Every generation has investment managers gurus and some manage to be multigenerational. If you consider multigenerational, you consider changes which happen in the economy. An interesting exercise is to look at the Forbes 400 list from 1980, 2000 and 2020, over the the 40 years the names have changed. If you wish you can go back further and consider if you were a buy and hold investor some companies were great performers then something changed and did they adapt or used the same formula but people changed? The point is something changed and did the investment manager change?

Warren Buffett is in his 90’s and he has more winners than losers through a variety of economic cycles which makes Berkshire Hathaway Inc annual meetings something to pay attention to. What is Warren’s philosophy towards investing and how does he choose to spend billions of dollars to invest? In an article by Jonathan Stempel and Carolina Mandl of Reuters, the annual meeting of Berkshire was held and the question and answer session was 5 hours. (if you want you can watch some of the clips on You Tube).

Berkshire’s operating profit was $7.1 billion and within the orbit of companies Berkshire controls supply chains were managed. Berkshire held plenty of cash and some of it was used to by more shares in Chevron and he although he does not often buy shares after a company has announced it is buying another, Berkshire has bought shares in Activision Blizzard ( a gaming company) which Microsoft has announced a bid to buy its shares.

A shareholder asked why he bought 14.6% of Occidental Petroleum and insurer Alleghany Corp? Mr. Buffett said he bought Oxy Pete because he read an analyst report and for Alleghany, the chief executive of Alleghany who once worked for Berkshire’s General Re business wrote to him.

Berkshire used $51 billion to buy equities and its cash stake went down $40 billion to $106 billion.

One thing Berkshire will not be doing is buying bitcoin and sometimes it is important to know what investment managers are not buying.

Linking to dividend paying stocks, Mr. Buffett loves dividend paying stocks particularly if they have moats or moat like conditions. Some of his biggest holdings are in Coca cola, BNSF railroad (they are not making any more railroads), General RE Insurance and Geico Insurance (they produce cash), Apple, Chevron and Occidental Petroleum and a host of other companies. Often times it is good to ask a guru what he or she does not like and then you can decide on what they like.

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

Countries around the world do not like each other and although the world is global or many businesses are global there are still local disagreements. Some of the disagreements you may personally like, for example sanctions on Russia for invading Ukraine. Some you may not like, but governments of the day in the country can choose to make up and change the rules. When this happens businesses that operated well within the rules ask for clarity on what the rules mean and do not mean to normal business activity.

In an article by Kate Abnett and Francesco Guarascio of Reuters, companies involved with Russia are asking for clarity. Russia has massive amounts of oil and gas and is closer to Europe than another other producer and Russia has strong historical ties to Europe. It made very good sense to move Russian oil and gas to Europe to replace coal. The companies that import the oil and gas are companies based in various countries of Europe and in Germany about half the gas comes from Russia. This was good until Russia invade Ukraine and the world imposed sanctions on Russia.

Since then, the Russia President said he wants the bills to be paid in Russian rubles as opposed to Euros or American dollars. What does a business do? The European Union loves making policies, but as yet has not done so. If the company pays in rubles, does that violate the contract with the other currency? in the oil and gas world, contracts are signed for decades, for example Austria’s OMV has a contract till 2040 for Russian gas. What happens?

Linking to dividend paying stocks, often times investors want to buy utilities because they have the ability to pass on increased costs to consumers every year while still allowing for profits to be made and rewarding shareholders as well as pay capital costs. Something similar to sanctions throws a non expected event or black swan event. It happens to all companies and hopefully the war will be over sooner than later and business can resume to what they do best.

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

The most popular or best selling truck in America is the Ford F-150. It is the bread and butter of Ford Motor Company and similar to companies in the auto world, they look at Tesla and wonder how could they duplicate them and have the stock price of the company. In terms of duplication Ford announced it would change a plan in the Detroit area to make 40,000 electric F-150. It was a wonderful surprise and delight to receive 200,000 customers make reservations for the truck.

In an article by Joseph White of Reuters, Ford announced it had produced its first electric truck and expects to produce over 150,000 this year. One of the selling points of the truck is the electric battery can power a home or construction site. One can imagine for people living in areas where hurricanes are a common weather concern, having a Ford truck means the recovery is a little easier to rebuild. Perhaps in the future, some homes will need less electricity from the utility company or you will be able to sell excess capacity to the utility company from the vehicle. Another selling point is under the hood is luggage space or trunk size capacity.

In an interview with Jim Farley, the CEO of Ford he expects sales to increase and the market share for EVs is presently 75% of EVs are sold by Tesla. Mr. Farley also said the Ford F-150 is second to Apple iphone in revenue generation.

