Last Fridaythe first of the Hurricanes to hit landfall was a huge one. Florence is the size of Hugo which caused $9 billion in damage when it hit in 1989. First you worry about the people, but afterwards when people return to their homes and jobs, then the other variable is how do you make money from the stock market?

The Hurricane does two things – it will bring in a lot of rain so that means flooding and basements will get wet and need to dry out. It also means creeks, rivers will rise and likely mean flooding along the banks. The other aspect is storm surge – the hurricane sucks the water back and when it hits landfall the water comes rushing in which means flooding. Eventually the Hurricane leaves the area the water will go back to what is considered normal. Given Florence is a very large storm, storm surges of greater than 5 feet are expected or the water will rise at least 5 feet, maybe more.

An interesting number given by former Governor Chris Christie speaking on the ABC Sunday news show This Week with George Stephanopoulos was: when Hurricane Sandy hit New Jersey, 365,000 homes were lost due to flooding which made homes wet which causes mold which means they need to be replaced. Ask your yourself to replace those homes what needs to be done?

According to an article by Reuters there are some relatively easy things to consider:

Car rentals – when the Governors of the states affected issues a please leave order, people need transportation out. Car rentals, trains, buses, and private vehicles are all used to clog the highway and get out of town. Prior to the storm – Hertz and Avis are up 3%.

Freight – truck and trains needed to move goods and supplies. Typically with increase demand, prices rise and trucking companies XPO Logistics, USA Truck, JB Hunt, and Old Dominion Freight were up rom 1.6 yo 5.4%.

Home Improvement – the biggest stores are Home Depot and Lowe’s both were up 2.5%

Insurance – after the storm leaves, the insurance companies will have to pay insurance claims. This is when you need to do your homework because not all insurance companies have the same market share in the region affected. Allstate has a 10.5% share in South Carolina and 6.6% in North Carolina, the company was down 1.9%. Shares of other insurance companies were down 1%.

Building supplies – there is work to be done to get ready for the Hurricane and after the Hurricane. Shares of Beacon Roofing Supply were up 8.2%. Shares of generator Generac Holdings were up 6.6%

Linking to dividend paying stocks, when a Hurricane comes, the first concern is for the people and getting them to safety. After that task has been accomplished, you must do some homework to see the regional affects on corporations. As much as most companies wish to be diversified, many are more heavily attached to one region or another and that tends to serve them well. When a natural disaster comes such as a Hurricane, it is important to consider what normal people have to do and then some companies should and will benefit. One should be aware many companies have plans in place – when a Hurricane happens they are ready to deliver goods and services to the area or they move supplies just outside the affected area until the water goes down. For example, Wal-mart stocks up on water and pop tarts. If the power is down, people still need to eat something.

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

 

In early September an article by Tim Shufelt reminded investors there is big news happening on September 24. There is a group called Global Industry Classification Standard (GICS) which has spent countess hours examining stocks and has determined some of them need their classifications changed. The GICS are the bones which both S&P and MSCI used to categorize stocks and build indexes. The GICS does this on a regular basis, but this time there is a greater emphasis on the technology companies and thus affect indexes. Some of the tech stocks are going to join the telcom classification.

First the value of the index has changed over the years, the most famous is the Dow Jones 30 which a few months ago took GE out of the index and was replaced by Walgreens. The indexes twice a year change stocks, typically those that are not doing well financially are replaced by those that are doing well. The effect of this change is over time the index will rise. It is why part of your portfolio should be in an index fund.

On September 24, GSCI reasoning is tech has more than one element – those companies that use technology and those that produce technology. Most of the readers should know the FAANGs – Facebook, Apple, Amazon, Netflix and Google have been some of the best stocks to own and the group has helped push up the major indexes to new highs.

Joining the telcom group are companies such as Facebook, Alphabet, Twitter, as well as Netlix and Disney. Traditionally the telcom sector because the market is more mature and the companies fight over existing consumers, who make regular payments to their bills means one reason to own them is the dividend yield. With the new companies coming in accord to Ned Davis Research the dividend yield for telecoms will fall from 5% to 1%. The communication sector will be more heavily weighed in tech stocks with more than half of its market value based in former IT names.

