Much of the time we are involved trying to connect or make sense of the world we live in. An example of the connecting the dots was made in a movie called Working Girl. The movie was made in 1988 directed by Mike Nichols and starred Harrison Ford and Melanie Griffith. It is an enjoyable movie to watch.

In the movie the Melanie Griffith character worked in a large brokerage firm and wanted to be involved with mergers and acquisitions. She was a secretary to a lady who was in the field and she had an idea. The idea was for a large conglomerate who wanted to fend off a possible takeover by buying a company which the other company had a conflict of interest with. In this case it was for the company which owned radio stations because the takeover company could not hold radio companies because of government regulations.

Much later in the movie, the head of the large conglomerate asked the Melanie Griffith character how did you get your idea? The answer was reading Forbes, she saw the article that you wanted to expand in broadcasting. Reading an article in the New York Post about a radio station announcer who was hosting a fundraiser with the daughter of the large company, the idea came to buy radio instead of TV. Eventually, the Harrison Ford character who knew about Mergers and Acquisitions ran the numbers and came up with a target company and they made a pitch to the large conglomerate and they said yes. Later on in the movie, while they were coming up with a number, she saw the radio announcer was thinking of leaving, and they made their price based on him staying.

The movie is fiction but in the world of mergers and acquisitions, people read about what companies say their future plans are and then offer alternatives. Recently read a book about someone who read the financial press about a conglomerate wanted to shed its holdings to focus on one industry. The person set up a meeting with the CFO and it took a considerable amount of work to determine the best way to sell the divisions, to whom the divisions could be sold to paying as little taxes as possible and rewarding shareholders, but the impetus was the article in the financial press. The article led to large fees for the firm and a healthy bonus for him.

One of the reasons why it is good to focus on owning less than 20 stocks is because you can focus on their industries and what the press releases are in the financial press. As you read them, you use your background and information to try to connect the dots to whether you want to continue to hold or look for alternatives. Reading the financial press is a good thing to do as well as trade journals and regular newspapers and magazines.

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

For 30 years, the economy of China has been leading the world and if you look where China was to where it is now, you can see why. Besides being the manufacturing center of the world, China’s cities and trains and roads have all been upgraded. The people live in vast apartment complexes and China was expecting even more people to live in cities they built cities where few live or are called ghost cities. China has a very strong government which sets 5 year plans and all agencies fall into line or the heads of the agencies are replaced quickly. For the past decades, people outside China were used to see high growth rates from the country. Then COVID happened and the machine was shut down, everyone expected the economy had changed or when restrictions were removed, the economy would bounce back to where it had been and continue to grow.

In an article by Ellen Zhang and Joe Cash of Reuters, China’s April industrial output and retail sales growth undershot forecasts, suggesting the economy is on a whobbly post COVID recovery.

Industrial output grew 5.6% which was better than the 3.9% from a year earlier, but analysts were expecting a 10.9% rate. Retail sales were up 18.9% up from 10.6% a year earlier, but analysts were expecting 21%.

Normura economists said year over year growth was elevated, thanks to a low base, but it looks like there will be material decline in growth.

China’s central bank kept the interest rate unchanged as markets expected, but markets are expecting more monetary easing in the months to come.

Linking to dividend paying stocks, if China was a stock market, for decades a person could pick almost anything and would have likely done very well. With the slowdown, a person has to be selective to be successful. One of the methods to be selective is to focus on the profitable companies which pay dividends rather than the companies which should grow. Investing in profitable companies is never a bad thing, but as soon as there is slowdown, your wisdom speaks volumes.

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

In all types of investing, what you think you are getting is often not what you are really receiving. It is an adage because in most baskets of stocks, there are leaders and losers and what you are hoping for is the leaders outweigh the losers and you end up positive. This adage is the reason to invest in the S&P 500 – all are easily tradeable, easy to follow, you are hoping the top 100 will outweigh the rest and because in index funds the losers are changed every 6 months, over the long term the S&P 500 index will go up. This year there is confusion.

In an article by Jamie McGeever of Reuters, this year’s rally entirely driven by a handful of stocks and the rest have barely moved. The top 4 stocks by weight – Apple, Microsoft, Amazon and Nvidia account for 19% of the index’s entire $34.4 trillion market cap. They are up 45%, while the other 496 stocks are barely up 2%, while the index as a whole is up 8%.

