One of the concerns people in the health industry have is the growing obesity problem because an overweight person as they age will tend to have more health related problems or be more expenses to the system. We all know the baby boom generation is getting older and there are plenty of baby boomers who are overweight. How did we arrive at this destination? At some point we will be told of the high levels of salt, sugar and fat in our diets. Well this did not happen overnight and although there is always individual responsibility and we all have some level of discretion of how we spend our after tax money, the food giants played a role. In the book Salt Sugar Fat – How the Food Giants Hooked Us by Michael Moss, published by Signal part o the Penguin Group, New York, 2013.

The other aspect of the book is the selling of products. The food giants are successful in making profits, in returning a high return on investment dollars and not being concerned about the science, but the selling of the food products. Every year  thousands of new products are invented and they need shelf space. Most of these products will not last longer than 2 or 3 months, a few will be a success – selling $25 million in annual sales. One or two will break out and become a billion dollar product.  When that happens the concern will be to maximum profit and then lowering the costs of the ingredients while keeping the quality which made the consumers buy it in the first place, what typically happens is the fat, salt and sugar content goes up.

In terms of shelf space all the large food companies want to have the best shelf space possible – where it is easily reachable by the average consumer. The new products will go to the top or the bottom of the shelf partly because supermarkets want to sell proven winners. Partly because the food giants rent the space or pay higher rents than new companies can. In the convenience store particularly in areas of town where there are fewer grocery stores – the convenience food companies aim at small buyers but very regular buyers to make their money. The other dynamic is adults who miss meals because of their time commitments who want something to satisfy their cravings.

The biggest change in the processed food industry is with two income families with commuting times they do not have the time or make the effort to prepare meals from scratch. There was growth in convenience foods and the size of the serving. The growth of the convenience foods is highlighted by the Lunchables brand. In 1985, the people at Oscar Mayer were considering what to do about bologna sales? After doing focus groups, it was decided to focus on the lunch meal and in the 1950’s it was 2 slices of bread and bologna; now it was the parent’s did not have the time to do it. What to do now? after going through months of research it was decided to try the idea where the kids could make their own lunch. Then it was all the consideration of what should the meat look like? what should be in the tray? how long does the food last or stay fresh? would the kids eat it if their parents bought it? From a corporation point of view how do you combine all the ingredients in a cost effective manner and what should the price point of the product be? Many decisions go into a food product and that means many things could go wrong or be better. The Lunchables was successful and this led to other companies copying and extension themes.

In the senior levels of the food industry, while people know about the concerns of salt, sugar and fat the most important consideration is does the product sell and how do you protect your market share and try to grow it. Millions of dollars are at stake if the brand share falls. The marketing program is designed to push or edge you to make a decision on food and there are many choices. Why do you pick the one you did is continuing research and many hours of trying to understand the consumer. In many ways, the idea is to lead you on the right path.

Linking to dividend paying stocks, in the food industry the food giants have the built in advantage but the consumer makes the decision. The decision is highly influence by the companies from ensuring the item is on the correct place on the shelf, to the marketing dollars aimed at your decision, to what is inside to be a continuing repeat consumer. People change and over the years analysis of the data is to change from the general targeting to the very specific demographic targeting to ensure you become a repeat consumer. If you are an investor, you want the company to continue to focus on how to sell the products, as a consumer you want to know the food is good for you.

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

 

One of the concerns people in the health industry have is the growing obesity problem because an overweight person as they age will tend to have more health related problems or be more expenses to the system. We all know the baby boom generation is getting older and there are plenty of baby boomers who are overweight. How did we arrive at this destination? At some point we will be told of the high levels of salt, sugar and fat in our diets. Well this did not happen overnight and although there is always individual responsibility and we all have some level of discretion of how we spend our after tax money, the food giants played a role. In the book Salt Sugar Fat – How the Food Giants Hooked Us by Michael Moss, published by Signal part o the Penguin Group, New York, 2013. The food giants include: Pillbury, Nestle, Kraft, General Mills, Coca-Cola, General Mills, Cargill, Tate &Lyle, ADM. In the book and in the marketplace all the above companies compete against each other to be the leader in their products.

