In North America we are conditioned by the sports we watch on TV. All sports are played and it is great people play them. If you are a parent, the idea is your children should be exposed to a multiple of sports to determine which one they really like and which would they do not care about. In today’s world, there are as many sports leagues as there are people. In North America football tends to mean the NFL, in the rest of the world, football tends to mean what we call soccer.

In the world of soccer, there are elite teams and they have valuations similar to US Football, one of the elite teams for seemingly generations is Real Madrid which is based in Madrid, Spain. It helps they have won championships along the way, some of the best footballers in the world have played and continue to play for the team. The questions for people on the outside is how does Real Madrid stay consistently in the top teams of the world?

In a book called The Real Madrid Way by Steven G Mandis, published by Benbella Books, Dallas, Texas, 2016 believes it is the values of the team – the book asks How values created the most successful sports team on the planet. Mr. Mandis works at Columbia University in their MBA program.

Real Madrid is owned by club members which there are 92,000 who vote for the President and Board of Directors to run the team. For a number of years, the position of President was held by Florentino Perez who is also the Chief Executive Officer of Grupo one of the largest engineering and construction companies in the world. The club similar to all organizations had great successes, then not so good, and then rebounded. If you like the team on Facebook, you will be joined by 83 million plus other people or the team is followed by people around the globe.

Mr. Mandis believes as the club executive believes at the center of the Real Madrid way for success on and off the field are the values of the community and the resulting culture. The values and expectations of the community drive the decision making throughout the organization from on the field (in player selection, player behavior expectations, style of play and priorities) to off the field (in business and management characteristics, strategy, marketing, investments, financial reporting, human resources, and technology). The Real Madrid management teams spends their time reinforcing and solidifying increased personal connections, relationships, and communication directly with their community members. Management is there to serve the Real Madrid community.

For example, if and fact they do, the community wishes to share content of the games, Real Madrid helps fans share through Realmadrid.com and their social media accounts.

With every sports club because it is a team, the team has to work together which is the reason why values are important. What type of player chosen or not chosen is important. There was a great example of values in the stadium fans. People go to the stadium to both cheer and boo, but sometimes they overstep the bounds on booing, particularly the other team and nationality of the players. Real Madrid told people in one section, which had a reputation to either change or leave and Real Madrid enforced it.

Values are given by all companies, when it comes to making money, many companies overlook attempts to cash in short term and destroy values. If professional sports teams there are salary caps or question how much money goes to players, and how much to run the team. It is for that reason and others, Real Madrid was one of the sports teams to have sports academy training facility to develop its youth and university level courses to teach its experience and model of management. It is also reinvests in the facilities to ensure the facilities for both professionals and up and coming are top rated. If you are a fan of any sports team, there are lessons to be learned from them, even as your cheer for them.

Linking to dividend paying stocks, for dividend investors the primary reason to invest is the long term, yes we all love capital gains, but consistency and profitability are what makes an investment a lasting investment. If the company has the ability to have a seemingly partial monopoly, the ability to raise prices and consistency make profits to reinvest and pay a dividend, they should be prime targets on your list to own. As management changes, how does the new management view continued changes in the world and what keeps them up at night?

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

In every situation there is the opinion of the half filled glass – is there great opportunity or is there the expectation the glass will be empty. The coronavirus is one of those situations. throughout December and January, China shut it people inside to contain the virus. In the form of government China has, it was possible to do and hopefully the virus is contained.

In looking at half empty situation, Eric Reguly wrote about other concerns in the way our economic system works. The concern is debt, both country and corporate, although one should be worried more about corporate debt. US corporations are sitting on almost $10 trillion of debt or 47% of GDP. Cash is not good, adding to the debt to buy back shares and pay dividends is important.

For corporations, the low interest rate is great, however when the virus jolts business, that is not okay. For example in France gatherings are only permitted of less than 5,000 people; in Switzerland the Geneva Auto Show which typically attracts 600,000 people was cancelled by the government. One can rationally argue those were good things, but they have an effect. The issue with corporate debt is the rating, if the rating is in the As or BBB, most institutions around the world can own the debt; when the debt slips to BB or B, it is in the junk status and many institutions have to sell, for their constitutions prohibit the owning of the bonds. Prices fall and the cycle begins.

