If you read history books such as most of us do, there is a bias from the writers which is normal and natural. Much of the world is formally in a hierarchical process and given the nature of the beast, it is much easier to research. In a book called The Square and The Tower by Niall Ferguson published by Penguin Press, NY, 2018, the author suggests that one should also concentrate on the informal change or networks of the people with power.

If you reflect on WW I, why did the war start? If you were told between 1815 and 1914 there was relative peace in Europe, why did it not last. The answer is not because the Arch Duke was shot. The real reason is order established in Vienna in 1815 broke down.  According to Henry Kissinger the key reason was the Secret Reinsurance Treaty the Germans signed with the Russians. The treaty said Germany and Russia should be neutral if one of the countries was involved in a war with a third country. Germany was trying to ensure Russia would sign a mutual defence treaty France. At the time of the shooting, the 3 great powers saw war as the sole alternative to a crushing diplomatic blow,

The two big powers were able to mobilize close to 80% of the adult males into uniform merely by sending telegrams. Those who thought the war would be over soon underestimated the imperial state’s ability to sustain industrialized slaughter. The triumph of hierarchy over networks.

Linking to dividend paying stocks, often the why something is important is complicated. There are many variables at play and trying to understand them allows you to be a better investor.

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

 

If you read history books such as most of us do, there is a bias from the writers which is normal and natural. Much of the world is formally in a hierarchical process and given the nature of the beast, it is much easier to research. In a book called The Square and The Tower by Niall Ferguson published by Penguin Press, NY, 2018, the author suggests that one should also concentrate on the informal change or networks of the people with power.

Mr. Ferguson believes there has always been networks and the first networked era was the introduction of the printing press in Europe in the late 15th century. The second era is from the 1970’s with the introduction of the computer. The zenith of hierarchically organized power was the mid-20th century the era of totalitarian regimes and total war.

Hierarchy means there is a node at the top, and other nodes can communicate only through the one ruling hub.

Networks operate differently but they still have gatekeepers. The gatekeepers must decide whether or not to pass information to their part of the network. Part of the decision is based on whether their decision is how they think that information will reflect back on them. This help explain why some ideas go viral and others fizzle out in obscurity because they began with the wrong note, cluster or network.

Networks according to John Pladgett are important not just as transmission mechanisms for new ideas, but as sources of the new ideas themselves. Networks by themselves do not create new ideas because they can also attack one another. Most of the attacks on networks tend to be from hierarchical entities. Networks may be spontaneously creative but they are not strategic.

Network theory summed up:

1. No man is an island – remember crucial roles are played by people who are not seen as leaders but connectors.
2. Birds of feather flock together –
3. Weak ties are strong
4. Structure determines vitality
5. Networks never sleep
6. Networks network
7. The rich get richer

Linking to dividend paying stocks, everyone is an network and in a hierarchical arrangements, how your company reacts to both is important to your as an investor. Investigating the President and the Board of Directors gives you an indication of the people the President must talk to in order to keep his/her job. Is the Board dynamic or old and collecting payments? In does not matter if they are collecting payments, but you want to see innovation or desire to accept change on the Board.

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

If you asked the President of most companies what their greatest fears are concerning their company, 2/3’s of them would say cyber-attacks is a serious threat. The reason behind the concern is if the company is hacked and the information released to the public, the stock price will fall and some consumer trust will be lost forever. How much depends on how the company responds.

In an article by Clare O’Hara of the Globe and Mail, investors should be looking at the sector of Cybersecurity because as connectivity increases and amount of data does also, cybersecurity becomes more important. A major breach of data is every CEO or Board’s worst nightmare and that is why spending on cybersecurity continues to increase and continues to be outsourced. As an investor you like it when you hear money will be spent on the companies doing cybersecurity.

The leading companies are F5 Networks, Palo Alto Networks, Fortinet Inc, Akamai Technologies, Check Point Software Technologies ltd.  One method to buy the companies is use the ETFs which mirrors the Nasdaq CTA Cybersecurity Index which tracks the performance of companies engaged in the cybersecurity segment of the technology and industrial sectors.

Linking to dividend paying stocks, while the above stocks may not be household names the fact that they will have a continual payment and one that potential could increase over time makes them seem utility like. As investors you like because companies will include cybersecurity firm(s) in their annual expense and the monthly payments are wonderful for dividend investors.

