When you buy shares you are a part owner of a company and similar to most things in life, sometimes it is good to be an owner, sometimes it is not. At your work, you may be the owner or you may work for someone who wants to think like the owner to bring in and keep profitable business. In every work force people leave and there are many reasons for people leaving ,but they can be put into 7 categories. The reason why as an investor you need to pay attention to employees leaving is two fold: one to replace an employee cost about the amount of salary they receive (if fewer people leave, the company saves money) and two the baby boom generation is retiring – over the next 5 years 75 million will have retired to be replaced by 45 million. The good news for the next generation is soon there will be a jobs shortage and keeping and retaining employees is going to be and is very important.

In the book The 7 Hidden Reasons Employees Leave by Leigh Branham published by the American Management Association, NY, 2012, Mr. Branham outlines the reasons why people leave. based on what over 20,000 people who were asked by their companies said. In terms of management, by having better management or good management which translate into low turnover, no matter the industry and sector, the company saves money. If a company has a high turnover, it wastes both money and people. The first thing to remember similar to most decisions people make, the decision to leave your workplace typically involves numerous reasons and the decision is the law straw that breaks the employer employee bond. The key is over 2/3’s of the employees would have stayed if  changes made or managers matter.

If you believe the primary reason people leave is money, then you are wrong. The reality is most people make lateral transfers in the hope of moving upwards, it is not very often a person moves from a $10 a hour job to a $20 a hour. The money is closer to the first, but  the working conditions and work expectations change.

The 7 hidden reasons are:

1. the job or workplace was not as promised.
2. there was a mismatch between job and person
3. there was too little coaching and feedback
4. there were too few growth and advancement opportunities
5. workers felt devalued and unrecognized
6. there was stress from overwork, conflict and work-life imbalances
7. workers lost trust and confidence in senior leaders

 

Mr. Branham does not present the 7 reasons as their importance or frequency but the first two are listed because they tend to occur early in the person’s tenure. However, one can see the 7 hidden reasons – money is not the most important aspect. The best issue is picking and keeping good managers is the key.

Linking to dividend paying stocks, as investors we expect the company to make profits to pay dividends and in some cases they have monopoly like structures that should enable them to do that. From an investor viewpoint you want to know the people (every company’s most valuable asset) contribute and have a low turnover. A low turnover rate means people want to stay and contribute and the company saves money which allows them to make more.

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

 

 

 

Early in March Peter Ashton of Recognia Inc examined stocks offering the potential for long-term earnings growth while providing reasonable valuations and efficient operations today.

His criteria was:

minimum market capitalization of $1o billion which should focus on large and stable companies.

companies with price to earnings ratios (P/E ratios) of less than 15

5 year historical annualized Earnings per Share (EPS) of 15% or more

dividend yield of 2.5% or more

companies with operating margins of 10% or greater. Operating margin is a measure of the profit a company makes on each dollar of revenue.

Company                                     Mkt Cap              P/E               EPS Growth     Div        Operating

($ Bil)                   Ratio            (5 year)              Yield      Margin

Blackstone Group                   19.1                        14.4                104.8                 5.1            44.3

Gilead Science                         92.9                         6.0                  75.6                 2.6            61.3

Verizon Commun                  202.3                      12.8                228.3                 4.6             21.5

AbbVie                                          98.6                    13.0                    34.8               3.7              38.1

AT&T                                          256.7                     14.8                    56.7               4.6              15.6

Lyondell Bassell Ind                36.7                     10.0                     20.5              3.6              17.4

Principal Financial                   18.0                     14.5                     16.0               2.5             13.5

Linking to dividend paying stocks, all these companies pay dividends and are profitable. If you focus on the margins, each of the companies have competition but still the margins are very good. Even if the company did very little, they would likely make money. If we expect the companies to innovate and execute, then they would have to screw up badly not to make money. Note all stock prices go up and down however if you buy these types of companies you should have little to worry about and gain a good night’s sleep.

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

 

 

In this world  professionals accumulate knowledge and to gain a higher income they present themselves as experts, because what they do can be complicated or complex. It is true, there are parts of every profession that are complex, but in all professions keeping the end goal simple is a key. If you can, you should always try to do the easy stuff and leave complex and complicated things for others. Tom Bradley of Steadyhand Investment Funds recently wrote about keeping it simple in the complex world of finance.

