Now that Tesla is included in the S&P 500 Index, it means all the index funds which mirror the index own Tesla shares or the number of people who technically own it has grown larger. With the inclusion in the index, the price of the shares rose or the value of the company increased. Imagine if you won millions in a lottery, as a good steward you would do many things, but it all likelihood hopefully a small portion would be wasted. Your inbox would be full about all the great opportunities to put your money in and some of them would fall below what you invested in. The larger portion, ideally you put into long term money which could not be touched until you figured out a good plan.

As Tesla’s shares rise, every Mergers and Acquisition Banker is pitching the Tesla management team with ideas of what companies they should buy with their stock.

In an article by Eric Reguly, 20 years or so the biggest blockbuster M&A was Time Warner -AOL. The internet was becoming a thing and AOL had a policy of sending every household a disc so people could upload the AOL and you email address would be AOL. Given it was free and Wall Street was valuing the eyeballs you had, not whether the company made money, but number of people using your service, the shares of AOL soared. AOL was going to be the big thing, as the price of the shares kept going higher, the business which made little money but had lots of promise, decided to find a company that was big, stable and had lots of cash. Time Warner was the company and Jerry Levin’s company trading at 11 times earnings joined AOL trading at 35 times earnings. If you examine the Time Warner website, AOL is not mentioned, the merger did not work on well, but the idea blending content with the internet has over the years.

Christoper Bloomstran, president of Semper Augustus Investments of Colorado believes it would be foolish for Elon Musk not to buy GM or Ford. Telsa is up 840% in the past years taking its market value to $615 billion which is 6 times GM and Ford combined.

Telsa will sell 500,000 cars in 2020, GM will sell 7.5 million vehicles.

Telsa makes most of its money selling zero-emission credits to rival automakers not selling electric vehicles.

Tesla is a data driven energy company, but GM has an abundance of factories, engineers, suppliers, distribution centers and dealers.

Should they merge? maybe, maybe not.

Linking to dividend paying stocks, one of the wonderful things about a company that consistently makes money is it should not about capital allocation and what investments to do and what investments to stay away from. Making profits is a good thing, managing the money is an even better skill. In your portfolio, the companies are pitched on a regular basis, what they say no to is sometimes why you invest in them.

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

December is the year end and in the stock market, there are 2 aspects to that year end. One is tax loss selling or possibly reducing your portfolio by selling the losers and using the deductions against the capital gains on the winners. In the investment bank world, December is when the bonus is paid and people look to the next year. What will 2021 look like?

Given the vaccine, we all hope 2021 will look more like 2019 than 2020 with the rise of hospitality and tourism in the economy. We hope people can gather in large crowds to celebrate concerts or sporting events or events celebrating the country. In the broad outlook, the issue is always what do you think will happen to interest rates and where will they be at the end of the year? If interest rates rose to above 5%, that would be great for savers, invest your money to receive 5% worry free, but not good for the economy. In all likelihood interest rates are going to closer to where they are till summer, then maybe the economy will be opened up. As long as rates are low, dividend paying stocks are a very good investment.

In a article by Scott Barlow – he notes Merrill Lynch’s Bob Farrell’s 10 Rules of Investing includes the warning When all the experts and forecasts agree – something else is going to happen.

At the moment many forecasts are similar, Mr. Barlow mentions some of the forecasts he enjoys reading include: Michael Wilson and Andrew Sheets at Morgan Stanley, Savita Subramanian from B of A Securities, David Kostin of Goldman Sachs. Mr. Barlow says he reads them to identify underlying market trends such as value vs growth stock performance and the effects of rising bond yields on dividend paying equity sectors.

As far as changing his portfolio to do market timing, never. Why? if the predicted trend arises and asset values increase, there is usually plenty of time to put that knowledge to work through actual market transactions.