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

In an article by Landon Thomas of the New York Times News Service, one of the most well known names in the bond trading business is not having a good year. Bill Gross has had a rough 2018 – on his personal life he was divorced and on the bond markets he is losing money.

Mr. Gross is worth over $2 billion and made his money on a fund called Pacific Investment Management Co or Pimco. At it height, the Total Return fund had over $292 billion in assets and was the largest fund of its kind. Pimco popularized a bond fund for individual investors, a shift from the bias of institutional money.

Mr. Gross left Pimco in 2014, set up shop in a competing company called Janus and now runs the Henderson Global Unconstrained Bond Fund. Its assets are over $2 billion with a substantial portion of Mr. Gross’ personal money in the fund. The old fund over the past 3 years is up 10%, the new fund is up 1%.

At the end of May, Mr. Gross’ fund dropped 3% in one day because he believed interest rates on German and US bonds would rise, however the political situation in Italy had prompted investors to seek safety in those bonds, increasing their prices and pushing down their yields.

Bond funds are not supposed to lose 3% in one day or 6% in a half of a year. Generally bond bunds are supposed to be safer and more stable on prices than stock funds. Mr. Gross besides investing in government and corporate bonds, also uses derivatives and other complex financial instruments that if the markets remain calm help improve the performance of the fund.

Linking to dividend paying stocks, when someone is successful, it is natural and expected that the person is listened more than the average person. It does not mean everything they do will be successful, but people are expecting more than normal. If you read the marketing from the fund companies, they point to someone’s being more successful than the norm and that is why you may want to learn what they do and do not do. If you invest in dividend paying stocks – the easy question is how safe is the dividend? and will it be paid every year? from those questions will lead to others.

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

A number of years ago, to gauge how the economy was doing people waited for the factory growth numbers for the month. As the economy has changed, in the US the housing market and consumer spending is much more important. In the US, consumer spending as reported by Reuters posted its strongest gain in 5 months. Lucia Mutikani quoted Chris Rupkey chief economist at MUTG in New York as consumer spending is accelerating and inflation is holding firm in a tightening labor market, so the Fed is likely to stay on course with its gradual rate hikes this year despite the signs of uncertainty elsewhere.

Consumer spending which accounts for 2/3s of the US economy jumped 0.6 % in April the Commerce Department noted.

In China, where much of the US factories have relocated, they grew at its fastest pace in 8 months. The official Purchasing Manager’s Index (PMI) released on May 31 rose to 51.9 and remained well above the 50 point mark that separates growth from contraction for the 22nd month.

Cost pressure is still one of the major problems facing Chinese manufacturers noted Zhao Qinghe, an official with the statistics bureau. In China the services sector now accounts for half of the economy.

Linking to dividend paying stocks, over time economies change from agricultural to manufacturing to service. As the economy changes the key numbers to gauge how well the economy is doing change. Remember the old adage – a concern with the economy is when your neighbor’s loses his job, a recession is when you lose yours. Each of us picks and chooses different numbers to understand how the economy is doing locally and nationally. Remember why they are important and how that translates to making decisions.

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

If you were cynical under President Trump’s administration you would say although President Trump ran under a different platform, as soon as he won business would get bigger. Companies that have monopoly or near monopoly positions will emerge stronger in the President’s administration. The cabinet and appointments to regulatory bodies reflect the position and it is not surprising Bayer wins US approval to buy Monsanto.

According to Ludwig Burger and Diane Bartz of Reuters the company many people know for aspirin is buying the company known for GMO seeds. The reason why the companies are getting together is Bayer is the world’s second largest crop-chemicals business with Monsanto’s industry leading seeds business. The company will have sales of $30 billion and its competitors will be DowDuPont’s Cortea Agriscience at $18.6 billion; ChemChina’s Syngenta at $16.5 billion; and BASF at $11.8 billion.

In the US, the Department of Justice Anti-Trust Division has signed off on the merger after Bayer agreed to sell $9 billion in assets. Bayer has since said the expected synergies from the merger will be $300 million less because of the need to sell more than expected assets.

Linking to dividend paying stocks, sometimes but not always being cynical about the motives of the company helps you make decisions. If you are cynical about President Trump opening the doors to creating larger business, then you might see opportunities to make money, whether it is good US policy or good self interest or not. Political administrations will come and go, but the opportunity to make money and try to both limit competition and gain monopoly like conditions on the ability to raise prices is a thing of beauty.