There are two aspects to the book – one aspect is how each human reacts to salt, sugar and fat in ways the Food Giants are understanding more and more each year. The food giants employ science professionals to understand how the body reacts and then try to ensure their processed foods capture the greatest sensations from the salt, sugar and fat.  In every diet, people need some salt, sugar and fat, the issue is how much? Products that are not so healthy for you were designed for you to eat more than one serving. When you read the notes on the side of the packaging about how much value the food gives you- is it for one serving or the whole box? There was an old commercial which used the tag line “betcha you can not eat one”

For most processed foods without the salt, sugar and fat ingredients the food would taste bland. Add them in and the food will be devoured. For each, realms of data are gathered and analyze to find the bliss pint or the precise amount of sugar or fat or salt that will send consumers over the moon and be repeat buyers. Researchers know each of the ingredients salt, sugar and fat do good things for the body and add to our enjoyment of eating. The researchers study where does the mouth and tongue signal the brain? The research indicates depending on how much you eat, the ingredients send very positive signals to the brain to eat and enjoy. The issue you is if you consume too much over a reasonable period of time you will have high blood pressure and a host of other health related problems.

In the 1950’s at many schools were home economics teachers who taught the value of preparing food from scratch, budgeting and a variety of other subjects. As the years went by, the school system removed those teachers so few were taught the skills at school. Somehow it was linked those skills should be taught at home. Many people learnt the skills much later in life after much trial and error, perhaps the home economics teachers should come back?

Linking to dividend paying stocks, in the giant food companies there are challenges for the consumer’s dollars on a weekly basis. What does the consumer spend at the grocery store and will they pick the brands at a margin that ensures the companies make profit. The use of fat, sugar and salt and through marketing dollars means the odds are stacked in favor of the company, but things change. With food giants, you will want to see how flexible in their decision making they are to the changes to the average consumer they are targeting. If decisions on new products take forever, it is time to look for alternatives.

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

 

If you watch You Tube there are multiple videos on lists and one of many is what School Districts do to make up for lack of state and local funding. Even though one of the major costs of schooling is teacher salaries and benefits, legislators often find it easy to cut funding to public schools. School and school boards then have to do something to make up for the money. Some of the solutions which have been implemented include:

cheating school test scores. Everyone wants our children to be the best educated they can and an incentive from states is the higher the student scores, the more funding the school receives. Taken to the logical conclusion, principals wish to have high scores for standardized tests. If the results are less than expected, schools cheat to push up the marks and get funding.

neglecting repairs – buildings eventually need to be repaired. The same as your home will need on going repairs. A fund should be available for the repairs, but most people do not and begin to put off the repairs. The first year is probably not going to do too much damage, but second and third and fourth and soon the minor repair is a major repair. Many school districts keep leaving in until a new school is needed.

advertisements – the school population of kids appeals to many companies and if the kids can be convinced of leaning towards a brand when they are young, by the time they are adults they will be loyal to the brand. Young people try multiple brands, adults tend to stick to the ones they are used to. Many schools have as many advertisements as you see in Times Square in New York. In Times Square there is a building which has no tenants but a great location and the ads pay for the maintenance of the building. Hopefully the schools receive good rates for the advertisements.

bus service fees – at one time bus service was available for children that lived greater than 3 miles from a school and was free. School boards are charging for the bus service.

renting school property outside of school hours – sometimes the local school allows for the parking lot to be rented out. It is harder now because of rules who can be on school property during the day, but if the school is looked at as asset, creative solutions can be used.

Linking to dividend paying stocks, if your company has land and buildings and you do not see on going repairs or a budget allocated to it, then you should be worried. It is easy to neglect the small things when money is tight, but they can develop in major costs. As a profit-making company, you expect your company to do all it can in terms of regular maintenance and not charging excessive fees. If it does, then it is time to seek alternatives.