According to Tajinder Dhillon, a Refinitiv analyst, the aggregate 12-month forward price/earnings (P/E) ratio of the top 4 stocks is 31.6 compared with 16.4 for the other 496 companies and 17.9 for the index as a whole.

Keith Lerner, co-chief investment officer at Truist in Atlanta, calculates the 4 stocks’ average 12-month forward P/E ratio as 42. This compares with a 10-year average of 49.6. The average 12-month forward P/E ratio for the other 496 is 20.8.

Whatever way you cut it; the mega stocks are extremely expensive relative to the other rest of the market.

Analysts at JPMorgan point out that as a share of total shares outstanding, tech has the lowest short interest across US equity sectors. Everyone wants a piece of the Big Techs, from central banks to mom & pop investors in their 401 accounts, for many reasons – safety, liquidity, an interest rate and valuation play, a bet on AI, a nod to ESG. There continues to be a multiple reasons why to own Big Tech stocks for the short and long term.

Linking to dividend paying stocks, while you own them for the dividend over the long term, part of the reason you buy them is potential growth. Profitable stocks which can pay dividends over the long term tend to go higher. The most widely used stock market indicator is the P/E Ratio and it is a ratio which allows you to compare what is relatively inexpensive today and what history tells you the P/E Ratio could be. Then you have to do your homework to determine which stock to buy as it moves to another multiple upward as well as paying a healthy dividend.

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

After WW II, the war was over and men came back to the US and the economy was good. It stayed good as Europe had to be rebuilt, the manufacturing base was humming, people could find work in offices across the land and it general it felt good to alive. When it feels good to be alive, people have children and with an average of 5 children per household, a baby boom started. The baby boom would last into the 1960’s, after these years of change in the US, the birthrate slowed down. Families were having 3 children and now they an average of 2 to 3. The affect on the US has been as the baby boom aged first there was a boom in school buildings and the teachers that needed to teach them. Then the baby boom moved into the work force and what people did for a living changed from what their parents did for a living. For generations, people tended to follow whatever their parents did, but with the baby boom new opportunities in the service area opened up. The baby boom is now above 60 years of age and soon about one third of the population will be retired. In another 30 years, most of the baby boom will have died or will be close to death which implies different aspects to the health system, but it also means wills will send money to the next generation.

In an article by Talmon Joseph Smith and Karl Russell of the New York Times News Service, an intergenerational transfer of wealth is in motion and in will dwarf anything of the past. 73 million baby boomers, the youngest is 60 and the oldest are 80, many will die and leave money to their heirs.

In 1989, total family wealth was about $38 trillion, adjusted for inflation. In 2022, the number had tripled to $140 trillion. Of the $84 trillion projected to passed down from older Americans to millennial and Generation X heirs through 2045, $16 trillion will be transferred within the next decade.

The wealthiest 10% will be giving and receiving a majority of riches, within that range the top 1% – which holds about as much wealth as the bottom 90% will dictate the broadest share of money flow.

Although the top 1% is overwhelming white, there are now over one million US high net worth investors are Black, Asian, Hispanic or Latin.

Linking to dividend paying stocks, 100 years ago people though about selling the family farm as a retirement, sometimes selling to the oldest child or the one that liked farming. In the urban environment, if you worked for someone else it is the family home, investments and insurance policies which account for wealth. Those services can be provided by the big banks which tends to mean the fees they earn can last a long time to come. As long as the financial institution is reasonably managed, it should be profitable and pay dividends for generations to come.

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

If you think back in history, the US was founded on the east coast for it was a short trip between Europe and the US. At the time the major European countries of Spain, England and France had divided up the country as part of their territory of influence. Eventually, the US broke away and the center of attraction was east of the Appalachian Mountains. After a while the settlers moved further inland for “free” land and greater opportunities. The US expanded with the purchase of land from France or the waters than drained into the Mississippi River, that left the west. The land moved from Spain to Mexico and with battles including in Texas, eventually the US took the west over. When gold was discovered in California, a rush of people felt gold fever and started to move to California. The way to go was wagon train (with others in a wagon pulled by oxen or horses) or take a steamship around the tip of South America and go up the coast to arrive in California. With most trips, people wanted a short cut and Panama was the logical method, although the trip was not all by water. There were rivers and lakes that were semi connected, but not for normal tourists. Eventually the US and Panama decided to build a canal. It would be one of the world’s greatest engineering feats and some of the processes are still used today. The Canal would need 2 locks to lift the boats up to the new lake which was formed and 2 locks to come down to the ocean. If you are interested there are interesting videos on You Tube about the engineering.