Linking to dividend paying stocks, there is a very good reason to buy the stocks, they are profitable and can easily pay their dividends. This means if the general market goes down, profitable stocks tend to bounce back first and with the dividend you can be buying more stock at lower prices or using it for other opportunities. In terms of index funds which are terrific to own over the longer term, if you own a fund for a particular reason, see how it will be adjusted after the 24th. It could change your risk profile or it could help it, but understand a change will occur.

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

 

 

According to Goldman Sachs as reported by  James Condliffe of The New York Times News Service, US companies are set to hand a record amount back to shareholders in the coming months. The report by Goldman Sachs noted by the end of July US companies had repurchased $ 754 billion of stock and that number should break the trillion dollar level by the end of the year.

When a company buyback its stock, because management believes the stock price is low, it reduces the number of shares. If earnings are similar or coming in as expected, the earnings per share increases. When the EPS increases, the multiple the stock typically trades at is low and tends to rise to meet normal expectations, thus the stock price increases.

A good part of the reason for the increase in buybacks is President Trump’s tax cut for corporations both on income tax from 35% to 21% and the lowering of taxes for companies holding money outside the US. The largest companies holding money outside the US were the tech companies and the biggest beneficiary is Apple. The company has repurchased $43.5 billion of its own stock.

Linking to dividend paying stocks, the trend of companies to buy back stocks has made large cap dividend paying stocks more valuable. Sometimes being in the right place at the right time and government helping can be rewarding. The trend is expected to last another year or until the government decides government deficits are the important to pay down.

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

Are value investors different from other investors? Is the person’s character and temperament the important differences? George Athanassakos Professor of finance and Ben Graham Chair in value investing at Richard Ivey School of Business, University of Western Ontario has been looking into that idea.

James Montier an investing strategist and member of the asset allocation team at investment firm GMO, believes successful value investors are contrarian, patient, disciplined, unconstrained and skeptical. Warren Buffett has often said his successor must have the right temperament and a keen understanding of human psychology and institutional biases.

As many Professors do, Professor Athanassakos conducted research with two control groups, one he considered more value investor inclined and one that was considered more non-value investors.

What he found was in general there was no statistical differences in the average answers to most of the questions. However one area that was interesting was the magnitude of dispersion in the answers. The value investors tended to answer in a narrow range while the non value investors were more widely dispersed. This is keeping with what Mr. Buffett has said, you either get value investing right away or you do not. The research continues.

Linking to dividend paying stocks, with most things in life there are times when you are more agreeable to ideas than others. Sometimes you have to make mistakes and try to learn from them. In general, trying to buy low priced assets that should become higher priced assets will take time to learn. Some of the elements including taking your time to do your homework and not make a decision until you are more certain  than not. It often means you need to follow a variety of stocks to know when one is worth buying or not. In many ways it is going to the grocery store and looking for bargains, at what price is an item a bargain or not? At what point would you buy or wait? If you believe in cycles and most of us do, then waiting and being prepared will both make and save you money.

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

Sometimes you can pick up information in the most unlikely places, a case in point is the book Edison & The Electric Chair by Mark Essig  published by Walker Publishing Company, NY, 2003. The book has two interwoven sections  – one the aspect we all know the name of Tomas Edison as inventor and owner of electricity networks (Con Edison is a company many people know well) and the aspect is using electricity to kill people in the electric chair.

After Thomas Edison invented the light bulb, the next step was to bring the light to the public. Just because there is something better and newer, does not mean the public will automatically switch to it. In New York in 1881, although Edison had a dream that every home in America and around the world should be using electricity, logistically it was a very different matter. The investors believed the company should be a holding company and avoid risky manufacturing enterprises. Edison was the opposite, he wanted to do the manufacturing of the components and thus sold off most of his stock to build the parts that are necessary to transmit electricity from generator to homes and businesses. Although the way, wires needed to be laid – Edison had decided to go underground rather than on poles. The Manhattan campaign where Edison started not surprisingly ate up a lot of up front capital. While isolated central stations allowed other countries and people to create a market for electric lighting and more importantly provided a cash cow in the manufacturing installations. The first major installation in New York was on Pearl Street. More installations happened outside of New York as competition was enhanced with the lighting craze.