Another vulnerability is the just in time delivery system that supplies factories everywhere. There are great reasons to have the just in time system – costs are lower, for the factory does not pay for inventory. The technological systems to manage the inventory are easily administered. The problem comes from if one supplier is late, disruption hits the assembly process. A missing $10 part can hold up a $10,000 product. If the shortage happens, the shares of the companies fall, the bankers have input and everyone loses. If there is a the virus emerges as a pandemic, then the supply system will fall. If there is no product, buying on line does not help.

In every downturn, people turn to the Central Banks for assistance. However interest rates are low, how much lower can they go? Central banks address demand shocks, not supply shocks.

Linking to dividend paying stocks, with all things in life some sort of balance is important, as dividend investors you tend to want to hold onto the stock for a period of time, however that is dependent on the sustainability of the dividends. At the annual meeting, ask management what keeps them up at night? if you can sleep through it, then you can see the glass as greater potential.

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

Every year public companies have annual meetings where shareholders can and do attend to vote, to ask questions, to listen and mix and mingle with senior officers from the company. If you do not attend you can send your proxy. In the news because it is reality, many Presidents receive a very generous salary and benefits when compared to the rank and file workers. At the annual meeting, setting the President’s salary and benefits is a shareholder question.

According to an article by Ross Kerber of Reuters, the two largest US index funds (Blackrock and Vanguard) rarely voted against the President’s salary and benefits. In a study by As You Sow, a shareholder activist organziation, Blackrock and Vanguard voted against shareholders pay question Vanguard and Blackrock voted against the President’s salary and benefits 8 to 10% of the time.

In Europe the situation is different as BNP Paribas Asset Management opposed pay packages termed excessive 91% of the time up from 69% the previous year. The big German company Allianz Global Investors numbers were 93% and 78% in the near future.

Executive pay is an issue because in 2018, the most overpaid CEO’s received $14.5 million versus the rank and file ratio 287% to 1. The company with the worst record is Oracle.

Linking to dividend paying stocks, as the stock market changes, from individuals to institutions to hedge funds to passive index funds, the nature of passive indexing suggests the companies will often take management’s recommendations. The writer was in one annual meeting where the normal vote was 95% in favour and a non management vote was in the 70%, still well within the range to pass.

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

In late February Morgan Stanley bought E*Trade for stock and Morgan Stanley’s CEO James Gorman believed it was a very good deal for both companies. The value of the acquisition is $13 billion. The deal adds to the wealth division of Morgan Stanley which for over 100 years has managed funds for institutions and individuals with over $10 million in assets. E*Trade needs considerably less to open an account, however Mr. Gorman sees possiblities.

E*Trade typically caters to individuals who hope to have over $10 million in assets, but are at E*Trade for the desire to save commission fees. Typically most customers do their own stock trading or purchasing various ETFs and Mutual Funds. However as the assets grow, the need to turn to advise is necessary. Mr. Gorman believes there will be cross usage of the platforms and both sides will benefit.

The added benefit of E*Trade is Morgan Stanley tends to be more conservative company, while E*Trade has to maintain and enhance the trends in society. Mr. Gorman is hoping some of the creativity will rub off on Morgan.

Linking to dividend paying stocks, part of the rational Mr. Gorman bought E*Trade is to ensure revenues do not fluctuate as much as they had in the past. If government and corporations are doing less or the fees become less, retail clients can make up the fees – in one sort or the other. For dividend investors, we like revenues being stabilized in good and bad times. How does your investments in company’s ensure revenues flow through all the economic cycles?

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

China has a monopoly on what it releases to the public, which means to understand how the economy is functioning, given billions of dollars are resting on the outcome, hedge fund managers are trying are being creative in understand how the real economy is doing. In an article by Ira Iosebashvili and Megan Davies of Reuters, the first thing is to consider the China’s economy.

In the global supply chain, China and the companies are a huge player and their ports and shipping areas are massive. China has developed infrastructure systems that you can see on YouTube. Are they functioning and to what degree? View the views with a well functioning economy and how well it is doing at the present time.

Air pollution is a wonderful indicator, the shutdown of the country as reduced air pollution because the factories are not emitting wastes. What is the Air Quality Index website showing? If it is too clean, the factories and refineries and smelters are not producing. Anyone who has lived in a company town, looked to the smokestacks to see how things were doing.

