Everyday billions of people go their computers and begin a search, many of them use Google because it is fast, it has a clean front page and it was institutionalized by many teachers. Let start with google, although there are other search engines in the marketplace. Have you ever wondered how Google became the search engine that it is? A book called The Search – How Google and its rivals rewrote the Rules of Business and Transformed our Culture by John Battelle, published by Portfolio Books, NY, 2005 will give you understanding of how we go to where we are.

When the internet was invented it was for a free flow of information, naturally some of it was about work then hobbies and normal life gets added in. As the internet grew to more users, there was a desire to rank information. What information is more important? what information is relevant to the user? In the example of Google – the founders Larry Page and Sergey Brin designed a search engine which was better than most. However, designing a better mouse trap does not mean selling a better mouse trap. In all businesses, revenues are needed to ensure the company meets its bills and grows, sometimes it is better to sell out to a bigger company. In every business the cost to acquire a new customer is sizable which is why many companies are very specialized. However for companies which appeal to the general public, there is advertising and sponsorship which put the company in the public’s eye. In the advertising world, it is often said advertising is wonderful, except for you never know which part of the dollar was good and which part was crap. The internet helped solved this problem, if someone searches for a product or service, they are likely interested in buying it. That is worth more money than blanket advertising.

In the beginning years, Google was more interested in designing a better search engine and combatting the spam which can and did push up spam (junk mail ads). The trick is traffic could be had for pennies, but if you charged higher prices for clicks on advertising and ad words, you would make a lot of money because advertisers would pay more than pennies for the right traffic or traffic which buys goods and services. The founders of Google came up and would continue to come up with a search engine for information better than the competition. It was not without its problems for Google tweaks its algorithm which is the basis for search every once in a while to Try to Do No Evil as well as to battle the junk mail companies. The junk mail companies pay some bills but no one wants the mail all the time.

Linking to dividend paying stocks, with Google and other companies designing a better mousetrap was the first stage of the company; if things had happened differently it might have been a small company or bought by someone else. Google had the right solution it terms of search and with the addition of advertising, made it work. Now they are the dominant position in what they do and it would seem there is less risk in the company. This is why a recent study indicated only 4% of the companies drive the stock exchange indexes, it is just difficult to pick the 4 companies.

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

Since the world often times can be seen as half full, and most investors in the stock market are in it for the more optimistic aspect, it is good to look at the half empty. The market has gone up and the bull market is still going forward. Tom Stanley of Steadyhand Investment Funds wrote a column called Don’t be caught off guard when the bear comes knocking. In the article he recommends you examine your portfolio paying attention what if the markets were to fall:

Down markets are never quiet and are guaranteed to feel lousy. If the downturn is severe than nothing will escape the fall and there will be little attention paid to valuations. Downturns turn people into survival mode.

When markets are down, everyone becomes an economist. Peter Bernstein said in calmer moments, recognize their inability to know what the future holds. In moments of extreme panic or enthusiasm they become remarkably bold in their predictions.

With this big picture focus becomes a shorter time frame. Investors feel the need to be more exact in timing purchases, transfers and withdrawals. This precision has the effect of freezing many people preventing them from taking positive action.

You need to get prepared for next downturn

1. Have a good sense of what you want your long-term asset mix to be (cash, stocks, bonds). This will give you a baseline to work with.
2. Mentally rehearse what you are going to do if the portfolio falls 10 to 15%.
3. Freshen up your target list for securities and funds you want to purchase or add to. (this might be your most important piece of homework – A downturn will push prices down, some stocks there will be buying opportunities)
4. Know who you will lean on.

Linking to dividend paying stocks, if you are a long-term stock holder, downturns are part of the business and this is where you can buy great quality stocks at lower prices and eventually they will go lead the market upwards. If they pay a dividend you can do very well (the last downturn some people borrowed money to buy stocks and the dividends covered the interest cost. The stocks went up and the loans were paid off). The key is which stock would you pick and for that you need to do homework on which are the best stocks to buy.

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

A recent report from Rethink X of San Francisco came out which suggests that Electric Cars are going to change the motor vehicles industry dramatically. The report says electrical cars have 10,000 moving parts; the internal combustion engine or gasoline vehicles have 30,000 moving parts. The drive trains have 20 moving parts while gas engine has 2,000. As more and more electric cars are sold, because of the fewer parts the electric cars can last on average a million miles before they need to be replaced. At present, most of us think of changing the vehicle after 250,000 miles or less (presently my vehicle has near that number and things tend to go wrong with the vehicle, even though it is reasonably well maintained). If the average vehicle will last 1 million miles, then the average mile driven is remarkably inexpensive and that low cost variable will drive down everything connected to the motor industry infrastructure.

The vehicles will need less repair people; less dealerships; less financing from banks; less people in the car business. In addition, they will use less fuel (elecrical top ups) which means we need less gasoline or fewer gas stations. At the present time, it is relatively easy to buy stocks of companies which own dealerships – within the next 5 years you may want to look for alternatives. People still need to get around by if the report is near to being correct, the entire industry will be change or could easily be disrupted. If it is disrupted then the electrical car industry will grow faster than we all think it will.