With success there was a limitation, electricity had a limited distance of one mile. Along came George Westinghouse who as an inventor, started with the brakes on a train. Westinghouse invented alternating current which can send electricity for miles. The competition with Westinghouse would last for generations as in the 1900s most Americans lived in rural areas, away from the lights of the big city.

If you think about Tesla cars, you think about the parallels Tesla has with competition – the internal combustion engine most of us drive with and building an infrastructure to run the vehicles.

Linking to dividend paying stocks, it is expensive to create infrastructure unless there is an monopoly. If you examine the utilities they have government monopolies for the good of the residents and a steady stream of income for shareholders. The dynamics of the industry has not changed a great deal as we live in hope for the next better thing, but it is easier to invest in the existing monopoly.

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

 

 

 

Sometimes you can pick up information in the most unlikely places, a case in point is the book Edison & The Electric Chair by Mark Essig  published by Walker Publishing Company, NY, 2003. The book has two interwoven sections  – one the aspect we all know the name of Tomas Edison as inventor and owner of electricity networks (Con Edison is a company many people know well) and the aspect is using electricity to kill people in the electric chair.

In his early years Tomas Edison was a tramp telegrapher, although he has equally interested in how the structure of the telegraph worked. His first patented invention was US Patent 90,646 issued in June 1, 1869 to tally votes in legislative houses. His next invention was provide gold and stock quotations for banks and stock brokerage houses which was successful. Western Union bought the company. The new invention was for duplex telegraphy or the ability to send 2 messages and the same time, one in each direction. Although Edison sold to Jay Gould’s Atlantic & Pacific which later sold out to Western Union.

With the money from his inventions, Edison built up the laboratory in Menlo Park, New Jersey. The research community is still very evident in the area – Bell Labs. The area is 20 miles south of New York. In terms of light bulbs, when Tomas Edison looked at the solution, his idea was to domesticate electric light. One has to consider at that time, light was generated by oil in lights, then gas and Edison believed it was possible to invent a low cost light that would be safe and improve life after it was dark. Similar to most beliefs, proving it and making it a success is easier to say than do. For example if you look at the light – the filament had to be invented – what is it made of?

Fortunately, Edison had some advantages others did not – he had a successful track record as an inventor. His success brought those with capital to help him. Edison had a stock company called Edison Electric Light Company and investors included: William Vanderbilt, the principal shareholder of Western Union; Norvin Green the President of Western Union; Egustio Fabbri, a partner with Drexel, Morgan & Company. The company associated with JP Morgan snapped up the British rights to Edison’s patents and became his agents for all of Europe.

The above shows he had access to capital, he also had the ability to send press releases to suggest he was almost there or had achieved success. This brought in a well fund laboratory to work in; Edison had the sense to employ extraordinary talent which lead to press releases which the public followed. When the public was invited to see an electric light because they had the correct materials for the filament – thousands showed up.

Similar to all industries, it was easier to invent the product than the next step is wire city blocks for lights to work and collect a revenue stream from. One reason is the gas companies did not go asleep. Gas lighting was introduced in the 1840s and 1850s which meant by 1880 they were well entrenched. Relatively cheap coal allowed the price to be low, the gas companies enjoyed a government-protected monopoly and by 1880s, 70% of the consumer price was pure profit. If you were an investor you loved gas companies.

If you think about electric companies, they would have to do everything the gas companies are doing and beat their prices. Edison closely studied the costs of gas lighting and tried to eliminate all the waste from the system “Everything must be got down to the last penny”

Linking to dividend paying stocks, in every company one considers do they do the invention and roll it out or do they do the invention and license the technology for others to do? There is no one correct answer because both can work although using license will use less capital from the original investors. Having a better idea is never the single answer, a whole complex of other issues come into place before a consumer buys on a consistent basis with enough margins to make a profit. As you look around in today’s economy the issues do not necessarily change a great deal, the execution does.