In an article by Nathan Vanderklippe of the Globe and Mail, the Canal has recently been upgraded at a cost of $5.2 billion. No other trade route brings more goods through the canal than goods transported from Asia to eastern US. In 2018, 37% pf the containerized goods arriving in the US came from China. In 2022, the number fell to 30%. The countries which made inroads to China’s dominance are Vietnam, India and Thailand according to London based Clarkson Research Services Ltd.

Goods sailing from the China to the US tend to come by the Pacific Ocean and through the Panama Canal. Ships from India and Southeast Asia tend to use the Suez Canal on their way to Europe and then to the US.

The expansion of the Panama Canal was to allow bigger ships to use the Canal, before the expansion container ships could carry 5,000 containers, now it is up 14,000 containers. Those larger ships use the bigger canals and pay a larger fee, which results in nearly 50% of the canal’s revenues come from a minority of ships.

Linking to dividend paying stocks, in all industry there are changes, most come about slowly as competition and alternatives follow infrastructure changes. For example in the shipping world, the rise of the super container ship rose to ports and canals investing in infrastructure to ensure the large ships could use the ports and canals. It took times, but if the canal had not invested, the ships would have landed at ports in California and Mexico to unload the containers. However when the Canal invested in the infrastructure to allow the large ships, the revenues followed. This is similar to many industries a minority of users generates the excess fees to make the company profitable to pay you a dividend. Do you know how diversified your company investments are?

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

All industries have conferences and some are worth paying attention to and others are more for the people in the industry. How are they doing? what opportunities are within each firm? the new products companies offer for the season. At some conferences which over the years have gained an expectation that something new for the industry is going to happen, you can think of the Consumer Electronics Show in January in Las Vegas or the Detroit Auto Show. In the computer world, AI is the hot topic because ChatGPT opened up the software for more people to try and potentially use in their personal and business lives. Microsoft had announced its search engine Bing is now powered by AI, but what about Alphabet which makes billions of dollars on advertising revenues from its search engine?

In an article by Jeffery Dastin and Greg Bensinger of Reuters, the elephant in the room, Alphabet recently had a conference to show the world how it was using AI it is products and will continue to enhance all its products with AI. The conference Alphabet had is called the annual I/O Conference in Mountain View, California.

Sundar Pichai, Alphabet’s CEO said they are reimaging all of our core products including search using generative AI into seach, Gmail and Google Photos.

US consumers will gain access to the Search Generative Experience according to Cathy Edwards. The trial process is involved which Google will monitor quality, speed and cost of search results.

The online-advertising pie is estimated to be $286 billion according to MAGNA Research. Google has about 90% of the pie. A percentage point of share to be gained is worth $2 billion in revenue.

Linking to dividend paying stocks, it is difficult to be a leader in any industry and some industries seem to change faster than others. If you are an investor in a leader of the industry, you need to see how they respond to challenges particularly when the gains of market share is worth billions. If you agree with the company, you can hold as Wall Street agrees with your position and the value of the shares increase. If you do not agree then in every industry there are alternatives, some at the right price to make a change.

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

In every industry there are the normal channels of doing business and those that operate behind the scenes. In every industry, to know other methods often it means people have to be in the business. For example, if you operate a small business you may have to dip into your personal accounts depending on the cycle of the business. When you gain size, you want a bank to finance your business, and sometimes you will need extra financing for a large contract. Maybe you will sell your receivables to a factoring company for the cash upfront and the factoring company collects the payment owing. Depending on the economy and how many loans your primary bank has, you might need to look to a second bank or financial institution. The larger your company, you will deal with multiple lenders or investors for some will offer secure funding but higher interest rates, but your company needs the secure funding. If your company is very large, it can often dictate terms to the bank.

In an article by Laureen Hirsch of the New York Times News Service, it often happens when there is crisis in the banking sector, the first reaction of the regulators is to tighten regulations of the bank. There are very good reasons to doing this for protection of the depositors is in the forefront of the regulators. However, when the regulators do their thing for the good of the sector, the consequences are the banks tend to lend less or become tighten lending to businesses.

Businesses will look elsewhere for loans. There is a growing number of non-banks that can give loans but do not take deposits and the names include Apollo Global Management and Blackstone.

