In 2022, Washington passed the chips act which was giving incentives to the big chip makers of Intel, AMD, Nvidia and Samsung Electronics to build a chip plant in the states instead of offshore in Taiwan and China. The companies responded with Intel making plans to build a $100 billion plant in Ohio and Samsung and TSMC (Taiwan Semiconductor Manufacturing Co) announcing plans to build chip plants. In those respects, the chip act has done its job encouraging chip companies to manufacture in the US. However, computer chips are a global commodity which means other countries can match US incentives.

In an article written by Steven Scheer of Reuters, the government of Israel has offered incentives to Intel and others, but Intel is to build a $25 billion expansion to its Kiryat Gat plant. Intel has been in Israel for over 50 years and has received grants and incentives along the way. The recent $3.2 billion grant was accepted over a lower grant and lower tax rate, according to Ofir Yosefi, deputy director general of Israel’s Investments Authority. The grant is for 5 years with a corporate tax rate of 7.5% as opposed to 5%, the normal tax rate in Israel is 23%. The Kiryat Gat produces Intel 7 technology and the Centrino chip which enables the use of Wifi.

Itel VP Daniel Benatar said the grant will help ensure Israel remains a global center of semiconductor technology and talent. (the talent includes close ties to the Israel University sector).

Intel has been building plants around the world including near Columbus, Ohio in the US and Magdeburg, Germany where it plans to build two plants for $33 billion. The government of Germany has included incentives to Intel.

Linking to dividend paying stocks, a profitable company which can pay dividends tends to be in business for a long time. This long-time framework helps as the company analyzes its assets and builds more. Companies that are expecting to be in business a long-time are great partners for incentives by all levels of governments in multiple countries. Companies can pick and choose where they want to locate, and the incentives allow the company to help maintain margins over their competitors. Investors in dividend paying companies tend to like government incentives, but they raise your expectations to what level of incentives the company receives.

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

All over the world, governments try to impose standards on their citizens and as governments they can. Sometimes what the governments impose tends to affect a commercial company one way or another. Sometimes the effects are positive and other times they are negative, it is the reason why companies believe people in general should be in the middle or moderation.

In an article by Elaine Kurtenbach of the Associated Press, the posterchild for governments impose restrictions on their citizens is China. The country of China has the ability and often uses it to influence the correct decisions of the people. In 2021, regulators limited the amount of time children could spend on games to 3 hours of week, expressing concerns about addiction to video games.

In China, the 2023 China Game Industry Report showed sales revenue for the domestic online games is $55.7 billion with the number of people playing the games reaching 668 million. In 2023, 1075 game version numbers had been issued of which 977 were domestically produced and 98 were imported.

To understand China’s reactions, the country had very few landline phones, now days almost everyone has a cellphone. The companies such as Tencent Holdings make commercial transactions including banking much easier to do on the phone than most countries around the world. If the holders are not watching entertainment, they are likely playing a video game of one sort or another.

When the Game Working Committee of China Music and Digital Association made a decision to approve the games, the share prices of video-game makers such as TenCent Holdings Ltd and NetEase Inc., Huya Inc went up after falling for the past few years after approvals for new games were suspended.

Linking to dividend paying stocks, every company has to work within the legislative framework of the government, ideally along the way it lobbies to try to ensure the government does the correct policies, but once in a while politics come first. It is delicate management issue, but a clamp down on the greatest profit centers of the company should never happen, Clamp downs on marginal items can be done, because the company is not making profits and has a wonderful reason to get out of the area. Politics can work for the company.

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

Every year on the stock exchange, billions of dollars are made and that is where you hope to be on the side of, but billions are dollars are lost by the same smart people that made billions. What can you learn from the losses? In the movie, Wolf of Wall Street, the Leo DiCaprio character makes a terrific sales call. He says judge me not by my gains but my losses. (if you never seen the movie, there is a clip of the sales call on You Tube). The character goes on in the movie to miss the point the client should have the gains not just the stockbroker. The point is all investors will have losses in their portfolio, the issue is what did the investor learn from the losses. Remarkably few people invest to make a loss, for at some point there tends to be a gain, but losses do happen.

In an article by Sam Sivarajan, offers some ideas of how to learn from losses to limit them.

Beware Hubris

The world’s biggest bankruptcy was in office space rentals. Masayoshi Son, founder of Softbank, made a nearly $50 billion bet on the future of WeWork office space. The company went into bankruptcy because of its business model – how did it make money? The lost cost Softbank over $11.5 billion in equity loss and $2.2 in debts.