Linking to dividend paying stocks, more electric cars are great for generators of electricity of utility companies, as time goes on you may consider moving funds from energy companies to utility companies because the cars still need fuel to move.

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

Adoph Hitler at the end of the second world war died or we highly suspected he died under uncertainty – did he commit suicide? was he taken out of the bunker and died in a foreign country? We think we know, but there were doubts because the idea was to end the war and not worry about Hitler. In the years that passed, the general public wondered what kind of man was Hitler to bring Germany out of the recession; to overtake most of the countries in Europe and fight against those that could. In this situation information about Hitler slowly started coming out and as the years passed, people wanted more information. In the 1980’s forty years after the war, from somebody’s attic books or diaries were found – could they be Hitler’s private thoughts. It turned out they were fakes, however Robert Harris wrote a book about Selling Hitler published by faber and faber, London, UK, 1986.

When the diaries came out they were offered to the newspapers of the day and the owners and editors had to make a decision were they the real thing. If the diaries were the real thing, more newspapers would be sold because people were and likely still are interested. The end of the war had left uncertainty and the owners of the newspapers hired known Hitler experts to see if they believed it was the real thing. The book described the details of thinking about the big headlines and story and what if they were wrong.

Linking to dividend paying stocks, most things in life have a degree of uncertainty attached to them. The marriage vows are for better or worse, although everyone hopes for the better. Often times research will tell you one way or the other depending on the situation. The more we know, the more we find out the more you do not know, however a decision needs to be made. In the stock market, we have perfect information looking backwards and a degree of uncertainity looking forward. One way to reduce the uncertainity is to invest in profitable companies which pay a dividend. If they can not pay the dividend, it is a clear sign to find alternatives.

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

Around the first of June, Amazon shares broke though the $1,000 barrier which is great if you hold the stock. For many people $100 is a break through because the stock has to continue to be a growth stock and if we use the Amazon stock – the stock has to rise to $1,200 to make a 20% return. It could do that for over the past year, the stock is up 40%. The question one needs to ask is how much further does it go up?

There are a number of reasons why the stock should continue – if has the resources to do whatever it wants which can be a good thing. The stock is worth more than Wal-mart even though Wal-mart which is the biggest retailer in the world has sales 3 times larger than Amazon. Investors according to Spencer Soper of Bloomberg News put more value on Amazon’s web traffic and delivery network. Amazon is spending billions of dollars on research and development in an effort to make it the lowest cost delivery business. Amazon has many countries in the world to penetrate including China and India – home of a billion people each.

If you know someone that has Amazon Prime – the $99 a year subscription, it dominates the market. There are 80 million subscribers who pay for delivery discounts, music and video streaming, and photo storage. Amazon continues to push its way into all retailing categories. The incredible statistic with Amazon Prime is once someone subscribes to it, there is a 96% renewal rate every year. With a number 96% retention, Amazon is now offering Prime -lite to have everyone to try and get hooked on the service.

Amazon’s cloud-computing division of Amazon Web Services (AWS) has a global network of data centers and rents out space to many companies including the US government. The fees for AWS bring in $246.8 billion. At the moment Amazon is one of the best users of data to achieve the goals for everything it sells.

Another aspect is the FANG trade of Facebook, Amazon, Netflicks and Google plus add in Apple and you have 25% of the rise of the stock exchange and a recent study suggests 4% of the stocks typically make up the greatest percentage of the rise of the stock exchanges.

Linking to dividend paying stocks, while Amazon does not pay a dividend it is a stock which has transformed the economy. If you do not own it, if you own a index fund it should be in it. While Amazon keep going up, no one knows for the stock market to have perfect information is to look at what has happened. In all likelihood, Amazon will not lose that much before it continues climbing upwards.

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

During the Renaissance time in Europe, the center of the world was Rome for all of Europe was dominated by the Catholic Church. At the center of the Rome is the Pope and in the Renaissance times, they lived similar to very well paid Executives of today. The Popes and Cardinals received a very generous compensation scheme from being Cardinal of the region. The Church was seen as being close to God and people in general were not necessarily dissatisfied with the set up. The Pope lived well and was allowed to have mistresses and children. During the reign of Alexander VI, the Pope or Rodrigo Borgia used his children as help his papacy and to politically align the church against potential enemies. His son Cesare became a Cardinal as well as taking out rivals; his daughter Lucrezia has been the subject of many reports of what was not good with the Renaissance.  In a book called Lucrezia Borgia by Sarah Bradford, published by Viking 2004, the author tries to see the real Lucrenzia.