Companies are using AI and computer modelling to simple word of the mouth, for example how many people were on the subway? How many planes are flying, what does the airports look like? Normally it is full, it is hard to produce goods from home.

If you wanted to see how many people were dying, crematorium activity would be valuable. Data from the World Health Organization and John Hopkins Center for Health Security can be accessed.

Linking to dividend paying stocks, when you do not trust the government statistics you have to consider what data would you trust? If you are nervous, in a world that is deeply connected some companies are seemingly less connected than others. Warren Buffett has a large cash ready to be deployed, but he has the patience to wait. Sometimes doing nothing is ok for a couple months anyway.

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

There is an old nursery rhyme about the the 3 little pigs and the wolf. The first house was made of straw, the second built using sticks and third was of brick. Brick can be decorative, last for many years, and for generations the bricks were put up by hand. The book SAM or semi-automated mason is about the people who lay bricks for a living and an idea or bootstrap engineering operation who to make their lives easier with a machine which can lay bricks. The book SAM – One Robot, a dozen Engineers, and the Race to Revolutionize the Way We Build was written by Jonathan Waldman, published by Avid Reader Press, NY, 2020.

For generations, masons or brick layers laid brick by hand, using mortar and ensuring the bricks were in a straight row. People have a limit although similar to every other endeavor there are faster masons. The construction industry accepted the conditions and it has worked well for them. The construction industry which is one of the largest employers in any economy, worked with what it knows will work. That is important for any business idea, just because you can build a better mousetrap, will anyone want to buy it? In the book, it took years before SAM was operational, although it is not the standard. The robot does lay bricks faster and with a clean finish, sometimes 3 times faster.

The book also touches on the history of the masons and the union and the Business Round Table efforts to break the union to keep costs down. The Business Round Table included some of the biggest companies in the US and used phrases such as rising wages; unskilled work, executive pay; wage madness; monopolistic unions; wage-price spiral.

The Engineers at a firm in Rochester, NY called Construction Robots were trying to make a machine which would make brick laying easier for the workers and the construction companies. In order to make SAM work the machine would need the use of lasers, cameras, wi-fi or electronics, robot hands to grip the brick, a device to ensure mortar is put on the brick and to lay the brick in order to do the next one. If it sounds complicated it was and is and you can see SAM on You Tube. It took 20 years to accomplish and the engineers learned and they went along. In most inventions, it is idea, plans, money spent, where does more money come from and how do we make our money back?

Linking to dividend paying stocks, fortunately when companies make money they have the ability to both give money to shareholders and reinvest in the company, sometimes buying start up companies with great ideas. Often it is easier, for profitable companies are involved in making money – the sales and distribution aspect, not the inventing. Inventing stories are wonderful to listen to and the economy needs them to grow, but as investors you are looking for does the market for the invention or idea can it be sold at healthy margins.

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

A few months ago, the Trump administration with great fanfare announced a tentative deal with China and the tariff wars would be over. For all that heard the news, it was considered a good thing. For companies which buy and sell to the China market, they finally believed there was a sense of stability with the business operations.

According to Karen Freifeld and Alexandra Alper of Reuters, there is a major hip cup to the way forward. In many industries, after the company has made sales, they need to receive a licence from the government to ship the goods they sold. An example is the aircraft industry. One of the profit centers of GE is engine sales, they make the best aircraft engines in the world and have done so for many years. One of the biggest markets for aircraft is China as more and more people travel by plane. In addition, for many years, the US government has supported America companies’ business with China’s budding civil aviation industry.

One of the new aircraft being developed in China is called the COMAC C919. COMAC is short for Commercial Aircraft Corp of China Ltd. The aircraft needs parts including GE engines or the CFM LEAP-1C and flight control systems made by Honeywell International. It should be noted GE’s engine is a joint venture with France’s Safran Aircraft Engines and Honeywell has been receiving licences to do business in China for a decade.

China has an option if the US deny the licence, they could buy aircraft from Airbus rather than Boeing which relies on China for 25% of its aircraft deliveries.

Linking to dividend paying stocks, issues that should be simple are often complicated, but solutions are possible. Companies often work with government and things go smoothly, then governments change and different priorities happen, the term life happens is heard. Diversified revenue streams are important for the company in the event when governments change, the company can maintain the profitability of the company. How diversified are your investments revenue streams?

