay for the credits to see who the movie is made for or is being distributed by. Is that company public? what does the share price look like – is it worth buying or worth following? In the Disney group, successful franchises translate into new additions to theme parks and more movies or shows for their TV channels. What can the movie studio do with the hit? Will the movie move the stock price?

Linking to dividend paying stocks, the entertainment industry is one which drives box offices and every once in while a movie appeals to all groups which makes it a big hit. Often it seems movies are made for teenagers or young adults (and they tend to be more regular movie goers and we were all teenagers at one time). Watch the show for its entertainment value, enjoy the company whom you go to the movie with and afterwards do some research on whether your tastes can be profitable on the stock market.

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

After people have earned some money, they traditionally spent money on housing, food, transportation and then what’s left savings, investments, vacations, and all sorts of other things. In the housing and food category, there are companies which should sell a given amount of goods and services no matter the economy. As the economy improves, there are more options to buy, as the economy slows it is back to the normal things because we all need to have someone to stay and eat something. Companies operating in these areas are known as defensive, they fight for market share but the pie is not necessarily continuing growing.

Ian Tam of Morningstar examined the sector with the following criteria:

market capitalization – greater than $ 3 billion

three month or quarterly estimate revision ( today’s consensus estimate vs what it was 3 months ago)

industry relative dividend yield ( an example is 3.3 which means it is yielding 3.3% higher than the median stock in the same sector)

forward return on equity

return on total assets

Company                   Mkt Cap         Industry Rel      Forward     Forward Return   3 Mon Est  Div

($ Bil)              Div Yield %         ROE   %      on Total Assets     Revis  %  Yield

Philip Morris            135.479           3.3                         49,850          21.7                        -0.3            4.8

Altria Group             119.337            2.5                                222          19.9                         0.5             4.0

McDonalds                  97.876          2.2                        62,000           15.9                         1.3               3.2

Colgate-Palm            59.179            0.9                       31,000             21.8                        0.0             2.3

L Brands                      20.115           2.4                         40,100            15.2                        -0.4           3.4

Pepsi Co                     145,411           1.5                                  59            10.1                           0.4           3.0

Hershey                       21.088         1.0                                 120           17.8                          1.0            2.5

B A Tobacco                98.893         2.2                                  91            13.1                          -8.2          3.7

Unilever                      111.848        1.9                                  45             10.6                          0.0          3.4

Kellogg                           25.404      1.4                                   66             9.0                          -0.1         2.9

Mr. Tam’s list goes to the top 20  with the following companies GM, Packaging Corp of America, Clorox, Diageo, Nordstrom, Sysco, Target, P&G, Mead Johnson Nutrition and Regal Entertainment

Linking to dividend paying stocks, there is many choices for which is the best company for your investment dollars. Some of them with depend on your ethics, some of it depends on where you live, but the key is there are alternatives. For the ones you buy and use the products you can see if others are continuing to buy the products and if this is reflected in the quarterly results. If you have a basket of these stocks the total return over the past 20 years would be about 12% which is a little higher than buying and holding an index fund.

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

 

 

 

 

In 2011, the hottest stock on the markets was a company called Valeant Pharmaceutical International. The stock price was rising, the President was on his way to becoming a billionaire, and all was well. Then it fell apart, and since 2011 the stock is down by 90%, charges have been laid against some executives; new management has come in and the debt still remains high and now trades at about $24 for it still holds a sizable portfolio. When companies decline from being a high flyer to still existing, we can learn lessons and Ian McGugan offers 3 lessons:

1. Do not assume smart money is really all that smart.

Two of the biggest stock holders of Valeant were Bill Ackman of Pershing Square Capital and Ruane, Cunniff & Goldfarm who run the Sequoia Fund (one of the investors is Bill Gates and likely more Microsoft people). The investment managers were seduced by the idea Valeant could supercharge the standard drug maker business by buying innovation rather than doing R&D. The company bought other drug companies cut the R&D and increased prices to the insurance companies and federal government.

2. Be very suspicious of companies that use aggressive acquisition strategies to generate growth far in excess of their underlying industry.

Profitable growth usually comes from inventing a fundamentally better product or service, not through financial engineering or simply buying other companies.

3. Realize that the adjusted accounting figures produced by many companies are designed to present the best possible picture of reality.