Linking to dividend paying stocks, all companies have or are judged by relatively simple metrics, later in the year you can ask does Tesla still have a 75% share or did it fall. Is the Ford F-150 still generating the type of revenues it did in 2021? Then you can find out out metrics which allows you to be comfortable in this case is Ford delivering on its execution of manufacturing? All companies have metrics, do you know your investment’s metrics to know if you are comfortable or do you need to look at alternatives?

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

Many industries have a supply and demand issues, the companies wish to supply enough supply to keep prices high and demand high, but too much supply will drive down prices. Too little demand with decrease prices, too high demand will push prices higher or there is a balancing act every quarter.

In an article by Jane Lanhee Lee, Chavi Mehta and Noel Randwich of Reuters, in the world of graphic chips the supply and demand issue has been a factor in the global supply shortages. More and more items have electronic components and every year the electronics do a little more. To do a little more, there is a high demand for graphic processing units or GPUs.

According to news site 3DCenter which tracks graphic-chip prices in Europe, the price of AMD’s Radeon RX6000 and Navidia’s GeForce RTX30 which are used in gaming fell to less than 20% of the Manufacturers Suggested Retail Price from over 80% at the start of the year.

Softening demand from PC and smartphone markets is resulting in price drops of other chips such as leading edge processors, including CPUs and some memory chips according to Summit Insights Group analyst Kinnagi Chan.

Chip makers including Intel and TSMC are planning multibillion dollar expansions.

Linking to dividend paying stocks, many products have a supply and demand curve linked to them and if there is too much supply prices fall, too much demand prices go up. It is easy to see in commodity prices, but manufacturing and retail fit it as well. For your investments try to understand what the supply and demand is.

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

If you consider Netflix and Disney+, over the past couple of years the number of people who were subscribers jumped Kobland the stock increased. Streaming services need lots of people to pay the annual subscription and wonderful shows and movies for people to watch. The more people who subscribe makes every other organization in the business want to copy them.

In the entertainment business, you see copies all the time, if a particular type of movie makes a lot of money, the first. instance is not we need more quality movies similar to the first but we need more movies of the same theme and we need it now. Movie goes are used to A, B, C quality movies.

In an article by John Koblin, Michael M Grynbaum and Benjamin Mullin of the New York Times News Service , the people who run CNN watched Netflix and Disney+ and given the fact that AT&T owned the company called WarnerMedia, there was excessive cash to copy and have big plans. The head of CNN was Jeff Zucker and he wanted CNN to do something similar. The financials of people paying a subscription, because everyone in the industry wants subscription services where fees start relatively low and then can be raised every year or two. CNN+ was launched and CNN put in $300 million.

Time went on, AT&T decided to sell WarnerMedia to Discovery, the head of Discovery is David Zaslav. After buying WarnerMedia Mr. Zaslav was listening to the reports on all the media assets he had bought and learnt CNN+ had 10,000 viewers. What to do?

CNN+ had a large budget for advertising, it was projected to spend $1 billion over 4 years and Mr. Zucker left CNN and was replaced by Andrew Morse, CNN’s chief digital officer. Plans were made and CNN+ was allowed to continue and soon Mr. Morse had secured 150,000 paying subscribers through connection into the Discovery Warner assets.

Mr. Zaslav and his team were not convinced CNN+ would make money and put the plug.

Linking to dividend paying stocks, it is not unusual for new divisions to fail. Just because the company has great assets, it does not mean the new services will be a success. What is important is the great assets have wonderful margins and the company can make profits. Often times it is important to see what failures were made and how did the company deal with them. The answer of no to capital allocation is sometimes equally important to spending money. What is the line that more money is not the answer?

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

When you buy shares in a company expecting dividends and hopefully capital gains, you do not really expect the company to wade into politics of the day. However, all companies appeal to a wide range of people and from a strict marketing point of view, companies have a very good idea how many of their consumers are in every segmented range. The segments are both income and family status and companies will tailor their marketing strategies to fit the various demographics of people, particularly if they are in the consumer or retail side of business. It is the reason -if you want to take a Disney cruise do your want Mickey Mouse or Star Wars or Marvel action characters?

In Florida, the Governor Rod DeSantis who is a Republican is passing various bills that make some of the public feel at unease and as a big consumer company, Disney was under pressure to say something. Disney said all people are important, the Governor disagree and a bill was presented to take away the self governing area of Reddy Creek Improvement Area.

According to books about Walt Disney, when Walt Disney had the dream of a new Disney World but unlike the relatively small area around in Anaheim, California where outside of the Disneyland , the company does not control the real estate, Walt wanted greater control. He essentially bought over 25,000 acres of swamp land and made an agreement with the Florida representatives to control that piece of land as any town or city would control their land. The agreement was the Reddy Creek Improvement Area, the local counties would benefit, if Disney was successful, but they would pay no money for services such as road, water and sewers or infrastructure inside Disney lands. Disney was responsible for infrastructure and buildings. It was wonderful when the park opened there were miles of people trying to get in and Disney World has been successful ever since opening day.

