For the average person, including me, over the years perscription drugs have been taken and believed they have a good effect on the problem the doctors helped solve. There lies the solution and problem with the Big Phama. We believe the government agencies dealing with approving new drugs has the patient or people taking the drugs as their first priority. We also like our doctor and when he or she recommends a solution – take a drug we generally do.

In the book Death by Prescription by Terence H Young published by Key Porter Books, Toronto, 2009 after his daughter dies from taking a drug, Mr. Young goes through the process of how the drug industry works. At one time, Mr. Young was an elected official and he believed he knew how the system worked, he was surprised to find out he was wrong. The safety of the patient or the average person is not the reason a prime reason why the drug agencies work, it is to help the drug companies sell their drugs. The drug companies or Big Pharma are a sales and marketing company, they have little to do with research and development. In reality, most of the research and development is done in universities using Big Pharma’s money.

There are many myths about Big Pharma and in a book such as Death by Prescription an understanding of how the companies work and continue to work is outlined. In the election of government, who has the most lobbyists and contributes the most money? It is the reason why after a the 20 year patent is running out, the drug companies can make a minor modification from pill to capsule and receive another 20 patent and a new name for the same drug. After 20 years, the generic drug companies can produce the same drug for less money and save consumers, insurance companies  and the government on drug prices.

Linking to dividend paying stocks, some of the Big Pharma stocks have been terrific to own and they have risen in price. If you buy them looking at drugs in the pipeline to see if they have billion dollar drugs, remember effectively Big Pharma are sales and marketing companies who sell to Doctors who write prescriptions. Big Pharma has better information on who writes the prescriptions than the government agencies who should be able to monitor who writes more than normal prescriptions. Big Pharma is profitable, but at least 100,000 lives will be lost due to drugs greatly assisting patients taking the drugs, but do not worry Big Pharma has insurance to mitigate the risk to them. Profits will continue as look as we cititzens look for a cure in the drug store.

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

If you look at the Business Week 500 or Forbes Top companies for many years one name was easily seen GE. The company was founded by Thomas Edison and grew with electricity and branched out to a variety of other fields and for years it was one of the best names to own. The company made profits (money) paid out dividends and grew. One of the past CEOs was a household name and others held great respect in the political and business worlds. GE was also a good company to work for, then something happened and if you hold shares, although the dividends would still are being paid, the value of the stock has dropped, a new CEO is in and you might ask is this a reasonable time to buy?

Looking back from the former cheerleading analysts to now, in an article by John Heinzl, they believe the management culture came to rely on mergers and acquisitions as the main engine of GE’s growth. All was good until there were strategic missteps and ill-time investments completed near market tops (paid high prices for) and the results failed to live up to expected returns so the assets were written down and sold off for less than GE paid.

The big problem which came to haunt the company was GE Capital which at its height was worth $700 billion in assets and generating half of GE’s earnings. Now days GE Capital is a shell of what it once was.

Another example is the oil industry, when the price of oil averaged $100 a barrel GE made a number of buys. When the price of oil fell it bought Baker Hughes and for a variety of reasons, the company will be spun off to streamline GE’s structure and reduce debt.

Another rough example was the purchase of Alstom SA, the deal was done but the market changed for the demand of Alstom biggest product – gas powered turbines. The ones in demand are related to renewable products.

There are many demands and challenges for the company, not the least is their debt was downgraded from A to Triple B. One might ask given all the executive advice possible why was GE unlucky or making poor choices?

Linking to dividend paying stocks, if you are investing in a company you want to be safe and one method to be safe is invest in A rated company or above. Similar to people who are in debt there are not many choices – sell assets, earn more money. It is easier to invest in companies with high A debt ratings, which earn profits and can easily pay shareholders dividends.

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

In the world of income and wages, the reality is as long as you are making more than minimum wage you only half care what it is. Most people think about it in the abstract, but the reality is for a number of years corporations were able to push down the minimum wage to levels where honest hard working people could not meet their ends meet. It was a function of how much pay they received, not whether they worked hard or not. For the last 5 years, the workforce has been shrinking because baby boomers have been retiring – to receive income from the government for being 65 years old. As baby boomers retire and the economy still moving along, companies are having a hard time to attract and keep workers or at the minimum wage range workers have choices. Amazon is raising its wages to all workers in the US starting in November. Amazon has about 250,000 workers, it recruits another 100,000 for the holidays from Thanksgiving to Christmas.

