According to Stephen Gandel of Bloomberg News one of the easy strategies of the past 10 years is not performing well. When a profitable company has excessive cash they have options – buy another company, reinvest within their own company, give a special dividend and or buy shares on the open market thus making the remaining shares more valuable. An easy strategy has been to invest in companies who bought more than 5% of their outstanding shares, had you done this, the portfolio would have beaten the index in 6 of the past nine years often by a wide margin. In 2013, the portfolio was up 40% while the index was up 13%.

Before you rush over to change your portfolio, it appears the strategy is not working well as the basket has declined this year. The primary reason is interest rates are moving upwards. However there is hope for an increase of buybacks. In President Trump’s tax plan the tax rate to repatriate money many corporations have outside of the US is scheduled to fall from 35% to 15% which will mean a tax savings of multiple millions for corporations. Unlike the sound bite from Washington which suggests the companies could raise pay packets for their employees, Wall Street firms believe share repurchase could rise to $600 billion which is up $100 billion from its current quarterly run rate. Will the strategy of buying companies who repurchase a minimum 5% of their shares continue to work we do know the President and Congress are trying to ensure it is viable strategy.

Linking to dividend paying stocks, no one does know, but we do know those companies are worth considering buying because they are profitable and are sitting on large sums of money in offshore accounts. As dividend buyers we do not have to question if this is a good thing or not, should the company be reinvesting in expanding or improving their business or paying dividend shareholders first. Our concern is year over year, is our dividend safe, if yes then you can continue to hold the company shares.

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

 

If you are a gardener you have a minor understanding of plants, but we continually learn from them. There is a book called The Secret Life of Plants by Peter Tompkins and Christopher Bird  published by HarperCollins Publishers, NY, 1973 reprinted in 2002. The introduction is lovely – Short of Aphrodite, there is nothing more lovelier on this plant than a flower, nor more essential than a plant. Without green plants we would not eat or breathe. The plants through the miracle of photosynthesis produce oxygen; most of the food we eat is plant-based.

No one has counted the roots of a tree, but a study of a single rye plant indicates a total of 13 million rootlets with a combined length of 380 miles. On the rootlets are fine hairs estimated to be 14 billion. The root is a water pump raising elements from root to leaf, evaporating and falling back to earth to act one more as the medium for this chain of life, The leaves of an ordinary sunflower will transpire in a day as much water as a man perspires. On a hot day a single birch tree can absorb as much as 400 quarts of water.

A climbing plant which needs a prop will creep toward the nearest support. Should this be shifted the vine, within a few hours, will change its course into the new direction. How does it know?  Is it chance that plants grow into special shapes to adapt to the insects which will pollinate them, luring these insects with special color and fragrance, rewarding them with their favorite nectar, devising extraordinary canals and floral machinery with which to ensnare a bee so as to release it through a trap door only when the pollination process is completed? The ingenuity of plants in devising forms of construction far exceeds that of human engineers. It is safe to suggest plants are complicated in the way they have developed to do what they do.

The book takes a turn to whether plants have souls which you may or may not want to ponder?

Plants start with soil, as any homeowner knows unless there is good soil to grow the lawn will not. If you add the waste of trees and animals to the land, the plants will grow. Unfortunately, most people try artificial chemical fertilizers and for a couple of years it does boost the productivity of the land, but within 5 years the land productivity goes down. The reason is the plants can not convert the chemicals or break them down. Ideally, the animal wastes from the corporate farms should be sprayed over land which has lost productivity from either single crops or land extensively sprayed. The problem is the waste has to travel to get from the corporate farm to where the land is needed. The other option which takes a year or two is rotate the use of lands. Different crops will bring the balance back to the soil and it will be healthy.

Healthy soil, properly composed with the right bacteria and earthworms, free from chemical fertilizers and pesticides produces strong healthy plants which naturally repel pests. Healthy plants make strong, healthy animals and strong, healthy human beings. Poor land grows poor food in terms of vitamins, minerals, enzymes and proteins. The food lack in nutrition produces sick people.

Linking to dividend paying stocks, while knowing about the effects of the chemical industry on the food we eat, it is very hard to change or make dramatic changes in the food industry. However you can learn from plants, whether it is the ones in your garden or reading how the plants adapt. If they can adapt, you can move towards companies that not only are profitable but try to keep the world in balance.