Aswath Damodaran, a professor of valuation at New York’s Stern School of Business asks, You can recover from mistakes, but how do you recover from the perception you don’t know what you are doing?

Overconfidence is one of the deadliest sins for an investor. If you have high trading levels, which is good for the firm you trade with, does it translate to higher returns? In a study of 300 professional fund managers 74% said they delivered above-average returns, 26% were average. No one said they were below average, but you will find many funds delivering less than the S&P 500 Index?

Herd Hysteria

In the world of crypto currencies investors in FTX lost money as it went bankrupt. The art NFT which were big hits in 2021-22, 95% are worthless. Billions of dollars evaporated. When both were going up in price, there was great media attention.

Lessons

What do you own and why?  – what has to go right to make you money? what can go wrong to lose money? Peter Lynch of Fidelity Investments said Know what you own and why you own it. 

If you do and something changes, you can possibly make changes.

What is your track record? – over the past 5 years how have your picks done? if your brokerage account is similar to mine, there are multiple charts to determine how you are doing. Has your portfolio performed the way you thought it was going to? what would be different in 2024? if you have not beaten the S&P 500 Index – why do you not own the index?

How much can you afford to lose when you are wrong? most of us buy stock expecting it to rise in value, but what if it turns out to be a loss. Some of the reason could be the market does not appreciate your decision; the markets in general were affected by world events; the growth of the company is not happening; how long would you hold on to it? to paraphrase Warren Buffet – when the tide went out were you caught swimming naked?

Linking to dividend paying stocks, most people come to dividend paying stocks in their portfolio after losing money or chasing growth stocks. Dividend stocks tend not to fall as much when the markets fall because they pay a dividend and the yield go up; when the market is up, they tend to trade at higher multiples but not as high as growth stocks. For dividend stocks, if you pick ones that can pay every year, over time the total return tends to be higher for losses are much lower. Money will be lost in 2024, hopefully it is not yours.

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

If you think about the war in Ukraine and Russia, it has changed warfare because of the use of drones. Drones can carry bombs and fly past boundaries and if they are shot down, others can be launched. The system to guide the drones is available to both sides of the war and both sides have ramped up production of drones. The same drones can be and are being used for other types of wars around the globe. If you look at the globe and consider it from a shipping point of view – given that the cost of moving goods over a long distance is cheapest on a boat or ship and over the past few years the ships have become larger and can carry more containers. Where are the pinch points in the global shipping traffic. The pinch points are 3 locations – the southeast China Seas where pirates have operated for centuries, the Red Sea going to the Suez Canal and the Panama Canal which is having water problems. The canal cannot handle the biggest ships which means the manufacturing supplies moving from China and India and other countries are going to Europe and then the US tends to go through the Red Sea – Suez Canal route.

In an article by Terje Solsvik of Reuters, in December the world’s top container shipping companies including Maersk and Hapag-Lloyd stopped using Red Seas routes after Yemen’s Houthi militant group began targeting vessels disrupting global trade. The Houthis were using drone attacks which a container ship cannot defend itself. But the world’s largest navy can – the US Navy and other European navies are now escorting ships though the Red Sea.

To avoid attacks, Maersk rerouted ships around the Cape of Good Hope or around Africa but fees when up and the time it takes for a ship to go around Africa and dock in Europe added weeks to the schedule on time delivery. The cost is $700 extra for a standard 20-foot container.

Linking to dividend paying stocks, for generations the interest of the country including commercial interests have been protected by the military of the country. It is one of the reasons why the seas have been relatively peaceful, and goods travelled throughout the world. To go against shipping is to bring the world’s navies as your enemy. Many dividend paying companies benefit from the interests of the country and the resources it needs to ensure a stable continuing dividend.

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

After having a brilliant idea to start a company and get it moving forward, eventually people have to be hired to ensure it runs smoothly. Some of the new hires will love what the founders of the company are trying to do, others hope for greater pay in the future and others are essentially there for a paycheck. Each of them has a different idea about their pay and future pay. None of them are necessarily wrong or all correct about their ideas, which is why companies can justify rather large bonuses to some and barely increasing wages for others. Sometimes the values conflict and there is a clear example using Tesla.