It was noted in the article by Arjun Panchadar of Reuters the federal minimum wage is $7.25 a hour and generally Amazon was paying about $11 a hour.  In addition, Amazon recently passed the trillion dollar valuation for the company as well as increased Prime memberships by $20.

Linking to dividend paying stocks, often times the method to judge a company from a moral point of view is how do they treat the least paid employees. If every company believes their most important asset is their people, what opportunities do they do for their least paid ones? If you are buying stocks, then you have investment dollars and savings which is a great thing. Anyone at or near minimum wage would be hard pressed to have savings. We all evaluate the world a little differently – their are pluses and minus with all companies and how do you rate them? The answers allow for many investors making decisions are how companies are doing and what they should be doing.

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

 

During the 1800’s England was the number one country with an empire stretching around the globe. Sometimes one hears the reason for the empire was its great navy. That is partially true, but watching a You Tube documentary titled How the British Managed to Rule India. The story begins in February 1763 and the European countries divided the world up to which countries they would control. The British Empire became the largest with India, Canada, Hong Kong, Singapore, South Africa and many more.

Next time you heard about the Franco summit – those countries who first language is French is a direct result of the French Empire. Similar to other countries who first language is the same as an European country.

It is one thing to pick a country, it is a different thing to rule one. It is entirely possible to rule with an iron fist and many have tired that fashion. In India, after a couple of battles which included the East India Company leading troops to protect their interests. Britain came to rule India. Alliances were struck with Princes and Maharajas that they would stay in same in grand palaces, but the authority would be in British hands. Over the years, in was a question of who was ruling whom. The British built large government buildings, although their numbers were small. There was an uprising or likely many, but one in particular lasted a couple of months until the British Navy and other troops landed in India to kill all those involved in the uprising. Over time the British impose their institutional standards on India and often encourage and sent those in the higher ruling class of India to Britain to have an English education. When the people came back, would they be Indians or more desirable to keep the existing relationships?

In addition, The Viceroy of India until India became independent believed in large scale pageantry which kept the myth of the powerful ruling country. Myth plays a large role in keeping countries together.

Linking to dividend paying stocks, part of myth is branding. All profitable companies have some great brands, but that does not mean they are going to be that way all the time. As you examine your investments what myths hold true and how strong is the moat around them? If you still buy into it, you are likely not alone.

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

 

In late September the Securities and Exchange Commission or SEC after investigating a tweet by Tesla’s Elon Musk that he had financing and was going to take the company private determined Mr. Musk in the words of President Trump issued fake news. Unlike President Trump, there are distinct rules and Mr. Musk was fined $20 million and had to step down as Chairman of Tesla. The reason why the SEC did this, while Mr. Musk had talked to potential investors, there was no deal or even close to a deal. Those who bought shares on the announcement quickly lost money. In some companies such as Tesla the founder and the company are wrapped up in each other personalities. Tesla electric cars are the wave of the future and Mr. Musk has repeated that version of the story and many people including investors believe it.

Peter Eavis of the New York Times News Service asks What can you learn from the actions of the SEC:

1. The SEC have powers and mean business. The SEC can and does act when it comes to the actions on the stock markets. If executives announce something it has to be very close to the truth.
2. Tesla’s shareholders have to assess what will happen to the company if Mr. Musk is not a big part of it? Often times when someone leaves the emergence of other problems comes as the new guard tries to clean house. Changes in corporate leadership sometimes leads to bruising financial hits and disruptive moves to overhaul the company that does not always pay off.
3. Beware of the Superstar CEO – In some companies, who the CEO matters, in other companies while the person can have influence the company seems to keep going no matter who is power. Investors read and personalities matter, however at some point the person will not be there – will the company continue?

The last takeaway is wildly bullish statements from CEOs should be treated with skepticism.

Linking to dividend paying stocks, often one of the reasons we buy a stock is who the CEO is both from media following and looking at the alternatives. While it is great to believe in the company from a personal standpoint, from the financial results the company needs to make money or profits to grow to bring the vision to reality. In the case of Tesla, the car is cool, unfortunately it loses about $5,000 per car and we are still hoping for the less expensive models to be a success. This will help the world and Tesla, but while investing before making a decision ask yourself the skeptical questions.