Treat them accordingly and focus on standard figures.

Linking to dividend paying stocks, it was very hard to ignore Valeant as it share price went from the 20’s to 200 and change, most mutual funds and index funds had a piece of it. However, the signs were there and people try to raise them concerning their above average growth rates; their increasing debt (was up to $ 20 billion) and the strategy to pay for the next company the stock price has to go higher, but it was not making much money. There are warning signs, that are easier to see after the affect (similarly parking in a no parking zone and not seeing the sign). Rules of thumbs or comparison to other companies helps bring up the question why? and when to get out.

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

A number of years ago, the world of baseball was changed when the Oakland A’s more of necessity than anything else started using baseball statistics differently than the other clubs and began to have success. (there is a book and movie called Moneyball) Baseball is a game where everyone kept statistics but when they were drafting a player, it was more by gut feel or rule of thumb. Now every team uses analytics to find those diamond in the rough. In hockey, where in the northeast there is beginning to be crispness to the air, some hedge fund traders are doing the same thing. As people make lots of money, they want to own a big league team and usually are able to buy those teams that are losing money. In an article by James Mirtle titled Army guys help former basket case Florida franchise be all it can be, a former officer in the 101st Airborne Division who became a hedge fund billionaire is Vinnie Viola, he bought the Florida Panthers. It was thought the team based in the Miami area would attract the snowbirds from the north east who flocked to the warmer weather in the winter.

It was not surprising under old ownership the club was not making money, for most professional teams make money from TV contracts – the cable company promotes the team as a loss leader for people to subscribe to the cable channel. After taking care of the people who go the game, there was not an eager base to buy the cable channels. The new hedge fund owner has brought non traditional hockey executives. In this case, some of them were in the Army and they have brought their knowledge of analytics to the team. They draft differently, because although the people are hockey fans, they look at the statistics differently and begin to relate which statistics are most important in what they are looking for in a hockey player. This year, their puck possession time is up and they are winning games. The team has done other things, more money is being spent on the team, the executives are examining why are the top teams successful. How does a team remain successful in the leagues salary cap area?

Linking to dividend paying stocks, it is always fun and interesting to read about companies or teams coming back from the road of bankruptcy to being a profitable operation. It is better to understand why a company can be consistently successful through the years including having years of dividend payments. If you understand they why? then as times change, you can measure if they will still be successful. If the company is, then the stock can be a long term hold.

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

 

 

During the campaign, at President-elect Trump campaign rallies a pledge to tear up NAFTA and renegotiate it was held often. He also talked about a 35% tariff on cars made in the Mexico. As a candidate he can say whatever policy he wishes and since he won he likely has to make some inroads into the proposals. One policy is NAFTA or the North America Free Trade Agreement to change will take a long time because similar to all trade agreements there are winners and losers on both sides. No country can be a winner on all sides. In terms of 35% tariff, the auto manufacturers are beginning to speak out against the idea. Mark Fields the CEO of Ford Motor Co said if a tariff of 35% is placed on manufacturers the US economy will suffer. Mr. Fields was speaking before the LA Auto Show, expect more comments as other auto shows around the country are held. Large manufacturers such as Ford often switch jobs between plants and invest factories which the law allows in places which maximums their profits. In the case of small cars where the profit margin is less than trucks, they are made in Mexico. In the case of the trucks such as the F150, the profit margins are much higher and they are made in the US.

The issue is change, the free trade agreements have been in place since the 1980’s which means for the past 30 plus years investments have been made in plants and distribution systems to reflect the agreements. When the President elect Trump suggests everything can be made in the US, the world has passed him by and all those companies which have made investments will want some sort of compensation if the tariff was to be imposed. The plan has been complicated, and more Fortune 500 companies will begin the lobbying not to change or have a long lead time before the change happens. One of the favorite methods to deal with legislation which one does like is to delay it, until people that better understand the issue allow it to die.

Linking to dividend paying stocks, with all new governments senior executives of large and medium sized businesses know some policies are positive, some are negative to the method which they have and expect to deploy their investments. If Ms. Clinton was President, there would have been change at the margin; with President-elect Trump change has to be lobbied to become a non significant method of operations. For the next little while, the senior executives will worry about Washington and what it may or may not do. before worrying about their competitors.

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