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

One of the easily recognizable names is Isaac Newton – a brilliant scientist. He was able to begin to understand the world around us; he could calculate the motion of heavenly bodies. But how did he invest his money?

Larry MacDonald examined his investing, he was prudent and profitable for most of his life. He was living at a lifestyle well above the average. In today’s money he was a millionaire, then he speculated.

The South Sea Co was set up in 1711 to restructure the British government’s debt load, which was in debt because of wars with Spain and France. One has to remember after Columbus “discovered” the new world, Spain conquered and brought to Spain shiploads of Mexican gold and Peru’s silver to become the wealthiest country in Europe and the world. The English were envious and a charter was given to the South Sea Co. to bring gold to England, for the Parliament gave the company a monopoly on English trade with Spain’s colonies in South America.

The South Sea Co was a private-public partnership and owners went to the English government and essentially converted public debt into equity, with substantial shares going to the those in Parliament (the company ensured as government changed so did shares held by those in political power). Dividends were paid on the stock at a lower rate than interest on bonds. The company seemingly had the goodwill and backing of Parliament which reinforced the legitimacy of the company.

Issac Newton bought some shares in 1712 and continued to buy more shares for 1720. He must have thought he was prudent and equally important knowing riches came from South America and believing the English would be more powerful than the Spanish, the riches would come to England. In 1720 the company brought in an installment plan for the public to buy the shares only with only 10% down.

In 1720 the price of the shares went from 128 in January to 350 in April and Newton sold most of his shares for a profit of $4 million. However the price kept rising and during June Newton bought at 700 a share. The price increase to above almost 1,000, which made the company worth 2 x the value of all the land in England. Could the shares go higher? Insiders began to sell, all the Spanish gold was not coming to England and soon the shares fell to $200, so ended the South Sea Bubble. Newton ended up with a third less capital. In 1721 the shares were less than 50 and shortly after was worth nothing.

Linking to dividend paying stocks, in hindsight it was easy to see why Newton invested. He thought the government guaranteed the company, Spain’s gold and silver made it the richest country in the world, why should the English not have a part? and the company managed to stay in business for a number of years. In hindsight, he did the correct thing by selling in April, but buying again with most of his capital under the greater fool theory typically does not work. If Newton bought for the dividend, he would have not spent so much money because the yield would have been less – price of stock rises, dividend yield falls under the company can increase the dividend. In this case the dividend was not increased, discipline matters

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

If you have been watching the FANG stocks (Facebook, Apple, Netflix and Google) and Microsoft and Amazon, all the stocks have been up dramatically and maybe you had wondered should I own them directly? It turns out, you likely own them indirectly, at least more than you think you do. Most of us own index stocks, some of it tied to the S&P 500 index. (One of the reasons we own indexes is the index changes a couple of times a year, discarding “losers” and adding “winners” which means over time the index will increase).

In an article from mid February written by Lewis Krauskopf of Reuters, two stocks Apple and Microsoft because of their increase in value were now over 10% of the weighting of the S&P 500 index.

The last time it happened was 1982, according to Howard Silverblatt, senior index analyst of S&P Dow Jones Indices when AT&T and IBM was about 10.9% of the index. Is this good or bad?

The good news since the end of 2018 the S&P 500 has climbed 35%, if you own the index you have made money. If you owned Apple, the shares have doubled and if you own Microsoft the stock is up 80%.

Since the start of 2020, the index is up 4.4%, but 4 stocks Amazon, Alphabet (Google), Apple and Microsoft have accounted for 2/3’s of the S&P 500’s gain.

The bad news is you have to ask yourself are the gains sustainable? People such as Tim Hayes, chief global investment strategist at Ned Davis Research says no.

If you look at the top 10 companies in weight of the S&P 500, the top 10 account for 24.2% of the index. The last time there was such a concentration was in March 2000 when Goldman Sachs, Microsoft, Cisco, General Electric, Intel and Exxon accounted for 18% of the S&P 500 market cap.

Linking to dividend paying stocks, with every situation there is a glass half full possibility, is it good or not so good, it depends. If you are investing for the long term, you are not too concerned because part of your investment strategy is to be paid regularly with dividends. In the long run, indexes tend to go up – the trick is when you need to sell. What is evident you should look at tech companies themselves or index funds such as the SPDR Technology fund (which the writer owns). Quality matters to be offensive and defensive.

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