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

 

 

In early October, the L.A. Times wrote a story about Disney and its influence on Anaheim, California. The city is home to the California Disneyland and its multiple theme parks for Disney movies this year include: Beauty and the Beast, Guardians of the Galaxy Vol 2, Thor: Ragnarok and Star Wars. The combination of traditional Disney movies, Marvel comics and Star War franchise and trying to use all form of multi-entertainment from each franchise makes Disney a powerful force. In the L. A. Times article, the story examined whether Disney pays its fair share of taxes – often for a large employer for it to operate at continuing levels and increase its investments in the host city, the company asks and often receives Civic improvements which benefit it. If you examined the quest for the next Amazon headquarters – it was amazing what cities and states were offering for potential 50,000 jobs. The question is do the benefits outweigh the incentives offered and how strong is the loyalty bounds. There tends to be no specific answer but large organizations always ask for more and the opposition is not allowed to ask what happens if the company moves or shifts its investments?

In the case of Disney which is headquartered in Los Angeles, they were mad at the L.A. Times and said their people would not longer talk to them,  the silliness was over in 3 days and now each go about their business.

Linking to dividend paying stocks, all companies which earn a profit and can continue operating on a consistent basis have a great deal of influence over where they locate their facilities and given the internet and the ability to work almost anywhere – locking the companies to a location is generally a one sided negotiation. Companies can do it above board or they can enter into what they bleed from the government. These are the same people who then say we pay our taxes (heavily subsidized) and expect others to pay the full rate. As investors, we often do not know what the company is paying or not paying, but we believe it is paying near full rate. Often times listening to the senior management will give you an idea of how close to full rate they pay or would like you to believe they pay.

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

One would think that having a contract with a large profitable company, the supplier would do all is possible to keep the contract for it can be renewed for many years. One may think that but a supplier to Norfolk Southern Corp – one of the largest railway companies is suing a supplier Boatright Railroad Products Inc. Boatright supplies rail ties or the wood underneath the rail and a large company needs millions of ties. Norfolk has to replace them faster than normal because many of them were not coated with creosote. A memo by Boatright ordered workers to make the ties black by any means necessary including using motor oil, antifreeze, black paint and other chemicals. None of these you would use on your fences to treat them against the weather. One would think a company which has the name right as do it right in their name would actually do it right.

Norfolk will find another supplier and Boatright Railroad Products will be out of business with the reputation gone. All because people decided it was better to try to fool the big railway company. Big companies are often in the business for years and have people to worry about how long their products are lasting and how long they should last. It was stupid for Boatright to do and they will see the consequences.

Linking to dividend paying stocks, a reason to buy these companies is they have a long history of making profits which means they can be ethical or as ethical as possible in their dealings. Will mistakes be made, some but they should not be institutionalized and often can be corrected without the company going out of business or being sold. Sometimes making the correct decision is hard if profits are on the line, but having a long history of making profits should allow more correct decisions.

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

Every time the markets reach new highs for most of us it is a good thing. Our assets have climbed higher but at some point one needs to ask is the glass half full or half empty. When the markets go up, understandably we know markets will go down, the issue is how much will it go for a correction and when. Unfortunately we only know the answer in hindsight. David Stockman who was the former Budget Director under President Regan is warning that the time will be when the fed raises interest rates. The fed and other central banks around the world have increased money supply by buying and issuing bonds, at some point they will slow, issue less and raise interest rates. Interest rates will make credit more expensive. One of the many concerns David Stockman has is the amount of leverage or speculation there is in the bond market – if rates go down, bond prices fall and more collateral must be put up by speculators – who try to leverage as much as possible without putting up their own money.

Coming back to how to sell. It is complicated because if you sell and the market goes up you feel you have missed opportunities. If you sell, what alternatives do you buy?  Barry Ritholtz of Bloomberg View wrote a column about when to sell.

What is the basis for making a sell call? Most of the time it is emotion and that is a terrible strategy because the market has already reflected the news in the pricing.