In an article by Melissa Eddy of the New York Times News Service, two different models are clashing in Sweden. Tesla has operations around the globe including in Sweden and they have brought their model and expectations to the Swedish workforce. The model includes 6-day work weeks, unavoidable overtime and an unclear evaluation system for promotion. This is opposed to the Swedish model which at is heart is co-operation between employers and employees to ensure both sides benefit from company’s profits.

The workers are on strike, but Tesla’s 10 service stations are still open, however there will be delays. The issue is the same as strikes around the world, business flexibility and agility.

It is noted, Sweden has some of the lowest levels of strikes in Europe, a little more than 2 working days a year lost to strikes and lockouts per 1,000 employees from 2010 to 2019. The comparison is 55 in Norway and the leader is France with 128.

On the face, if the company is still operating when on strike, that is good for the company. In Sweden, there are something called solidarity strikes. Under Swedish law, if a union calls a solidarity strike, its members have to go along with it. This means firms with no direct stake in walkout, such as independent auto-repair shops, have lost business because they have collective agreements with IF Metall that require them to turn away business related to Tesla. Unions in other areas have rallied with IF Metall, such as dockworkers stopped unloading Teslas arriving by ship; workers have quit delivering Tesla’s mail; electricians have pledged not to repair the charging stations.

In Sweden, the Tesla Y is the most popular vehicle with over 14,000 sales in Sweden in 2023, according to official statistics.

Linking to dividend paying stocks, all companies making a profit have workforces and they treat them the gamete of management-worker relationships, as an investor you have determine if you like what management does. There are some companies that are anti-union, there are some companies that are pro-union; and there are others who are in the middle. Some years ago, there was a company which regularly shut down operations to ensure people missed x amount of time and not qualify for pension benefits; in companies in the past, management was in the pension plan benefit from time of hire, workers had a 2-year waiting period and the plant not to shut down for longer than 6 months. All of that exists and there have been many examples of great management-labor relations and on the other side. As an investor you get to choose what you like or would prefer.

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

When you buy shares in a company, one of the aspects is you become a voter which includes voting at the AGM for executive compensation. The vote means you should be aware of who the people are and potential successors. And this is the reason why the business news often highlights when companies change CEOs.

In an article by Ron Bousso and Sarah McFarlane of Reuters, the biggest oil company in the UK or BP is going through a new CEO process. Bernard Looney was the CEO but resigned for not disclosing a relationship with a employee and leaving no clear succession plan in place. The reality is one of the most important roles of any CEO is to create succession plans for the top executives and themselves. Not having a succession plan takes time and effort to fix and that has been part of the job of interim CEO Murray Auchincloss.

In every company, there is a people and governance committee, in BP the Chairman Helge Lund is now focused on 3 internal candidates, all members of BP leadership team. The committee is also considering external candidates. An internal appointment would signal board support for continuing BP’s current strategy. An external appointment may mean a new direction, for they tend to bring in new people to the leadership team.

Everyone on the leadership team has pros and cons and some have responsibilities that include working with outside investors, and they are more known people to analysts.

Linking to dividend paying stocks, while sometimes the thought is every company can operate on autopilot, the reality is companies are run by people. Every company has a website and that includes the CEO and leadership team along with their bios are on the website. If you buy shares in the company, you may get to meet them or hear them, and they are the people who make profits which pay dividends to you. While you are investing in a company, you are also investing in people.

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

As an investor, you are buying ownership into a company and the rules are relatively simple – upon owning shares you can vote at the AGM, if the company makes a profit as a shareholder you can be paid dividends, but if the company does not do well, as a shareholder the debt is paid off first, then preferred shareholders and finally your shareholding. In the process there would likely be a vote to inform you of how much you are getting per share. The rules of ownership are defined and that helps ensures a steady stream of investors into buying shares. Have you ever thought about how ownership works in other areas of your life?

In a book called Mine! – How the Hidden Rules of Ownership Control Our Lives by Michael Heller and James Salzman, published by Doubleday, NY, 2021, the authors who are professors of law wrote about how ownership works. The reason you need to know or want to know about ownership is the rules change which creates winners and losers and there are always competing claims to scarce resources.

The book has 6 chapters and depending on the types of stocks you own, some would be more interesting to you than others for there is ownership in all aspects of our lives including many commercial transactions.