Linking to dividend paying stocks, one of the reasons you buy them is time is on your side. As long as the company is profitable and can pay its dividend, then you do not have to be a hurry to get on track with the latest trends. The bulk of your portfolio is long term invested and you do not have to make a change every week. Follow the trends, listen to what people are saying but take your time for patience in long term investing in good companies is a good thing.

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

Soon President elect Biden will be in office and one of his policies will be the Green New Deal, it is a plan to reduce the carbon used in everyone’s daily life. Some will be solar and wind methods to generate electricity. Some of the plan will include retro fitting buildings such as your home and office building to use less oil. Save money by investing in methods to reduce your energy costs, likely with some sort of government rebate on your expenses.

Those are the general ideas of the green new deal, but how do you as an investor know which companies to invest in and which ones are really green? This has been an ever growing issue since BlackRock, the world’s largest asset manager of $7.3 trillion said it planned to make environmental sustainability a key plank of its investment strategy.

Last January, Chairman Larry Fink used his annual letter to CEOs to predict a fundamental reshaping of finance because of the growing awareness that climate change poses a risk to investments. BlackRock said it was going to reduce the shares of polluting companies and also to launch new, eco-friendly investment products.

In an article by RitaTrichur, outlined some of the difficulties that occur when trying to do the correct thing with ESG or Environmental, Social and Governance. If you go to the grocery store and see the organics label guarantee on the package, then you have a better idea the product is 100% organic. If you do not see the label, then are the manufacturers using the word loosely? You may not be positive.

It is the same way in investing, what is a green company and what is a company doing some good green things and some not? Is it green or as long as it is making an effort is that good enough? If you invest in insurance companies because of the risk for example flooding has, you want to know how much of the portfolio is risk to flooding? what are the extra costs over the past few years? (the writer owns a policy by a farm mutual and one year they wrote, we had a rash of barn fires so we did not make as much money. The next year all barns must have extra preventive measures in the barns. The following year fewer barn fires, the insurance made money). Can governments and regulatory bodies make some standards to know what is green and what is not?

Linking to dividend paying stocks, when you buy a oil pipeline, your first priority is not if the company is green or not, but does it have contracts to ship oil and gas through the pipeline to the refineries. What percentage of the market do they have and can they raise prices every year? The economy is still based on carbon, but as we look to the future, there maybe companies that can deliver similar results in a more green economy. When you start to see them, then it makes sense to look at the alternatives. We all have different reasons to owning a stock, as you change including the environment is a good thing to add.

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

This year we do not have to worry about inflation and likely next year, for growth and inflation usually go hand in hand. If there is growth people are chasing fewer resources, which tends to push up prices which causes inflation as every company increases prices because their prices went up. Normally central banks are doing their best to maintain a balance between growth and inflation.

For most of us, we do not have to worry about the large macro issues, because until the banks charge high fees or increases rates for investment certificates, we grin and bear it or stay calm and carry on. One person who does worry about macro trends is Phillipp Hildebrand, the vice-chairman of BlackRock and former Swiss central bank chief. BlackRock is the world’s largest asset manager and it is reasonable thing to examine their website to see some trends on it.

In a recent interview with Tim Shufelt of the Globe, Mr. Hildebrand said ultimately central banks need independence again, so they can react when inflation expectations again. For the past 30 to 40 years, the control of inflation expectations is the anchor of the whole monetary system.

Mr. Hildebrand does not see a plan to move from limiting the damage of COVID to being worried inflation. The challenges include sustainability, debt levels which the OCED average is probably running at 120 to 130% of GDP. If and when inflation comes back, what happens to the cost of servicing costs of the debt. Higher inflation means higher interest rates means higher costs to servicing the debt.

Linking to dividend paying stocks, one of the things as individuals want is the economy to return to what is considered normal and people can and want to meet and greet in large numbers. As we move to normal, then governments will need to pay attention to the size of deficits and cutting the costs of government. As long as dividend paying stocks are yielding more than bonds, leaving your money in dividend paying stocks is a very good thing. Later in 2021, hopefully you will look at bond yields and dividend yields to diversify your holdings.