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

In an article by Sijia Jiang of Reuters, China’s Huawei Technologies Co expects to ship more than 200 million smartphone to become the world’s top vendor of the devices.

Huawei recently displaced Apple as the No 2 smartphone vendor in the June quarter. No 1 is Samsung. The growth for Huawei is coming from Europe and China. The premium phone is known as P20 and Huawei has sold more than 9 million units since its launch in April and in the over $500 smartphone, Huawei has a global share of 16.4%

If you do not know the brand in the US, it is because none of the big carriers sell the phone because of concerns the brand helps China spy on the users. The company denies the concern. The company has focused on Europe, Middle East and Africa where it saw a 73% revenue growth. In China the growth was 37%.

Linking to dividend paying stocks, in every category there is competition. Some of the competition you will know the brands, some you will not know. Just remember there is always competition trying to eat into the margins of profitable companies. It is important as you do your homework, how does the company make money and can it continue to keep their margins to continue to pay the dividends?

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

In early August the number of shares outstanding multiply by the stock price for Apple surpassed $ 1 trillion dollars. Not many companies are in that range and which is a cause for celebration. In an article by Mark Gurman of Bloomberg News, he looks back at Apple.

The company was founded in 1976 by Steve Jobs and the company has consistently reimagined what a computer can be and defined how humans interact with the devices and software. Names such iMac, iPod, iPhone and iPad are brands many of us have heard about and know. Layered on top of that business model there was unparalleled product innovation, marketing excellence, combined with an untouchable retail experience. Tony Fadell believes there is not another company that executes at Apple’s level of detail, at their fit and finish.

Although Apple is a successful company, it had it ups and downs and was close to bankruptcy in 1997. Since the iPhone was introduced in 2007, the phones capabilities started the smartphone revolution.

When Steve Jobs died in 2011, Apple was worth $350 billion, with Tim Cook at the head the company is now worth over $ 1 trillion and has $200 billion in the bank. Since 2012, Apple has bought back shares and given dividends of $275 billion and has more to go.

Linking to dividend paying stocks, similar to all companies, the growth rate was not always up, back in 1997 Apple was a speculative investment at best and had made and lost money. Things turned around and now similar to Warren Buffett, Apple should be in your portfolio either directly or indirectly through a tech fund or index tech fund.

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

If you buy shares in a large company, at some point there will be a crisis – usually from external influences but something which is not the company’s “bread and butter” issues. To the company it is important, but it does not make them money, however to the customers it could and sometimes does erode trust.

Companies spend great deal of time and energy trying to ensure they have the trust of the customers to do the right thing and constantly improve. Understanding no system is perfect, but customers do what to see how the company reacts. If a company is under crisis, according to Melanie Paradis of McMillian Vantage Policy Group, the company should:

Step 1 – acknowledge the crisis. The three things which one tries to do is explain what happen? what are you doing about it? and how do you feel?

Very often the difference between a well managed crisis and a corporate disaster is executives overlooking the importance of empathy in maintaining trust. ( a classic case was when there was a oil spill in the Gulf of Mexico after a few weeks, the President said he want to get back to his old life and go sailing) The crisis took 100 days, everyone who used the Gulf of Mexico wanted to go back to their old lives when you could use the Gulf of Mexico).

How you feel, makes you relatable. Your willingness to express yourself vulnerable and authentically will strike a cord with your audience, just make sure it is consistent with your responses.

Step 2 – 72 hours after the crisis, which has hopefully found a solution, you must redouble your efforts to build, maintain and restore trust. It will not happen overnight.

Step 3 – most people have an idea about a fire drill. If there was a fire in your house what would you do? Ensure you have reasonable ideas for the things which would keep you up at night. What are the worst-case scenarios? Think about trust and the answers you will be giving both to shareholders and the press.

Linking to dividend paying stocks, one of the reasons why these companies are attractive is they have been through many crisis situation and people continue to use their goods and services. In your research see how the company has reacted to crisis and you will know whether in the future crisis to buy more shares when the prices are down.

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