The Reddy Creek Improvement Area has allowed Disney to grow over the years and all the development inside was financed and paid for by Disney and its guests. The counties had to enlarge the airport as Disney World became the number one tourist spot in Florida bringing in 20 million visitors a year. The park employs 77,000 people which makes it Florida’s largest employer. It seems from the outside, both Florida and Disney benefited from the Reddy Creek Improvement Area.

The Florida legislature decided to punish Disney by disbanding the Reddy Creek Improvement Area in June 2023, however there are consequences which apparently the Republicans did not think about or are not concerned about. Reddy Creek Improvement Area has over a $1 billion dollars worth of development planned financed by bonds. When the Improvement Area is dismantled, the liabilities will be transferred to the two local counties, and the Florida assembly passed a law which says all taxpayers must be taxed equally. Disney saves tax money ($163 million a year) and the liabilities will be transferred to municipal tax payers. The Orange County Treasurer estimates that means a 25% increase in taxes for every homeowner in Orange County.

In terms of logistics for Disney, it will mean going through the 2 counties to improve the park which voters will have a say over budgets. Will Disney slow down its expansions? It is hard to believe they would move, but they could look for other locations – the Governor of Colorado has offered Disney land in the state. The other wrinkle in the works, is according to the agreement and Reddy Creek Improvement Area, to change the structure, the state has to pay off any debts of Reddy Creek, will Florida put up $1 billion?

Linking to dividend paying stocks, as an investor you have your opinions about the issues of the day and that is good and the way it should be. When you company has opinions, whether they are right or wrong according to you, as a shareholder you may want to either buy more shares or sell them. What should be the corporate viewpoint outside of trying to be a reasonable good citizen while making a profit and paying you dividends?

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

In every market there are 2 types of stocks – value and growth and then a mixture of the others. If you buy a growth stock, your expectations is the stock price will increase in the short and long run. If you buy a value stock, your expectations is the stock price will increase in the long run and it helps if the company pays dividends along the way. Sometimes the market loves one or the other and then it switches due to other reasons including expected higher interest rates. At the moment, the stock market likes value stocks and in particular companies that make profits. Companies that do not make profits, the market is looking for a reason to sell or send the price down.

In an article by Nicole Spring of the New York Times News Service, one of the many metrics Wall Spring was using to judge Netflix is subscriber growth. When offices were closed down, more people stayed home and watched more TV and often subscribed to a TV and movie channel. Netflix also aired some the best shows on TV, but Wall Street was more interested in subscriber numbers. The company reported the company lost 200,000 subscribers in the quarter. Total subscribers stand at 221.64 million compared with 221.84 in the last quarter. The analysts were expect an increase to 2.5 million. There were practical reasons why subscriber growth was down – a slowdown in the adoption of broadband and smart TVs; password sharing among households; increased competition among other streaming services; and Russia’s invasion of the Ukraine which resulted in Netflix shutting down in Russia or 700,000 subscribers.

Netflix is losing subscribers in the US but is growing outside the US which means the company will be putting more resources in its international production capabilities.

The company will be around for many a year, however as a growth stock, it may not be the best choice anymore. The company has to move towards being valued as a value stock because it did make $1.6 billion in profit on sales of $7.8 billion in first quarter sales an increase of 10% compared with the same period of last year.

Linking to dividend paying stocks, the excitement in the newspaper headlines about stocks refers to the growth stocks, however as a dividend investor you do not want to see excitement in your portfolio. You want to see the companies continuing to produce profits to pay dividends and as the other side sees the tremendous value, pushing up the multiple which means over the long term both the stock prices and dividends raise.

When Russia began its war in Ukraine, the war reacted in ways they have never done before, but Russia was expecting a short war and shrugged their shoulders. The western governments froze assets from the Russian Central Bank outside of Russia and it amounts to $640 billion. The war has gone on for 2 months and normal financial events inside and outside Russia go on. One of the normal events was Russia similar to many countries around the world issued bonds that pay interest and principal. The financial community struggled to define what the terms of the frozen assets meant and how Russia was expected to pay interest on bonds.

In an article by Alan Rappeport of the New York Times News Service, the US Treasury Department came up with a formula of Russia’s $650 million of dollar denominated debt due April 4. The Treasury gave Russia a 30 day grace period that expired May 4. After May 25, US bondholders will longer be able to accept Russia debt payments.

Technically Russia has the assets to pay, they are frozen for the moment, but if the war is still going on what happens to Russia? If there is a default, it would raise Russia’s cost to borrowing for years to come and effectively lock it out of international capital markets. There are a host of funds which invest in bonds which would not be allowed to buy Russian bonds. The bonds would be lowered rated and carry higher interest rates. There would be funds and individuals which could buy the bonds but it is enough?