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

On the first of December, Lance Uggla signed a contract to sell his London based company IHS Markit to S&P Global Inc. S&P stands for Standard and Poor and they provide financial data from credit ratings to market indexes. Mr. Uggla started his company to provide mark to market data for exotic fixed income products including credit default swaps.

If you watch TV and movies about Wall Street you see traders looking at screens and doing trading, the issue is who provides that data? S&P Global and Markit provide the data and equally important every time the screen is turned, there are recurring nature to the revenues.

The nature of providing data is to have recurring revenues a company needs scale or to get bigger because there are cost savings on IT infrastructure and as a company gets bigger, it can sell other products or bundles to the users. The more people trade, they need a platform which has data and then you go from there.

Linking to dividend paying stocks, companies that have recurring income are very good to own, every industry has the companies that provide the data or tools for the industry to function. Many people look at the providers of the function, but what tools or data are they using? Then it is possible to be in the industry, earning profits and at the end of the year – knowing you had a good one.

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

All of us know, during COVID retailing has changed, people are not going to the local shops to look, try on and buy clothes. If they are buying they are using e commerce and most established retail chains did not have a great e commerce setting. There were very good reasons, the numbers of users were relatively low and for the most part buying clothing people want to touch the fabric.

In England, 2 major chains collapsed in the space of 24 hours, putting 27,000 jobs at risk and raising concerns the wave of store closing is not finished.

In an article in the Globe and Mail, Paul Waldie wrote, Debenhams which is a 242 year old chain with 124 stores and employing 12,000 people announced it will wind down operations. The company had been in bankruptcy protection since April and was hoping to merge with JD Sport.

The other chain that collapsed was the Arcadia Group which had 2,5000 stores in 14 countries including brands such as Topshop and Dorothy Perkins. Some of their shops were inside Debenhams.

The Center for Retail Research has estimated almost 21,000 stores will close this year and 200,000 jobs lost.

In terms of shopping malls which clothing stores are large users, at least 3 shopping malls have gone into receivership and one of England’s largest mall owners, Intu Properties filed for bankruptcy protection in June.

Debenhams was founded in 1778 in London’s West End and by the 1950’s was the largest department store in Britain. In April 2019 the chain filed for bankruptcy protection, closed down 50 stores and letting go 13,000 people. 5 years ago, Debenhams was the 6th largest clothing retailer in the UK, now it is not in the top 10, said Chloe Collins, a senior retail analyst at GlobalData Retail. At the moment the top retailer in the UK is John Lewis.

Linking to dividend paying stocks, there were multiple reasons why the department store is leaving, but given its long years in the public eye, people have a connection to the store. Similar to most department chains, times have changed and in the case of retail, we all know chains have a problem but there is something in us that makes want to survive. Sometimes you think about the assets it has, can they be enhanced, if management was changed or new investments would that do it, but if you were an investor in the retail world, once the chain is not long the “it” store, it is time to find alternatives

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

The rise in Tesla’s stock price and the fact the company would be included in the S&P Dow Jones Indices has pushed the price even more. There is much hope for the car company, but is it too much. If you compare the value of Berkshire Hathaway in early December to $542 billion to Telus’s $555 billion.

Cash-rich but slower growing companies such as Berkshire have lost favor to rapidly growing business with disruptive technology and the potential for market dominance.

According to an article by Ian McGugan, when Tesla joins the next index it will be the 6th largest component. What does that mean? Index investing is about 40% of the market and in the long run, index investing is a very good thing to do. The reason why it is good because the index drops the losers and add winners, doing that over time will make the index go higher.

Chistopher Bloomstran, President of Semper Augustus Investments in Colorado questioned how any rational investor can put similar values on Tesla and Berkshire. Berkshire generates more in profit than Telsa’s entire revenue. At last count, Berkshire had $145 billion in cash and cash equivalents.