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

Whenever there is a war, there are advance troops which go out beforehand to gather information, figure out a plan and try to do the plan without any of their troops being injured or killed. Fortunately for most of us, the organizations who pay us there is no killing in person, sometimes there is downsizing but no one is killed. For the people who have to worry about being killed, it is useful to learn how they do what they do. What steps do they have or need to have in order successful complete the mission. One of the books which goes inside America’s most secret special forces is a book called Killer Elite by Michael Smith published by Cassell Military Paperbacks, London, UK, 2006.

In the book the author goes through missions which the Washington political class orders the military to take. Similar to all politicians there is a desire for a short term result. The conflict is the elite squads tend to discuss the debriefs and lack of communication ranks high. Prior to drones, it was relatively easy for the military to access satellite photos to see structures, but the intel needed is what is inside. How many rooms? what is their layout? where are the people the group is interested in? the details are what humans are needed for.

In a number of military ventures – communication was used. As the world moved to cell phones, it is relatively easy to track people. The military used planes loaded with communication devices which allowed the networks of the people to be connected and located. As time went by, patterns could be discovered – who is important? who are the prime contacts?  what does the person do? Then plans are made to more easily identify and takeout the targets. Planning, information and timing are critically important.

In all ventures, the people are highly trained and are taught to blend into normal life to gain intelligence. Often times clues can be found in the newspapers, but you people are still the key to intelligence and they give it for a variety of reasons. People are people.

Linking to dividend paying stocks, the process the military uses can be adapted to your research. How do you buy your last stock? Read about it the newspaper, heard about it on TV, or put it on your radar and started to follow and investigate the company? If you were a venture fund, you would reject most of the pitches even though they sound good. Research takes time and makes and saves you money. It does not have to military precision, but you will need to answer the question why did you buy it? then you will know when to sell.

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

In a recent article by David Berman, he discussed about stock buybacks. A company has cash in the bank and rather than investing in the business decides to reduce the number of shares outstanding by buying them back at the market price. If all things are normal, the profits are distributed over few shares which means the earnings per share increases which could increase the share price. In 2017, companies in the S&P 500 spent a total of $519 billion on buybacks according to the S&P Dow Jones Indices.

With everything in Wall Street, the are always two sides – pro reduces the shares outstanding which increases the earnings per share and the stock should rise because the multiple for EPS is low.

The other side is called the contrarian view – in the past the lowest buybacks are in a bear market when stocks are less expensive and more tends to be in bull market when stocks in general are higher priced. Perhaps it is better to sell when companies are buying.

Buybacks are liked because if a company is able to buyback shares, it is in or should be in good financial shape. Buybacks are favored by management because it allows them the flexibility to buy the shares as opposed to increasing a dividend. If they increase the dividend, then it will be permanent or if next year lowering the dividend is not a good thing.

When the lowering of the tax rate by President from 36% to 21% expect more of the 15% to increase buybacks in 2018.

Linking to dividend paying stocks, the first aspect of whether a buyback is good or not is the company profitable? If it is then it has the option to either do buybacks, increase dividends or invest in the company. Ideally it can do all three. Buybacks help drive up stock prices, however if you are investing in a long term whether the stock price goes up a few points should not matter too much. When it jumps above 50% above what you paid then you need to look at options. If you sell, you can diversify into other dividend shares and essentially own the remaining shares at lower cost. Then you do not need to worry if the shares fluctuate but you can worry they have long lasting in the marketplace.

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

One of the oldest companies in the US has be General Electric or GE which has its roots connected to Thomas Edison and the founding of electricity or at least the commercialization of it. GE is over 126 years old and for many years owing and keeping GE shares would have been a great thing for your portfolio. Prior to 2008 it was number one or a significant player in 5 different profitable ventures and its senior management felt they should be top 3 in the areas where they operate. Then 2008 happened and GE lost money on its credit division and soon became a smaller company. The company has retained its power, aviation, health care and recently bought Baker Hughes  oil and gas.

While having a great assets means the company will continue if it is not profitable the shares fall the company will be restructured. The example of GE shows as an investor you may like a great many companies but have alternatives just in case.

Linking to dividend paying stocks, with some companies it seems they were the darlings of the industry, think a few years ago about Jack Welch and his management style. Now GE has changed, it did not do anything bad, the world changed. The company still makes money just not as much as they used to.

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