When we look to the future, electric cars will play a larger role and that is good for the  environment. One of the leaders or at least well known companies is Tesla and its President Elon Musk. According to Chris Horwood of Orbis Investments inn 2009 it was a nice idea as costs were about $900 a kilowatt hour, today the costs have fallen to $250/kwh. As prices continue to fall the cars are within more car buyers.

If you had invest in Tesla in 2009 IPO the company has since tapped over $13 billion in equity and debt and the price of the shares have increased. That is a good thing.

In the stock market there are many alternatives and as an investor you job is to compare and contrast alternatives. One method is to compare Tesla’s market value and other fundamentals to determine which company is better to buy.

Tesla accounts for 6% of the market capitalization of the top 20 auto makers but less than 1% of the book value, sales and gross profit. To match the others it would have to grow 700%. Can it do it, maybe?

At the moment the best selling electric car is made by Nissan called the Leaf. It has more shipments that all of Tesla combined but Tesla trades at 15% more than Nissan. in addition, one of the best automobile manufacturing companies is Toyota. The other large Japanese company Honda has 12 times the sales, 13 times the gross profit and 14% the tangible book value.

Linking to dividend paying stocks, Tesla is an exciting young company but it is the best alternative? Only time will tell but the major Japanese companies are very good at manufacturing, have an excellent distribution dealerships and are profitable. When you consider the alternatives, sometimes decisions are changed.

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

 

In many situations, many people have checklists to ensure things get done and there is some sense of order. It does not mean there are changes, but at least the road map is available. George Athanassakos is a Professor of Finance and the Ben Graham Chair in Value Investing at Western University in London. He offers a checklist, note his has a bias towards value investing. You can use some of it, all of it, but it important before you make a decision on what to buy, you have an idea of what the outcome should or could be besides make more money.

1. Understand the business and strategic positioning of the company. Is the company attractive in terms of how well it is positioned? What is the competitive situation in the industry and how does it fit in? Who are the key players and how does the company compare with dominant players? Do you understand the business model? What is the company’s business risk?
2. Understand the company’s profitability and trends in the industry. Is the company’s operating margin high and stable? Does the company have a moat to protect those high margins and profits?
3. What is the company’s balance sheet strength and financial position relative to the long-term? Is debt comparable to other companies or higher or lower? Is interest coverage at least 5 times? Does the company have the cash flow to pay off debt as it matures?
4. How good is the management? Compare and contrast other companies are they better or worse? Does management seem to understand the company’s business and dynamics? Are they non-recurring charges? Is the company a good operator? How excessive is the pay package? What is the succession planning?
5. Has something happened to make the company stock price to do down? Was that a bad quarter or something more? Are activist shareholders sniffing around the company?
6. What is the company’s valuation? Does the stock seem undervalued? Looking at the Price/Earnings Ratio or the Price/Book Ratio is a good starting point. The numbers ideally should be less than 13 times or 1.2 times respectively.
7. Are they any value traps? A value trap is one that has all the characteristics of being inexpensive but the stock price does not go up and may even go down. This could be related to the fundamental business has changed The industry is seen as a dying industry or one that is going through many changes. (check out Clayton Christensen of Harvard on You Tube – review the steel cycle industry.
8. Und

The checklist will help you to determine when to buy and sell. As the data changes on the checklist you will know whether to hold or find alternatives.

Linking to dividend paying stocks, at the simplest if you buy a dividend paying stock you most important checklist is the company profitable and can continue to pay the dividend? If yes then you can hold, if not there are alternatives but which other good company should you pick? The checklist or doing your homework is very useful.

 

One of the mysteries of the world is the largest 3 pyramids – how did ancient people built it? It is an enduring mystery for another of reasons – one we all believe we are in the smartest and best society – could we do it? no one knows. The second reason is of all the records left by ancient Egyptian world – there are no records of how the pyramids were built. This means there are guesses – some off the wall, some seemingly accurate but not one is the answer.