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

Similar to many people, if offered a type of fish to eat, the first choice would be salmon. Outside of eating it, how and why it reached the table were never really thought about. Many books have been written about salmon, but the one which was recently read was called Salmon – the Decline of the BC Fishery by Geoff Meggs published by Douglas & McIntyre, Vancouver, BC, 1991. The book is a history of mismanaging one of the world’s greatest natural resource – the salmon. The history of the Pacific salmon reads similar to any other resource in North America – everyone sees miles and miles of resource and believes there can be no limit to the resource. A combination of greed, technology of the day and not being concerned about the future leads to many ups and downs of the resource. In the case of BC, originally Europeans were looking for a easier way to the spices of South Asia, but they found North America in the way. In British Columbia the search for furs was fruitful but the real harvest was fish, forests and mining. Similar to California joining the rest of the states with a railroad, the country of Canada was connected together with a railroad and since then – frozen salmon have been on many plates. The real money in fish is canning it – those tins of tuna and salmon which many people buy and expect to see at their supermarket.

In British Columbia, there were the early canners who made considerable profits and for the most part shared money with the reasonably independent fishermen and the people who worked in the canneries. As time goes by, consolidation of canneries happen – the fishermen are no longer independent for they essentially have one or two places to sell their fish to for they are nominally employees. Being employees means a different wage scale and wage pressures come into play.  This pattern is typical of how many industries change to ensure reasonably consistent profits from a resource.

In between, is the new machinery or innovations in the fish plants (which allows to process more fish with less people); in relatively resource rich areas there is the seemingly conflict of interest of government ministers (who are getting rich) from the resources, the method of harvesting the resource and given the terrain or the mountains of the west coast – what is more important moving mountains or the environment. In BC and other places from Alaska to Mexico – stories about which resource is more important and the effect of railway building or road building or mining wastes on the rivers are easily found. Generally the rivers tend to lose until they are cleaned up and thank goodness the fish and other wildlife can return to do their thing. In the case of Salmon – their life cycle includes born upstream in the river, billions are born, the ones that survive swim to the ocean for a few years and when their time to reproduce comes they find the river and the stream they were born in and swim upstream to reproduce. Logically there are many challenges – both natural and man made along the way. Man produces more challenges than nature.

Linking to dividend paying stocks, often times we think of industries that happen in the past 20 years, but an industry such as canning salmon has been going on since the 1800’s. small at first and then growing, over expanding due to the size of the salmon runs – a seemingly inexhaustible supply, consolidating and still existing as we see it today. Attitudes have changed over the years, the early years there was little conservation and use of fish hatcheries – there was the fish are there we should harvest them for profit. In the case of a dividend paying stock, they have to evolve so they reflect the consumers desires. Today we expect the sea food to be sustainable, the grocers had to evolve to do that and then we worry about eating the fish rather than the industry. In every industry there are multiple challenges, how does management rise to the occasion?

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

It is always amazing to see the disconnect between politicians and reality and a recent article by Rajesh Kumar Singh of Reuters highlights this disconnect. President Trump loves to impose tariffs and believe manufacturing jobs will come flocking back to the US; on the other side are existing manufacturing companies – who see the world a little differently. The article highlighted Caterpillar – you will know their yellow machines.

The article discusses Caterpillar’s North Carolina manufacturing plant in Clayton and hopefully the flooding did not have a large affect on it. The company makes small front end loaders, in 2010 it laid off employees due to slow sales and consolidated two shifts into one under a program its calls Operation & Execution Model.

Since 2010, sales have picked  up, however Caterpillar still only runs one shift and all the employees are on flexible contracts. It turns of employment, CAT is producing more loaders with 30% fewer people. How? The company redesigned all its machines it makes to have 20% less parts. Fewer parts means less steel ( a savings); it improves safety; it improves quality and it improves the cost.

On the national political level, President Trump’s policies have driven up costs which CAT passed along to consumers.

On the production level, internal calculations provided to Reuters shows that half of the improvements in the profit margins since 2015 are due to the cost reduction strategies. As part of its cost-cutting effort, CAT business heads have been mandated to reduce the overall manufacturing cost of every product by at least 5%.

One example is the Clayton factory, the whole small front end loader is not made at the plant, a plant outside the US sends in semi-finished machines where they are assembled and met the standard made in the USA.

Linking to dividend paying stocks, the supply chain is complex and what you think is happening is not likely to be doing so. Controlling costs is a time tested strategy that everyone needs to do on a personal and professional basis. If you can control the costs, then the organization will make more on the profit side. In the manufacturing business sometimes the additions over the years are wonderful, sometimes they are just more expensive. At regular intervals who looks at them?