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

 

If you own a company in the commodity business which means the price of the underlying product is traded on markets and this means they go up and down, one of the most important pieces of information is if the price of the commodity how much does the company benefit? In an article about the oil industry by Shawn McCarthy and Jeff Lewis titled Back in the black: the new era of prudent oil, within the article is a quote by the CEO of a company called Crescent Point. They drill in the Bakken foundation and the CEO said for every $1 increase in the price of oil, their cash flow raises $65 million. With that figure you can now consider what is your outlook for the price of oil?

In the article, as the price of oil goes up and down so does what the company does or does not do. When prices are lower, the company reexamines its alternatives such as can we use video technology more? can we use solar panels on its wells? what costs can be cut? As the price increases to a reasonably stable level what opportunities can be taken advantage of? What lands are worth leasing and what prices do we walk away from?

Linking to dividend paying stocks, for all commodity companies they are driven by cash flow. It is easy to get involved with expensive projects when the price is high because the ability to gain financing is relatively easy. The trick is what happens if the price falls and when is cash flow a problem? If you are buying a commodity company how much extra cash flow will they have to meet your shareholder demands as well as running the company?

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

 

One of the most popular things to do on the internet is play games and games and gamers spend more money than movie goers going to the movies. Video games are played by many people and they spend long hours doing it. In the “old” days gamers either downloaded the game or bought the game and played to try to reach different levels. Eventually, they would play other people on the internet which meant there was friendly competition and some of the people you were playing against became friends.

For the companies from Sony to Electronic Arts as reported by Yuji Nakamura from Bloomberg News in an article called Gamers gripe over micro transactions, putting rally at risk. The companies are adding the ability to add digital goods and services. The game maybe free or almost free but people are spending thousands of dollars on extras such as changing the colors of the team to your favorite team; adding rare characters and special outfits. The model allows the players to spend as much as they want and keep spending as long as they like. The model adds higher and recurring profits. One of the biggest beneficiary is Tencent Holdings whose business is games with microtransactions.

There is always a danger in the model, how much can someone pay and if they do not pay is the game still enjoyable to participate? Sometimes the companies get it wrong and people move to different games.  The general rule seems to be micro transactions can enhance the game to the gamer but not give an unfair advantage to someone not paying the fees. In one game from Star Wars the micro transaction was the power of Darth Vader’s choke hold. Gamers hate the pay to win strategy and when they feel wrong the gamers know how to complain loudly.

Linking to dividend paying stocks, for profitable companies their outlook tends to the long-term and the customer being a repeat customer for life or a good part of it. Being shortsighted to drive up profits in any industry is possible, but will the company be in the same position next year?

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

At the end of the year, there are number of check lists which come into effect because an individual’s tax season runs from January 1 to December 31. As the season ends, hopefully you have made money (profits) and you begin to look for tax saving avenues. One thing to do is sell any losers to offset the gains you made. You will want to spend a few minutes on your portfolio and consider – when you bought your portfolio you did it right. You made decisions which you have lived with. Another question is knowing what you know (we are all smarter after the fact) would you do it again or make the same decisions. If you are similar to the mythical average person the answer is yes and no. For example tech companies were up over 50%, how much money was in that sector? Oil prices have come up a bit, how much was in that sector? It is easy to second guess yourself.

Linking to dividend paying stocks, if you first consideration was for the dividend and the dividend has been paid and the company remains profitable and expects to increase the dividend next year, then how much the stock has gone up or down may not be your biggest worry. Markets will move up and down or fluctuate that is all we know, but the past history suggests when the markets goes down, the stocks which first go back up as investors buy quality profitable stocks is dividend companies.

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

Double Identity in this instance is a movie staring Val Kilmer and Izavell Mhko which was released in 2010. If you watch the movie enjoy for its entertainment value, the backstory is based on the diamond trade and the levels DeBeers controls the cartel. Ever since Cecil Rhodes (Think the person behind Rhodes Scholarships) consolidated the diamond and gold industry in South Africa, the diamond industry has been run by the cartel. The cartel allows a limited number of diamonds to be sold and for many years it was relatively easy to run because the best diamonds came from South Africa. Nowdays diamonds are still mined in South Africa but also in Canada and parts of the the former Soviet Union. It is this setting where the fictional country wanted out of the cartel and found a willing retailer who wanted diamonds for less, mark them up and make even more money. The movie is a fictional account (we hope) of how far DeBeer agents and former special forces agents trying to stop the players in their tracks

Linking to dividend paying stocks, in the movie because it involved the use of murder to keep monopolies As investors you do not want to commit a murder just continually receive dividends from a profitable company. The only message from the movie is it takes a great deal of stress if you want to break up monopolies. It maybe exciting, it can be profitable but entrenched players want to keep the status quo. As an investor you like the status quo if it can enrich you.