In a book called How the Great Pyramid Was Built by Craig Smith published by Smithsonian Books, Washington, DC, 2004. Mr. Smith worked for one of the large engineering construction firm. Over the years, he was interested in the mystery until one day while doing his day job, thought why not prepare the same principles of construction management as he was doing? Mr. Smith had access to his company’s software and using research and best estimates began the journey to discover what would be needed and when. Mr. Smith began his construction logic diagram and began to fill in the numbers. Why that site? where did the blocks come from – how would they be moved? what does the site tell you. The Egyptians moved blocks from a nearby quarry and from other quarries by constructing a canals and a harbor. As Mr. Smith was filling it his program – the picture began to unfold. Mr. Smith believes ramps were made until midrise of the pyramid and then they were pushed up. In his book he calculates the number of people needed and comes to the conclusion it was do able.

Linking to dividend paying stocks, how the great pyramid was built is a great example of investing. There are many things we do not know, but we do know some elements. With those elements we can forecast what should happen under reasonably normal circumstances. There will be unknowns which means as an investor trying to keep your decision making simple is a good thing. For dividend producing stocks – the big question is will the dividend be paid. Yes then can it raised or what is the margin of safety and other questions come. If you believe because of competitive pressures the answer is no, then move to alternatives. This is the reason why you need to do some homework to know what is good to move to, if and when you decided to change your allocations.

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

 

For all companies picking a location is a big deal. A correct location will allow the company to attract the people it needs to continue to be in business for a long time. Large companies often have an office building or structures for their corporate office and for a company such as Unilever they are divided between two companies. The Anglo Dutch company has its offices in London and Rotterdam and has decided while London will continue to play a significant role, Rotterdam is where the company will have its main headquarters. In a column by Kate Holton and Paul Sandle of Reuters, Unilever Chair Marijn Dekkers said the Board of Directors was taking a 30 to 50 year decision not one based on Brexit or recent political events. The company was formed with the 1930 merger of margarine make Margarine Unie and British soap maker Lever Brothers. The company employs 170,000 people around the world and generates $86 billion in revenues.

The company had talks with both heads of countries, but the Dutch offered a better deal.  The company will restructure to have Beauty & Personal Care and Home Care based in London while Foods and Refreshment will be in Rotterdam.

Linking to dividend paying stocks, with Unilever the company is making a 30 to 50 year decision. As long as Unilever can continue with its margins, the company should be operating just fine in 30 to 50 years. With this type of company you need to ensure while it maybe steady but is it continuing to make money?

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

 

 

In all industries themes will come forward and some organizations will run with them. In the radio business, a consolidation of radio stations went forth and iHeart ended up with 849 radio stations. However the big problem was establishing the chain meant using debt. iHeart Media according to Tom Hals of Reuter over $20 billion in debt. The company started with one radio station in San Antonio, Texas where its headquarters is still located. The company had $3.58 billion in revenue, reached 217 million radio listeners. The company sells advertising on digital platforms, live concerts and syndicated programs.

The company spent $1.4 billion on interest payments and has more than $8 billion in debt maturities by the end of 2019. Bond holders – if they are secured and owed $13 billion accepted $5.6 billion in new notes and 94% of the equity in the reorganized company. The creditors also took 89.5% in Clear Channel Outdoor Holdings – the world’s largest billboard company.

The junior debt holders who are owed $2 billion took 5% of the company and $200 million in new notes. The existing shareholders would receive 1% of the company.

Linking to dividend paying stocks, the example above shows the pecking order when too much debt is with a company. The secured bondholders take the lion’s share, the junior bondholders are left little and generally are mad; and the existing shareholders are left with almost nothing. It is why if the company is having difficulty paying their debt it is time to look for alternatives quickly.

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

 

In every industry there are opportunities from learning because companies go bankrupt for a variety of reasons. In the toy industry, Toys “R” Us declared bankruptcy – what lessons can be learnt? Sarah Halzack is a Bloomberg columnist for the consumer and retail industries has some ideas.

The first reason is debt – whether it be personal debt or corporate debt too much is a bad thing. There is a point where it becomes too much and for investors – if the company is spending a great deal of time and energy paying down debt, then it time to stay away. One big clue is accounts payable grow and accounts receivable decrease because suppliers want to be paid before they ship.

For some companies doing everything in-house means they have an expertise to do whatever is required. Toy”R” Us partnered with Amazon, but the partnership did not go well and Toy”R”Us never really caught up in the on line platform.

The retail environment is about keeping things fresh and new, 60 years the concept of Toys”R”Us was new and exciting. Now days, the changes made by executives do not seem to be new and exciting.