Diversification is a good thing because the only true knowledge of the market is after it has happened. No one really knows what asset class is going to perform the best. If you are diversified ideally you want to avoid the asset classes that go down. One method is to sell asset classes. the hard part is to know when to go back into the asset class as it rises in value. One example was oil stocks when down, then they bounced back to make great gains were you in or out? did you miss the gains?

If you listen to Warren Buffett which has been a good thing to do, he tries to buy good companies at reasonable prices. If you can buy a good company and catch a macro trend you will make lots of money. An example is for a number of years, China was the biggest buyer of natural resources and pushed prices up. Then things slowed in China, prices went down and now they have gone up again. When should you have bought? when did you buy?

Everyone who invests money has ideas of where the market is going, the general rule is when people who are at the margins, get really excited about the market it is time to sell. If everyone is selling, then it is a great time to be a buyer. There are many methods to gauge institutional investors (the insurance companies and pension funds receive monthly income which needs to be invested). In addition, firms try to measure investor sentiments and it works till it does not.

If you buy a stock and build a large position in it or the industry, knowing markets go up and down, you will want to hedge yourself against the downside. In general simple hedges or vanilla hedges are the best method, although the world of hedging can become very complicated quickly. It works till it does not.

Mr. Bradley says we all have our skills and preferences and you need to think about what you are good at. If you think you have an edge, continue, but if not keep your investments reasonably simple to understand and do besides to make money.

Linking to dividend paying stocks, given the low-interest rate environment these companies have been a simple solution. The idea is to buy companies which make a profit and can afford to pay dividends and ideally that increases over time. The stock price will move up and down, but generally profitable companies traded at high multiples than non profitable ones. Over time the stock price rises and you have received dividends along the way – nice a simple method to become wealthier.

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

 

 

 

Every generation and every year companies and people are looking to find out what is next? how to ensure companies continue to innovate? what procedures help innovation? what procedures need to be changed for they do not help? The answers are hard to come by because for all the research, it is still hard to do. One of the many books which help is The Innovator’s Cookbook by Steven Johnson published by Riverhead Books, 2011. Mr. Johnson asked a number of researchers and professors to write about innovation and also interviewed some serial innovators. Each writer has something good to help you understand and do innovation.

One of the writers is Professor Clayton Christensen of Harvard who has some wonderful you tube videos which you may wish to listen to, particularly about the steel industry. In his chapter Mr. Christensen writes about the Rules of Innovation and he has 4 categories which then need further analysis. The 4 categories are: (1) taking root in disruption; (2) the necessary scope to succeed; (3) leveraging the right capabilities; and (4) disrupting competitors not customers.

Taking Root in Disruption.   If you look at successful companies of the past and look at the names of the leaders now, there are differences. One of the reasons for the changes is successful companies that are well managed – they listen to and satisfy the needs of their best customers and they focus investments at the largest and most profitable tiers of their markets. This they do very well and many innovations appear. The problem is when disruptive technologies emerged, the well managed company gets toppled. Why? disruptive technologies are products or services that are not good enough for established markets. They have other attributes – simplicity, convenience, and low cost. The low cost means low margin; most companies are searching and investing for higher margin items.

The large players typically let the low margin items for new companies, and there are two tests to consider: (i) Does the innovation enable less skilled or less wealthy customers to do for themselves that only the wealthy or skilled intermediaries could previously do? and (ii) Does the innovation target customers at the low end of a market who don’t need all the functionality of current products? And does the business model enable the disruptive innovator to earn attractive returns at discount prices unattractive to the incumbents?

These two tests allow companies to start with the low end of the market and move up, as it moves up the established companies tend to

Pick the Scope Needed to Succeed refers to the integration.  Highly integrated companies make and sell their own proprietary components and products across a wide range of product lines or businesses. Non integrated companies outsource as much as possible to suppliers and partners and use modular, opens systems and components. Each style has advantages and disadvantages. In markets where product functionality is not yet good enough, companies compete by making better products.

When the functionality or the standardization has happened, companies must compete through improvements in speed to market, simplicity and convenience, and the ability to customize products to the needs of customers in ever smaller niches.

Leverage the Right Capabilities refers to managing innovation. Management needs to ask 3 questions (i) do I have the resources to succeed; (2) will my organization’s processes facilitate success in this new effort; and (3) will my organization’s values allow employees to prioritize this innovation, given their other responsibilities?