One of the chapters is called First Come, Last Served because in many areas of life there are scarce resources. For example, millions of people go to a Disney Park every year, if you never been it is worth it. One of the aspects of going to a popular park is lineups. If you are in line, you are not on a ride. Disney has experimented what to do about lineups and has a solution. For extra money you can pick a fast pass for 5 rides or you do not have to wait in line. The advantage for the consumer is for some rides no lineups; the advantage for Disney is happy customers who tend to stay in the park longer and by staying in the park longer, there is extra spending on convivence items.

Another chapter is titled I Reap what You Sow. This chapter discusses ownership is a social engineering choice, a conclusion we come to, not a fact we find. First we decide the goals we want ownership to achieve. Next we decide what means will most likely get us there. Fincally we affix the legal term owner to the sum of this hidden value judgements and empirical guesses. Ownership is the endpoint, not the start of the analysis.

An example of the above is the Homestead Act. The government wanted to settle the land west of the Mississippi quickly, visibly and at a low cost. The solution was to give land of 160 acres of public land to any adult citizen who live on and improved it by clearing fields, building a dwelling, and cultivating the land for 5 years. Roughly 270 million acres or 10% of the American west was transferred from the public to private domain through homesteading.

The General Mining Act of 1872 worked in a similar way. It allowed citizens and companies to stake claims on public lands. Prospectors needed to search for valuable minerals, prove a discovery, and put in at least $100 worth of labor or improvements annually. If they did, they owned the minerals below and sometimes the surface land above. Mining companies today mine those claims and pay almost nothing in taxes.

Another chapter is My Home is Not My Castle. When you buy property, you are essentially buying an attachment or the surface property. You do not own up to the sky or the minerals underneath and for the most part it did not matter. The boundaries of attachment are constantly changing – can a drone fly over your property? if a treasure was found on your property is it yours? if you have solar power, how high can the neighbor’s trees be? how much water can you take from the water source? In the later segments, often the rules come when the resources are in abundance so everyone can have what they want. When the resources become scarce, what to do?

One of the reasons why the oil industry does not have the conflicts water does is they use the principle of unitization, a new form of oil and gas ownership designed to collect together overly fragmented interests. In short the unit operates the field to create the biggest possible pie for owners to split.

It is noted, Texas does not require compulsory unitization- so they are mointored by the Texas Railroad Commission. The commission sets proration rules or production caps for individual owners each month and it enforces well-spacing rules.

In a chapter called the Meek Shall Inherit Very Little, after the Civil War, General Sherman promised freed slaves 40 acres and a mule. By 1920 almost a million Black farmers owned farms they have bought and this help the economy. In 2020, black farmers own fewer than 19,000 farms a drop of 98%. There are many reasons but obscure family ownership rules played a rule. One example is a farm through multiple generations was owned by a lady and 66 other family members. The lady with the largest portion wanted to sell 50% so she would own the farm free and clear. The court agreed but not by dividing the land by the judge ordered the entire lands to be sold and divided among the heirs. On the day of the sale, a lumber company made a low-ball cash bid for the rules say the bill must be essentially all cash. The heirs did not have the money to up the cash bid, but had valued the farm higher. The farm was sold to the lumber company. The family received cash but not enough to buy a new farm. For the courts, administratively money is easier to split.

One of the issues in the above is many Black families have no wills and because they have no wills the property is split among the remaining hiers, but to operate a farm decision are needed to be made with unanimous consent. An interesting fact is there are more land in Mississippi is owned by black people living in Chicago than by those living in Mississippi.

Another story is about South Dakota. In the late 1970’s, Citibank as losing money on its credit card division because of the low interest rates it could charge. The Governor made a deal with Citibank, come to the state and bring the 400 jobs and you can charge whatever you want. Citibank came and so did every other national credit card company. If you see a different address, the state has matched South Dakota.

The Governor of South Dakota wanted to help wealthy people turn their assets to the next generation with no tax. The Governor has the rules against perpetuities for assets nominally held in South Dakota trusts. Over the years it gave the wealthy whatever they wanted in terms of banking secrecy and avoiding inheritance taxes. South Dakota trust companies went from $60 billion in assets to $350 billion and competes very well against Switzerland and the Cayman Islands.

There are many other stories in the book and what is important is ownership can and does change from what you think it means to something else.

Linking to dividend paying stocks, all companies are founded on a rules they have ownership of a good or service and make margins to pay profits and eventually dividends. The rules evolve over the years which is why as an investor you will like the status quo, it benefits you. When there are changes as society changes, some you will like, some you will not and some will affect your interests and maybe your dividends.