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

The company which has been in the news likely more than most is Uber. The company Uber has a distinct advantage of cabs in any city. it does not own any physical assets. The cab companies own the cars or the medallions (taxi license) in order for the driver to be dispatched from a person who matches calls for service and where the cab is. In the Uber method cars driving by people  are connected to the net by their phone and the driver owns the vehicle, the driver  use the phone to be told of their locations and the location of clients. Equally important is the client can monitor the process of their phone and Uber takes a piece of everything the car drivers make.

In  a book called Wild Ride – Inside Uber’s quest for World Demoniation by Adam Lashinsky published by Portfolio/Penguin Books, NY, 2017, Mr. Lashing describes the evolution of the company. For a company like Uber to exist 3 major items had to be invented and be used. The three are email, easy access to capital and the harnessing of artificial intelligence. These three things are the building blocks of companies such as Uber. It is said, in most developed countries the amount of people which own smart phones is well more than 50%. Whether everyone needs a smart phone is not the question – it is do they use them? The difference between one start-up and another is often easy access to capital, all companies have ideas – are they great is a more difficult to answer.

In the late 1990’s the founders of Uber were wondering is it possible to use your cell phone to place an app on your phone for you to call a limo and be able to track it. It took a couple of years of playing with that question because the system was not there yet. It had parts such as every cell phone has GPS capabilities. The use of AI or artificial intelligence would come. The AI would do all the work from the dispatcher only on  your phone. Once in was possible Uber started with limo service which were used by venture capital groups in San Francisco and they started to see the what Uber could become. They brought money and the founder of Uber through his previous start ups was good at raising money from venture capital groups.

The AI developed over time which allowed the company to move from limo to cab service in urban areas. After seeing cabs, the model was used on other items such as Uber Eats and many others – some which worked and some that did not.

Linking to dividend paying stocks, it takes time before all the features are in place to make money and most people do not see it. They can see one aspect or maybe two but not the third. In every industry there are regulations which help protect the existing companies and companies similar to Uber fight the regulations to remove the barriers. If the regulations were not on the cab business, it is possible other groups would join in the fight to save the regulations. In many people’s eye the cab business needed a shake up and Uber was there to do it. For your investments you have to ask who would want to shake up your industry?

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

 

 

Las Vegas is known as a gambling city, the city in the middle of a desert was founded on legal gambling. It is also one of the most popular tourist attractions in the US. This foundation of gambling started with cards and dice but quickly evolved to sports betting. For most of professional sports time, the city has been seen as wrong for any major league to be associated with Las Vegas. In an article by Tim Dahlberg of the Associated News the number one sport of gambling the NFL is bringing the Oakland Raiders to play in Vegas. The Oakland Raiders broke ground for the  new $1.9 billion stadium will build for the team and Vegas Hotels will pay $700,000 million with the opening set for 2020. The stadium will be black and white or the Raiders colors.

The NHL set up a team called the Golden Knights and in their first year of operation have drawn well through season ticket holders and those that are visiting Vegas. Other sports which draw well in Vegas include WFC and  NASCAR, The problem was never the drawing of fans, but the perception of doing in a business in a city where they bet on sports and would someone go to measures to ensure their bets win.

Linking to dividend paying stocks, things evolve and change and that is why it is difficult for companies to consistency deliver excellent results. Every once in a while look at your investments and ask how has the company changed because of innovation and breaking down of taboos.

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

In mid November, AB Inv the world’s biggest brewer announced senior level personnel changes in an effort to stem a years long sales decline in the US. In a story by Reuters written by Philip Blenksinsop and Martine Geller – Budweiser is being shaken up.

Bud Light is still the number selling beer brand in the US, but US consumers are drinking wine and spirits move than beer. Budweiser has sold less beer and in the third quarter total beer sales were down 6.2%. The decline has been going on since 2014.

Craft beer – beer brewed by smaller brewers is no longer growing at double digit rates but it is estimated growth will continue at 6% according to analysts at Susquehanna.

One strategy AB Inv can do is buy craft brewers and they have acquired a dozen over the past couple of years. One must remember the brewery where Bud is brewed has economies of scale and access to all the distribution channels.

Linking to dividend paying stocks, on one hand it is good for society beer sales are down on the other hand large brewers having a beer is a good thing. All leaders of brands will experience market share increases and decreases. For Bud if it went up too much, the competition bureau would poke their noses into AB Inv business (as they are suppose to).  Market leaders have different challenges, in this case if Bud was to fall to number 2, then wholesale changes would be needed in the industry and it would be best to look to alternatives as you watch from the pub.

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