In hindsight one strategy for Babies”R”Us might have to gone upscale and high-touch service. It never went that way and it might have been a missed opportunity.

Linking to dividend paying stocks, one of the reasons for the success of the companies is profits are made to reinvest and pay its shareholders a dividend. All companies use debt, it is not necessarily bad, however when it crosses a line the writing is on the wall and you need to find alternatives.

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

In Egypt one of the major tourist attraction is the pyramids and within the great pyramids are tombs for the rulers to have similar experiences in the after level. The Egyptians believed the rulers or gods that ruled them when they died would rule in the after life and had to ensure their tombs had some of the country’s treasures in them. Rulers were buried with their gold or at least some of it. The pyramids were closed up and expected to remain close for thousands and thousands of years. Given the value of gold, many people decided to look at the gold and over the years some of the knowledge came to archaeologists who started to look at the mysteries of the pyramids.

One of the greatest treasures because grave robbers did not know or missed the grave. Tutankhamun only ruled for 10 years and shortly after he died the next leader started to change the history books about Tut. The next leader tried even more to wipe the name Tut from the history books. This is good for Tut’s treasure because if no one is looking for the treasure his era has low demand or economic value. It was rumored however there was a large treasure untouched near the great pyramids. Eventually Howard Carter and Lord Carnarvon found the treasure shortly after WW 1. It is the contention of Gerald O’Farrell that there was a deception in regards to King Tut. The book is called The Tutankhamun Deception published by Sidgwick & Jackson, London, UK 2001.

Mr. O’Farrell believes Howard Carter found the treasure, fortunately for him WW 1 happened and he was fortunate to take two thirds of the treasure out to be sold. The other one third was for show when the tomb was opened. It maybe true we do not know but in an earlier time museums around the world received their share before the country’s museums. The book did not go into whether Mr. Carter could afford the lifestyle of Lord Carnarvon – if he did more proof he stole some of the gold.

Linking to dividend paying stocks, in most industries there is some myth around them. How the company was started, why it is in the position it is, what rules were broken and how they are establishment sorts now days. As investors we what to believe in the myths although we suspect some of the stories are myths. The important aspect is the dividend sustainable and consistent. Then myths can be delved into on a later basis.

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

Similar to many people, during the winter going to a gym or a pool is part of the normal routine. It is good for health and given the weather outside, it seems easier to do. On arrival at the gym, there is a need to change clothing. 95% of the time, my feet go towards the same locker even though there is no lock on 95% of the lockers for they are day use only. Out of the 80 lockers, all of the same size, most the same distance from the bench and all of them having 3 hooks. my feet lead me to the same number was being used. After a time, it is noticed the other people tend to go towards the same locker in a similar fashion that I do. If  an analysis is done, my actions are not much different than most participants.

Linking to dividend paying stocks, we are creatures of habit and likely you have heard that expression many times over. There maybe a practical reason why we do something in the first place, but by the third time the rational aspect begins to disappear and the habit begins to come in. The big question is how do you ensure you have good habits in the first place, for most of us are not rational human beings. One method is to invest in profitable companies. If you start with profitable companies that means you tend to stay away from unprofitable companies which have a great possible story but no sales or too much debt. If you start with that premise then you will keep more of your money.

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

In an article by Dana Hull and Anders Melin of Bloomberg News – two of Tesla’s largest shareholders are supporting a plan to award Elon Musk a compensation package valued at $2.6 billion. The two companies are Baillie Gifford & Co and T. Rowe Price Group which own about 14% of the shares. Mr. Musk owns about 20%.

Edinburgh based Ballie Gifford founded in 1908 and one of the world’s most active technology inestors owns about 7.6% while Baltimore based T Rowe Price owns about 6.4% in various funds.

What is interesting in the story is reading who owns what. Chances are you may have heard about T Rowe Price but did you know Baillie Gifford? They are on the internet in case you want to examine the company.

Linking to dividend paying stocks, in the technology sector there are numerous methods to invest. Buy the company, ETFs. mutual funds, etc. and most of the time we are biased towards the area we live in. It is good to read who are the major shareholders and how you might be able to catch a ride with them. The folks in Edinburgh, Scotland and Baltimore, Maryland are away from Wall Street in New York and may know a thing or two.

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