Beyond technology the resources that drive innovation success are managers and money. Both have good and bad things associated with them. Managers are often give assignments from being a success in the core business, however the rules are different in innovations. It requires different strategies for they need to find new customers and what there basic needs are. The problem with money is if there is too much – a flawed strategy will waste money for a longer period of time; if there is not enough – the needs of corporate treasury are more important than the innovation. The other concern is patience should not be a virtue, the patience should be about the size of the market not about making money. Values of the organization must be aligned with new business and making money which is why it is often easier to start with new sales forces, distributors and retailing channels.

Disrupt Competitors, not Customers    If an innovation helps customers do things they are already trying to do more simply and conveniently, it has a higher probability of success. If it makes it easier for customers to something they were trying to do, it will fail. The best method to understand what customers are trying to do is watch them. What they say they would like to do, can be different that what they really want to do.

Linking to dividend paying stocks, every company will spend money on innovations and will share the success with shareholders. As a shareholder, you need to evaluate what they doing to ask a few questions. Professor Christensen gives you a framework to ask those questions and if you disagree, as the company still looks after its best customers to keep high profit margins, it will time to look for alternative companies which you can begin to move your investments to.

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

 

 

 

The stock market is up this year which is good and President Trump wants to cut regulations which for many businesses is a good thing. It may not be great for the consumer, but for overall business world it should be good. In every market there are companies to invest in which should continue to do well and Ian Tam of Morningstar Research examined large US companies paying reasonable yields and showing steady earnings or companies you can buy and should do well over the next year. His criteria was:

market capitalization (greater than $30 billion)

expected dividend yield  – greater than 2%

consistency of historical earnings over a 5 year period – a low number is good

debt to equity ratios equal to or less than the median of the sector it belongs to

dividend payout less than 80%

Company                       Mkt Cap              Dividend         Earnings        Industry Rel     Trailing Div

($ Bil)                    Yield %            Varability       D/E Ratio         Payout Ratio

AT&T                           256.656                   4.7                        2.6                   0.7                      68.0

Reynolds American   87.794                  3.3                          3.3                  0.8                      76.2

Accenture                     78.884                  2.0                          1.6                 0.0                       42.3

CVS Health                   82.650                   2.5                          2.4                 0.9                      29.1

Unilever                       134.360                   2.9                          3.0                0.9                        67.5

Johnson & Johnson  332.476                  2.6                           2.8                0.6                        47.3

Proctor & Gamble      232.818                 2.9                           3.5                 0.4                       71.1

WPP Group                     31.241                  2.6                          2.0                0.9                         44.7

Infosys Tech                   34.604                2.5                         2.7                  0.0                         41.1

Novartis                          185.692               3.5                          6.0                  0.5                         57.5

The other companies on the list were Starbucks, American Electric Power, BHP Billiton, Emerson Electric and Raytheon

Linking to dividend paying stocks, all of them pay dividends which is good and should be paying for years to come. In your portfolio you should have these types of companies to pay you dividends and for the long term capital gains. The stocks typically have a range each year and there are buying opportunities for each, but the long term outlook always tend to be a buy and hold

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

 

If you look out the window at this time in the northeast days are getting longer and the sun shines almost everyday. That is wonderful for most of us, as we go about our daily lives. The sun warms up the skin, the ground and in some places solar panels. A number of years ago, they were expensive and many governments gave and still give subsidies to generate electricity (pay more than its worth, for the greater good), the good news is the subsidies is shrinking every year. In 2016, solar prices fell to the point in countries that count on sunshine it is cheaper to generate electricity from the sun than coal or natural gas or oil. Solar prices are becoming incredibly competitive.

The cost of solar goes down, more and more single family roofs will be covered with solar panels because it is less expensive than to build a new gas plant or coal plant for the utility. They will always need backup, but solar is coming. In countries such as Spain, Chile, United Arab Emirates, India solar is a key to generating electricity and reducing people’s electric bills. In some middle east countries, companies are bidding on providing solar for 2.4 cents a kilowatt.

Linking to dividend paying stocks, in every industry there is competition for may dividend investors owning an utility is part of the package. Whatever the utility can generate at the lowest price and charge a decent return to have continuous revenues is what you are looking for. For utilities were sunshine is part of life, they should be investing in more solar than coal. If not ask why?