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

As an investor, you are buying ownership into a company and the rules are relatively simple – upon owning shares you can vote at the AGM, if the company makes a profit as a shareholder you can be paid dividends, but if the company does not do well, as a shareholder the debt is paid off first, then preferred shareholders and finally your shareholding. In the process there would likely be a vote to inform you of how much you are getting per share. The rules of ownership are defined and that helps ensures a steady stream of investors into buying shares. Have you ever thought about how ownership works in other areas of your life?

In a book called Mine! – How the Hidden Rules of Ownership Control Our Lives by Michael Heller and James Salzman, published by Doubleday, NY, 2021, the authors who are professors of law wrote about how ownership works. The reason you need to know or want to know about ownership is the rules change which creates winners and losers and there are always competing claims to scarce resources.

There are common maxims about what is mine. The most common are: first come, first served; possession is 9/10’s of the law; you reap what you sow; my home is my castle; our bodies, not our selves; and the meek shall inherit the earth.

The above are true, but are really only work when there is a binary view of ownership – we feel something is either mine or not mine. In an agrarian society most of the conflicts was about land.

In the 20th century, the most pressing ownership debates was between private and public control.

Presently the debates are shifting again, many of the pressing issues are concern the claims of one private owner against another – mine versus mine.

One example of the about is if you have flown lately, after the plane takes off, many people like to put their seat back for comfort. The first issue is how much should the seat go back and not interfere with the person behind you. Similar to most things on an airline, there are economics involved – the pitch used to be 35 inches airlines are shrinking that to 31 inches and some to 28 inches. For every inch of pitch saved per row can add up to 6 extra seats per flight to sell. To grow profits, airlines are squeezing more people into the plane.

The airline technically sells the seat which comes with space for your legs as well as selling the same space to the person in front of you to recline. What is the solution – most people fall back on politeness and good manners, but the reality is the control is the person with the button to recline.

When industries change, does ownership change and how does ownership change? For example, if you click on line to buy, when does the item change ownership to you? It turns out, there is an increasing gap between what we feel like we own and what we actually own.

When does ownership begin? The reality is all property conflicts exist as competing stories. Each side picks a story that presents its claims as the moral high ground and each side wants ownership bent towards its view. There is no better or worse choice, just a choice and if you are not the one choosing, then someone else is making the choice for you. Ownership rules pick winners and losers in every imaginable setting or there will always be conflict about ownership and either a regulatory body or court picking a winner.

As you look to 2024 and beyond and see companies that what to disrupt an industry, what they are attempting to do is change the rules on ownership, some you like, others you are not positive about, but the underlying strategy is to change ownership rules. If you read the book and consider ownership, often if you buy a company’s shares, you want the status quo, not change.

Linking to dividend paying stocks, when you buy these types of investments you know the rules of ownership and they are not changing. You buy the company shares because it makes a profit from the things it owns and has owned for years. There is little disagreement, what you company owns and sells to make a good margin and pay dividends.

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

When governments make decisions, often times businesses have to react to change and often it takes time to find alternatives. The alternatives are both short term which all large companies have plans for and long-term which everyone says they want to do but it is difficult to do quickly because of logistics and the resources required. Two years ago, Russia invaded the Ukraine and the western governments put sanctions on Russian goods and services including oil and gas.

In an article by Riham Alkousaa and Christoph Steitz of Reuters, Germany state-owned energy firm Sefe secured a $73 billion gas deal with Norway’s Equinor that will cover 1/3 of the industrial gas needs of Europe’s largest economy.

The deal strengthens Norway’s position as Germany’s top supplier of natural gas. Before the sanctions, Gazprom was the leading supplier of gas, now Norway accounts for 40-50% of Germany’s gas imports.

The supply deal covers about 10 billion cubic meters of natural gas per year from Jan 1, 2024 until 2034 and carries an option for another 5 billion cubic meters.

About 90% of the gas Sefe will get through existing pipelines are indexed on the TTF and THE gas-trading hubs to be available for the German and Dutch markets.

Linking to dividend paying stocks, all large companies have plans or alternatives if something goes wrong or situations change for the worse. In the case of the gas supply, it has taken 2 years to get another long-term supplier. It is always possible, but it takes time to change, however large companies typically have plans and ideas where to begin that many smaller companies would be flying by their seats, which allow the larger companies to retain their margins and stay profitable.

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