What if you are wrong? Most average people with investments are not traders – if you are a trader there are a multiple strategies to reverse an error. Mr. Ritholtz has a rule which is draw a line in the sand on the downside, if the stock goes lower than the line you admit you made a mistake and sell. On the upside, it is easy to take profits, one thing you can do on the upside is as the stock gets to be a higher percentage of your asset allocation you sell to keep yourself reasonably diversified. An easy method if your stock has doubled, sell half which makes your remaining half cost 50% less and then you have lots of flexibility as the stock price goes up and down or fluctuates.

What if you are right? Assume you are right to sell everything and the market collapses. When do you get back in? How long before you buy back? It is easy to say buy low and sell high, it is much harder to do.

Do you have discipline? If you have a sell plan and a strategy for implementing it. can you stick to it? It is very easy to second guess yourself. You will always hear conflicting viewpoints which ones do you implement?

What is the cost-benefit analysis? If you sell high which is a good thing, you will have capital gains, of course part of the tax system is offsetting capital gains with losses and moving money into tax savings accounts.

Linking to dividend paying stocks, one of the good things about the dividend paying stocks is the reason you own them, do they pay a dividend? will the company continue to make money and pay the dividend? If the answer is no, then you can seek alternatives. The discipline of the dividend can your line in the sand.

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

 

 

 

Most people after working for a company have a sense of loyalty towards it, the company has paid them for their work, they may have worked upwards or had influence on the company as they years go by. All these feelings towards loyalty and doing right by the company are normal. What happens when you can see the future but senior management does not seem to get it? One option is to quit and do a start up, but what happened to the armed forces after World War I?

There is a movie called The Court Martial of Billy Mitchell staring Gary Cooper released in 1955 which asks the question what happens? The war was over and the setting was 10 years later in 1923 – unlike President Trump who increased the military budget, the military budget was slashed for the country was no longer at war. There were two branches Army and Navy and the senior brass thought the next war’s strategy when it occurred would be similar to the last war. There were others who believed technology had changed and the next war was going to be different. One of them was the Brigadier General Billy Mitchell who flew airplanes during the war. He could see as technology developed, dropping bombs from airplanes was going to be a strategic advantage. By 1923, the military had technically 669 planes. 600 of them were built for the war effort in 1912-14. 60 were used for training and 9 were battle ready. If you are fortunate enough to live near a air force base or been in the area – the number of planes are much different today.

General Mitchell was very loyal to the Army, but given he was near the end of career and was never going to go higher and could see the blinkers on senior leadership, the General caused a military trial to be held that was semi-public. He was hoping by having good people testify to the in-actions of the military, he could change policy and move on. The military was more interested in destroying his character and keeping the status quo. The movie shows loyalty to an organization has not changed and people are conflicted as what to do.

Linking to dividend paying stocks, in all organizations when something works people keep doing it, till it does not. Then the company asks the employees for ideas and most of the ideas will meet the standard something should be changed. It takes great management to recognize it and as shareholder while you enjoy the fruits of doing the same thing to make money, you want to ensure it continues. How does senior management see change and do you agree? If you do, you can keep the stock, if you disagree seek alternatives.

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

 

If you drink a hot beverage it is likely to be either tea or coffee, most of us drink it but have you ever thought about the source of the tea or coffee. In the book Darjeeling – The colorful history and precarious fate of the World’s Greatest Tea by Jeff Koehler published by Bloomsbury, London, 2015, the author did and does. Mr. Koehler describes the tea world from a perspective of an Englishman.

In the book, Mr. Koehler describes the tea process, the gardens and the history of Darjeeling. It was not always been easy, many people died trying to establish the plants for the hills were not alive with tea plants. All of them had to be planted, nurtured and the process to pick quality tea is very labor extensive.

When India achieved its independence in 1973, there was a push by the government to ensure India could grow more which lead to the use of chemicals. The chemicals increased yields but the soils needed increased amounts of chemicals each year. The tea growers have since 2013 been weaned off their chemical and are organic. In this case, organic and using compost enhances the flavor of the teas and when Darjeeling Tea is sold as a quality product, it was the correct decision to do.