According to data from Preqin, the private credit industry has grown sixfold since 2013 to $850 billion.

The returns on private credit since 2000 exceed loans in the public market by 300 basis points according to Hamilton Lane, an investment firm. Those big returns credit an appealing business that once focused on private equity.

Private equity is increasingly extending credit to firms that traditional banks will not touch such as small and mid-size enterprises. These companies are not necessarily companies with good credit ratings.

The issue for some regulators is as private equity takes lending from the banks, what happens if private equity firms which are not regulated get into trouble? who rescues them and why?

Linking to dividend paying stocks, at the stage profitable companies that can pay dividends, they should have very good relationships with the banks they deal with. Sometimes you will see a bank executive on the board or board member on a bank board. (Years ago, a company had arrived in the big time if the President of the company was invited to sit on a bank board. ) Profitable companies tend to do their banking with the large banks in the system and investors have little worry the banking relationship would change. Sometimes investing in profitable companies gives one less aspect to be concerned about in the broader economy.

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

One of the most well known investors is Warren Buffett who has run the company Berkshire Hathaway since 1965 and is one of the wealthiest person on earth. Every year in Omaha, Nebraska the company holds an AGM and unlike most AGMs. the Warren and Charlie Munger take questions for 5 hours. In many AGMs, the question and answer session is 20 minutes or less.

In an article by Jonathan Stempel, Carolina Mandl, and John McCrank of Reuters, Mr. Buffett discused a wide variety of items including the company’s stock holdings.

Berkshire owns $328 billion of stocks about 50% is a 5.6% holding in Apple worth $151 billion. Mr. Buffett said Apple is different than any other business we own, it just happens to be a better business. He also believes consumers are less likely to shed their $1,500 iPhone than a $35,000 second car.

The second biggest business is Occidental Petroleum which they own about 25% but has no plans to take control of the company.

Other holdings include Geico car insurance, BNSF railroad, Coca-Cola, Dairy Queen and Fruit of the Loom.

Recently Mr, Buffett went to Japan and has been adding large Japanese stocks to his portfolio.

Attendance at the AGM brings in capacity crowds at the Omaha Convention Center and Arena.

The company is sitting with $130 billion in cash equivalents.

Linking to dividend paying stocks, Mr. Buffett’s Berkshire Hathaway is a testament to buy profitable companies that pay dividends and hold them for a long time. As the companies grow each year, although all companies have cycles of up and down, you can buy more when they are down, the fact that they are profitable means the share price tends to go over the long run. Sometimes there will be stock splits which means over the years you own even more which is a good thing. Mr. Buffett maintains a large cash position to take advantage of corporations asking for money to help them, which he loans or offers at high rates of interest taking convertible preferred shares. However if the market is down and you have cash to invest, there will be opportunities to buy a low prices. It is good to learn from master investors.

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

Hospitality and tourism are major drivers of the world’s economy and we saw a shutdown during COVID and then an reopening afterwards. It was not surprising during the reopening there was chaos because many employees did not return to the jobs in hospitality and tourism. Many of the jobs tend to be structured towards the low end of the pay scale and there were other choices, which meant fewer people doing all the jobs necessary to ensure hospitality and tourism works. This year it is better and as the weather changes to more summer weather, there is a desire to return to what was normal routines.

In an article by Sarah Young and Federica Mileo of Reuters, the larger airlines in Europe – British Airways and Air France-KLM reported bumper bookings despite a cost of living increases.

IAG or International Airlines Group owner of British Airways, Iberia, Vueling and Aer Lingus airlines cautioned the problems on the horizon are possible strikes and lack of staff. The strikes are duel to the higher cost of living, however summer bookings are very good. In addition, the other major airlines in Europe – Luthansa, easyJet and Ryanair have reported strong summer bookings.

IAG expects its profits to come in the top end of the $2.6 billion to $3.4 billion forecasted. The top end is a 90% improvement from last year.

Holiday Inn owner IHG plc reported a 33% jump in 1st quarter revenue per available room.

In China, COVID restrictions have been lifted and travel is benefiting in the Asia-Pacific region.

Linking to dividend paying stocks, as the economy returns to what was normal, part of the normal flow of people is during the good days of spring – summer and fall, people move about or use hospitality and travel. All the companies have multiple price points, but they use the same metric – passenger in the seat and guest in the bed or occupancy rates. If you are traveling and the aspect is normal practice, observing can help you determine how the companies are doing financially.

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