The issue with Russia is who decides that Russia is in default? Would it be the rating agencies? (Moody’s or S&P Global) Would it be the Credit Derivatives Determination Committee? (The CDDC is a panel of investors in the market for default insurance or credit default swaps. )

For Timothy Ash, a senior sovereign strategist at Blue Bay Asset Management LLP, if Russia does not pay on time, does not pay in the currency in the contract, that is a default – it is crystal clear. For all intents and purposes, Russia is already in default.

The US Treasury department which deals with the sanctions is called Office of Foreign Assets Control or OFAC, would a US court rule against the OFAC if sued?

Tim Samples a professor at University of Georgia’s Terry College of Business and an expert on sovereign debt noted Russia’s total foreign public debt is $75 billion, while Russia’s oil and gas annual sales are $200 billion. He expects Russia to go with alternative facts about defaults. They could point to arcane language in bond contracts that could allow for payments in another currency. Perhaps the economic consequences outside the symbolism of a default maybe minor.

Linking to dividend paying stocks, when a company does not have money to pay their debts, the lawyers sweep in to control the process and bondholders get paid first, equity or stockholders get paid last. When you get paid last, there are cents on the dollar and time is not your friend. This is why as an investor you need to know when to sell or look for alternatives through simple key metrics. If an investment is bought when the company is profitable and can pay a dividend, if any of that changes you do not love the company, expect it to rebound, you take your losses and move onto other companies. If you love the company, you can wait and buy shares at a lower price because after reorganization, they will be lower. Know why you buy with some key metrics.

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

In the world of Mergers and Acquisitions (M&A) there are rules which companies must follow otherwise the Securities Regulators and the public will think it is a shame. The rules say to announce a M&A is to have the available funds. If the company does not have the funds, one could easily think of scenarios where a company would buy shares in a company, announce a takeover at a higher price, the shares go in price and the first company dumps them or a pump and dump.

In an article by Laureen Hirsch of the New York Times News Service, although Elon Musk is technically the richest person in the world, most of his wealth is tied up in shares. Mr. Musk has made a offer costing $43 billion to take the public company Twitter private.

Earlier in April, Mr. Musk was going to join the Board of Directors but constitution or rules of the company say directors of the Board have a 15% cap on the amount of shares they can own. Mr. Musk bought about 9%.

Mr. Musk owns 1/5 of Tesla’s shares, but Tesla’s rules or constitution limits its executives to using no more than 25% of their stock as collateral for borrowing, and according to company filings, Mr. Musk has pledged a portion of his Tesla shares for other loans. If you follow or own shares in Tesla you would know the shares have fluctuated between $766 and $1,145 in recent weeks. Would a bank lend Mr. Musk on the valuation of the top value or the lower value?

Many Wall Street Banks offer bridging loans for M&A. Analysts estimate Mr. Musk would need between $15 to $20 billion, which would be added to Twitter’s balance sheet. Morgan Stanley typically does not do that size of loan, but could ask Bank of America, JPMorgan Chase to help. The downside besides interest costs is Mr. Musk and JPMorgan are not getting along. JPMorgan sued Mr. Musk over a tweet which Mr. Musk said he secured funding for the taking of Tesla private.

A third option is for Mr. Musk to ask private equity groups for help. One group that comes to the forefront is Silver Lake. The concern is the co-CEO of Silver Lake joined the Board and it can only acquire 5% of the outstanding shares.

Mr. Musk could try other private equity firms, however private equity typically want to buy companies with steady cash flow so debt can be arranged and the private equity can pay the debt with the cash flow of the company. Twitter has a negative cash flow of $370 million of the last year and very few cost cutting opportunities.

In the US markets, when people see one sided deals there are a variety of law firms which specialize in suing companies for money for all shareholders. The firms are watching the auction process.

In addition to the above, the company Twitter has the ability to adopt measures which do not help Mr. Musk unless he offers significantly more money.

Mr. Musk did receive funding from Morgan Stanley and other banks. He asked some billionaire friends to invest as well for $7 billion including Larry Ellison of Oracle and Al Waleed Vin Talal Al Saud of Kingdom Holdings and others who were early investors in Tesla.

Linking to dividend paying stocks, all companies have constitutions and rules which allow they to act to possible friends and enemies among shareholders, if the Board can not count 50% of the vote plus one. The steady cash flow of profitable companies is what makes they attractive to existing shareholders and new ones which is a very good position to be in. The steady cash flow allows existing shareholders to continue to have a reasonable rate of total return as well as other companies examining their operations to see what could and can be better. As long as there is high interest, there is high value in owning the shares.

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