At that time, in history particularly among the lords of the land, daughters and nieces were used to cement relationships with other lords to ensure relative peace. However, just because Rodrigo became Pope it does not mean he automatically became part of the in crowd. Lucrezia’s third marriage since 12 years of age was to Alfonso d’Este who was the son of the ruler of the lands around Ferrara which is between Bologna and Venice. The d’Este had ruled Ferrara for over 900 years at the time of the marriage. The Borgia’s were first generation of Cardinal and was led by a very ambitious Pope from Spain. Alfonso’s father ensured his relatives who could have challenged him were dealt with and the two side negotiated a large dowry (a very large dowry from the Pope) to ensure the marriage would take place. It did and produced heirs for the family to rule until the 1600’s and one of the tourist attractions is the d’Este Castle, prior to an earthquake in 1570, Ferrara was known for its music and plays and the many churches in the city. When the Pope under the Papal States ruled the land, the treasures were sent to Rome.

Linking to dividend paying stocks, it seems on takeovers nothing has changed, one company which has existed for a period of time believes they are worth more than some upstart and the end result is raising the price of the stocks. Throwing more money into the deal is a time honored method of doing things.

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

 

Larry Sarbit of Sarbit Advisory Services recently wrote an article about rear-view investing. He was trying to answer the question how can the stock market go down or be flat for years, while the US GDP growth remain stable and climbing?  Warren Buffett answer is investors behave in very human ways. They get excited in bull markets and make the recurring mistake in looking in the rear-view mirror, regardless of overvaluation.

When they look in the rear-view mirror and see a lot of money having been made in the last few years, they plow in and push and push and push up prices. And when they look in the rear-view mirror, and see no money having been, they say this is a lousy place to be. From a speech in 2001.

Mr. Sarbit says the average investor buys recently posted great results, they buy stocks after great returns have already been achieved. Most do not participate in the capital appreciation of the stocks.

From Mr. Sarbit’s view is the market valuation is high and at some point there will be a correction.

Linking to dividend paying stocks, Mr. Buffett believes in buying great stocks after they have declined in value. Otherwise he watches a number of stocks and when they have declined in price, because of the insurance companies ability to generate cash he can then buy a large block of shares to see them increase in value because the companies are well run and have the capacity to return to better prices. Some of the companies will be near monopolies, but try not to pay too much. Good investors should look forward as well in the rear-view mirror to see the alternatives and opportunities should markets go up or down.

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

In January 1982, the US Government broke up AT&T to 7 companies with AT&T allowed to keep parts. By 1996 the S&P 500 telecommunications services was created and contained 14 companies. With mergers, the 2017 index has 3 Companies left in it AT&T, Verizon and Century Link.

BellSouth and AT&T merged. SBC Communications first bought Pacific Telesis, then Ameritech, it joined BellSouth to buy AT&T Wireless and then bought AT&T, however it took the name of AT&T.

Bell Atlantic bought NYNEX, then bought GTE and changed its name to Verizon. Since then it has acquired the wireless assets of Alltel.

US West bought QWest and after a merger with Century Telephone changed its name to CenturyLink.

Airtouch Communication was bought by Vodafone.

MCI and WorldCom merged then collapsed under accounting scandals.

Sprint merged with Nextel and was bought by Japan’s Softbank and left the index.

Frontier bought Global Crossing and Citizens Communication but has since left the index because of revenue problems.

Linking to dividend paying stocks, when AT&T was broken up, it was good for the economy because they had a monopoly on local phone service and did it well. If it had not broken up we might not have seen the rise of the cellphone and all the services which go into it as fast as it changing now. Along the way, with different demands and needs of services companies have changed, some are better than they were.  The point is when the Baby Bells were broken off who would have known only a few names would remain in the future.

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

 

 

Yesterday’s post was for every investor, one wonders what is better picking the market or index or individual stocks. In an article by Jeff Sommer of the New York Times News Service, he examined a study by Hendrik Bessembinder a finance professor at Arizona State University. What he found was most stocks on the stock exchange do not perform well, however 3 to 4% perform very well which lifts the indexes. The 4% included Exxon Mobil, Apple, GE, Microsoft and IBM – they accounted for all the net market returns from 1926 to 2015.

Adding to the data was an article from Bloomberg News by Sofia Horta e Costa titled S&P 500’s famous FANG trade has nothing on Chinese four-stock frenzy. The S&P FANG trade refers to Facebook, Amazon, Netflix and Google. In China four internet stocks account for half of the 22% rally Tencent, Alibaba, JD.com, and Baidu.

Hong Kong listed Tencent in mid May reported record sales on demand for games on its billion plus users WeChat and QQ; Alibaba first quarter revenue rose 60% faster than expected; JD.com posted its first quarterly profit as a public company; and Baidu is China’s biggest online-search provider.

Fund managers expected good things from all the companies going forward.

Linking to dividend paying stocks, to be in the 4% is where the money is made both from a long term and short term because losses are fewer. Stocks go up and down and over time they change some keep producing but most evolve to something else, as they evolve as an investor as long as you are receiving your dividend you can look for alternatives but take time in acting.

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