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

Most of us make mistakes, it is great that we eventually learn from the mistakes. In an article Terry Cain asked financial advisors the common mistakes or errors people tend to make in regards to their portfolios.

1. Paying too much attention to Your Investments.

Years ago, a story was heard that a reasonably wealthy individual was convinced to buy some stock. He bought the safest security Bell or AT&T. The company was heavily regulated, had a monopoly and was a company people bought for its dividends. The gentleman use to phone his broker everyday and ask for the price and when it when up 25 cents was happy and when it went down 25 cents thought about selling. The stock had a trading range of $5 dollars a year, no one bought it for capital gains in the year. Eventually the individual was convinced to sell and stick with interest rate products.

You can spend too much time on your investments, think about the size of your portfolio and your income. If it generates the same as your day job, perhaps considering retiring or working less. If the income is less than you day job, buy things you follow on a regular basis to know when you expect the downturn is coming. Then you can do things for a defensive (not to lose money) as well as offensive (make money).

2. Chasing a Hot Investment

At some point there is a hot investment, sectors which have gone up 100% and more and you look at your portfolio doing 10% and want to invest in that sector. Knowing what goes up typically comes down, if you chase the hot investment do so with money you can lose. Perhaps use your dividends or interest payments to buy then you are protected and the bulk of your funds are doing what they are suppose to do. Earning money for you.

Being Afraid to Take a Loss

It is seemingly easier to do this on a self directed portfolio, but if you own a company that is losing money, look at alternatives. You bought the company for a reason, go back to it and see if that is the reason to continue to hold. If not sell, wait and buy a quality company when the price declines. When the price increases you are better off.

Assuming that Bigger Companies are Better

The easiest method to change your mind is look at the Fortune 500 from 25 years ago, 15 years ago and last year. The names change at the top of the list, some of the companies you will not know or remember. Unless you buy an utility type company, most companies change over the years and this is why as much as you begin to really like a company, a review each year to see if alternatives should be examined is a good idea.

Misunderstanding Diversifications

Many people buy funds and ETFs including the writer, however some funds and ETFS follow the same type of companies. That can be great while they are doing well, but understand if you were attempting to  diversify, you have actually become more focused on one sector. Often times, reviews by portfolio managers are free, so if you are doing all the work ask if you are really diversified?

Pursuing Yield above all else

If you look at the companies which pay higher yields, 2 or 3 times higher than treasury rates, you have to wonder how sustainable they are? How does the company generate the cash to pay the dividends and grow their business?

Linking to dividend paying stocks, one of the reasons the writer likes them is they are relatively easy to analyze. Is the company profitable? are their dividends sustainable? what needs to change? If you are reasonably happy with the answers, then there is little to do but collect the sustainable dividend from the profitable company. If there is a major change look at alternatives.

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

The President will be known as the tariff President because he seemingly loves to impose tariffs on everyone and anything being imported into the US. Interesting in years gone past, tariffs were used to stimulate production inside the country, so far the main impact of increasing tariffs is higher prices which have been passed along to consumers. At some point, tariffs will affect the profitability of American companies who do the importing.

In an article by Stephen Nellis and Sonam Rai of Reuters who talked to analysts about the President imposition of 10% tariffs on $200 billion of Chinese imports. One has to remember companies similar to Apple were importing 98% of the product to the US – the design and what the Apple products do are done in the US, the manufacturing is done in China and Taiwan.  For Apple if the President expands the recent tariff increase, it will affect them directly.

The latest tariffs tend to affect cloud computing – companies such as Amazon who cloud business is doing very well including having multiple US departments and agencies using the services. The companies involved woth cloud computing issued a warning the proposed duties will impede the development and adoption of cloud based services and infrastructure.

Linking to dividend paying stocks, the President for reasons unclear to most is playing with the supply system which was built for to benefit US companies and people wonder why? If employment costs are about a $1 or less than $5 an hour in outside country, for the employer to bring jobs back to America, tariffs have to be greater than 10% or even 25%. Seemingly all the President is doing is the opposite of Wal-Mart – raising prices everyday. Similar to many large companies, the consultants and lobbyists rush in to say tariffs might be important to the country, but for our company we need an exception and many exceptions have been asked for and given by the Commerce department. Sometimes the headlines are not exactly what is happening.

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