Telsa has tapped the stock market for $8 billion in new funds. The car maker requires a dollar in new capital to produce a dollar in incremental revenues. Tesla cannot finance its growth. It MUST borrow or sell more shares if it is to grow.

Berkshire trades at less than 16 times the company’s earnings. Tesla goes for 1,200 times profits.

Linking to dividend paying stocks, the ideal is to buy a company similar to Berkshire which generates cash flow and have some index funds on the side. Index funds are a great long term investment because of how they are structured, however with all things moderation or diversification is a good thing. If you want the portfolio to grow an index is worth having, but a company similar to Berkshire can ensure you have no trouble sleeping at night.

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

COVID 19 has been a major challenge for air travel as the business class which is the most profitable sector has moved to virtual with Zoom and Webex and other platforms. For tourists, it did not make sense to fly, quarantine in a hotel for 14 days then travel, fly back and quarantine again. One needs a long time to be away and most tourists have a set time for holidays. The issue for the airlines how to make flying as safe as possible.

Rome’s Fiumicino airport will run COVID 19 tested flights between Italy and the US and will be the first airport in Europe to offer the service on transatlantic flights.

Accoring to an article in Reuters, the passengers can be tested for the virus 48 hours before departure and on arrival at the airport to avoid the mandatory 14 day quarantine Italy imposes on incoming travellers. This extra testing, hopefully it is the test that produces instant results allows the airport to open up and the airlines to begin to offer flights to other cities in Europe and around the world.

As we move towards the vaccines becoming available, in all likelihood to fly means someone has to be vaccinated and maybe tested for the next quarter.

Linking to dividend paying stocks, on one hand as a person you want to the economy to open up, on the other hand you do not want to many restrictions, the more restrictions, the less people are involved. Similarly when you buy a stock you want fewer companies involved or moats or near monopolies to ensure you receive a regular dividend. As a dividend stock buyer you see the difference but you enjoy receiving the dividend.

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

In 2019 two planes crashed and the problem was determined to be in the software which helps fly the plane. All over the world, aviation regulators grounded the Boeing Max 737 and Boeing spent over a year not only fixing the problem but gaining the regulators trust to fly the planes again. It is long process and illustrates what happens when major problems happen and the effort to fix it again.

The backstory is Boeing and Airbus have a duopoly in the passenger airline market – if you fly you were on one of the 2 planes. Most airlines have both planes in their fleets, although some carriers like one or the other a little better. For Boeing the Max 737 was going to be their cash cow for the next 10 years plus as the airline met a number of requirements the airlines were looking for. Less cost to operate, higher fuel efficiency, easy to clean for quick turnaround flights and relaxing to fly for the passengers.

In an article by Eric M Johnson of Reuters, at Grant County International Airport in the Seattle area, 240 jets are being rolled in for maintenance and upgrades of software and systems as mandated by the US Federal Aviation Administration (FAA). The inventory according to a report by the investment firm Jefferies is worth more than $16 billion.

The work at the airport is the cornerstone of a global logistical and financial strategy under way at Boeing to clear a backlog of more than 800 mothballed 737 Max jets. Around the globe, Boeing people are working on delivery schedules and financial terms with airlines that had to scale back schedules and fly old aircraft because they lacked the aircraft to meet strong demand as the Max grounding took longer than expected. Now the marketplace is not good, but hopes for 2021 are better. Airlines are looking to 2022 for major deliveries.

It takes about 2 weeks to ready each plane. Boeing is in discussion with all the airlines around the world.

Linking to dividend paying stocks, the Boeing example of Max 737 is a great example of how logistics runs a company and to be successful means the company has to get it correct on a daily basis. The only good news is Boeing had the ability to weather the crisis through its other product lines and government help, but the special circumstances is not going to happen every year. When you examine your investments, how do they do the logistics?

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