With independence the British tea growers looked to other countries to grow tea in which they could control the production cycle. A country was found with altitude and rainfall  and room to expand. The country is Kenya and now 60% of the teas on the grocery shelf in England come from Kenya. The tea is good and used in blending.

In all mass markets, there is a demand for the general price and a higher price for quality and the teas in Darjeeling moved to the higher priced quality teas. Although not every tea leaf is quality, which means the markets have shifted beyond England. The world of tea is similar to the world of wine, where the tea comes from allows its flavor to be enjoyed.

Linking to dividend paying stocks, every food commodity has its mass markets as well as the quality markets. Doing your homework on whatever you enjoy will allow you to enjoy the food and see which companies are doing what. Some will be private, some will be part of larger companies or a division of it, but if you spend your time and energy it makes sense to see if there are public companies you could invest in. Then you can have a financial award (dividends) and a flavor award (the food).

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

 

If you drink a hot beverage it is likely to be either tea or coffee, most of us drink it but have you ever thought about the source of the tea or coffee. In the book Darjeeling – The colorful history and precarious fate of the World’s Greatest Tea by Jeff Koehler published by Bloomsbury, London, 2015, the author did and does. Mr. Koehler describes the tea world from a perspective of an Englishman.

In the 1600’s food made in England was not the most satisfying and to enhance the flavors spices were needed, There had been long established routes from India to Arabia across the Suez, into Italy then goods and services were distributed around Europe. Eventually the Portuguese sent a ship to India and Java (Indonesia) and when the ship arrived  – the investors made a fortune. Soon the Dutch and the British were sending ships for spices. The world was discovered on ships looking for cloves, pepper and other spices which lead to the term Spice Islands. For 150 years – the countries battle each other for the spices, peace was normal and steady dividends was the result.

In the 1750s, the Indian Raj did not like the British building a fort (military presence) and a battle was eventually fought. The leader of the British force was Robert Clive and with opposition Indian troops ought the battle of Plassey which is located outside of Calcutta. The English won and installed a new ruler who gave the East India Company a windfall of $2.5 million lbs. When Robert Clive left in 1759 with 300,000 lbs he was one of England’s richest men. The significance of the treaty originally for self defense lead the East India Company to have a private army which grew from 18,000 to over 154,000 by 1805. As the Mughal Empire declined the East India Company moved into its place to administer India which included growing to become the most powerful commercial company ever to exist. Cities such as Calcutta, Bombay, Singapore, Hong Kong became global cities. At one time a third of the British workforce was employed by the East India Company, the company controlled half of the world trade, and had the largest merchant navy in the world.

The company started with spices but eventually tea became the focus of its financial success and the cornerstone of the company’s trade strategies. Tea was originally imported from China and as time went on the tea market grew from the first order of 143 lbs to over 6 million pounds in 1766 which was over 60% of the trade and tea was profitable to the company. Naturally, similar to all organizations, they seek alternatives as the British drank more and more tea, there was the cost of buying Chinese teas with Spanish silver bars from Mexico. Eventually the East India Company started importing opium to China which besides causing many opium dens but reversed the balance of trade and China was soon short silver.

In terms of tea, the Company wanted to grow tea somewhere it controlled and found an ideal place where tea plants were growing at the foot of the Himalayan Mountains in an area between Nepal and Bhutan called West Bengal, India. The Mountains provided the rain and mist coupled with the organic soil to enhance the flavor of a quality tea. The Mountains also provide difficulty in growing because the area is hilly, took time to get to; during the Monsoon rains is very difficult to travel, but the micro climate is ideal for tea plants. The original tea plants in India were cross bred with plants from China and the early days – how to bring out the flavor – the masters were Chinese. Over the last couple of hundred years, the people of India own most of the gardens and have become tea masters.

Linking to dividend paying stocks, it is very rare to be able to buy a stock which essentially controls the government operations, for most of those conglomerates have been broken up to enhance shareholder value. For the East India Company importing profitable tea and the mechanisms to keep it going year after year was admirable. The East India Company has long disappeared particularly after India’s breakaway from England but it was a long run.

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