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

 

 

How is the country organized? How should it be organized who should be included? In all societies there develops an elite or people who families seem to be closer to making power on a very regular basis. These families tend not to have to worry about paying the bills for they have income streams which give them a higher standard of living. There is another group which has grown up which we all like to believe is the higher group which is based on merit. In every generation, those with higher education or higher street smarts or the ability to start companies which go public and the owners take their share of rewards. For a long time we as a society have either been told this or believe it and it is the subject of a book by Christopher Hayes titled Twilight of the Elites published by Crown Publishers, NY, 2012. This believe in meritocracy or the best and brightest will rise to the top is beginning to die.

If you go to an Opera, the deaths scenes take a long time, so will this dream because although society in general tends to believe it and there are many examples, President Obama from a child of a single mother eventually going to Harvard Law and becoming President is the best example. However there were many hurdles, an educational institution such as Harvard allows for 20% of its students to come from families of graduates (who have savings and can make donations to the school). Are these the best and brightest? One can then move institutions that the salary structure is higher than average? What do people do to make the money?  In the service economy, most of do not make things, it is strictly judgement and breaking the law can be more profitable for the company. The penalties for what is known as white collar crime are not as harsh as they are for street level crime. Cheating will always be present in any competitive environment to some degree, but systemic corruption comes about when it moves from anomaly to norm. An old law from Queen Elizabeth of Tudor times – Thomas Gresham said bad money drives out good.

Those two disconnects the morality and the penalty not to the bad, is why when we look around we see disconnects in many industries: in baseball and steroids; the church bishops and a priests who are pedophiles (the bishops worried about the priests rather than the boys of the church); when government’s call for evacuation in New Orleans and other places which is a good thing for the protection of its citizens it forgets many of them have nowhere to go and no money to pay; when the financial crisis of 2008 came because companies which ended up being bought by the largest financial institutions were selling mortgages on no income, no problem (Countrywide Financial was bought by Bank of America). What was the consequence of non payment? it turns out the financial sector almost collapsed and then moved on.

To solve the problem the inequity must be narrowed. However some of the solutions must start with the government. For example: in 2013 the top 400 people were paying taxes of 16.6%; the average middle income was 22%. The system was become a tool for maintaining and expanding wealth, not paying.

For estate taxes, there was a law you can give away $ 5 million tax free to your kids, but the rest is taxable at high rates. Every year the rate falls so the rich remain rich, are they the best and brightest or was it their grandfather? or some other family member?

Linking to dividend paying stocks, as you invest in companies more and more of them are in the service sector and you have to look at the morality of the senior people on top of the company. How did they get to the position? and why are they? In the broader aspect of the taxes and estate taxes, President Trump was promised tax reform what will change?

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

 

 

 

 

 

According to Gayathree Ganesan of Reuters, Home Depot had a better than expected quarterly profit and sales as the US housing market is heating up. The news is good news for the economy and the stock has moved from $110 to $145 in the quarter. The stock is creating new highs and the question is will it continue to?

Home Depot is gaining share in a number of high value categories including appliances. If you think about the average person walking around Home Depot; one in 5 or 20% of the sales is over $900. Customers were spending more on flooring and appliances. The company is expecting a growth in sales of 4.6% to become a $100 billion in sales.

Last quarter, the same stores sales increased 5.8% beating the expected 3.8% growth and the company earned $1.44 a share ahead of the estimated $1.34. Home Depot’s board increased the quarterly divided to 89 cents from 69 cents a share.

Linking to dividend paying stocks, Home Depot is doing many things right in terms of execution as well as growing with the increased in home sales. Most of us will walk through the store at least once during the spring – summer or fall and you can remember the $900 transaction. If you are a regular are people spending close to $1,000 or more when they leave? If they are, then one can expect another good quarter. Every store or industry has some benchmark data that as a shareholder you can look to see if they are doing what they are suppose to. Ensure you know your companies benchmarks.

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

When you buy a stock for the longer term,the most important information is profitability and ability to continue to make money. The financial position and ability to generate cash is your concern. Next you will concern yourself with management and their ability to execute on their business plan. At some point you will have done a basic SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis. Depending on how many shares you buy will depend on the length on the analysis. If you take a classic case of people for pipelines and those against you need to know something about the activists and what is their abilities to slow down or stop what you think the company should be doing. In the case of the pipeline, the Keystone Pipeline is designed to send oil that is trapped in sand or oil sands down to a refinery which can handle that type of crude. The alternative is the railway, but it is less expensive to send by pipeline.

The Keystone pipeline is also a symbol of global warming and it has many different views attached to it. At he moment, very few people will give up on their lifestyle but they can be concerned about global warming which is happening. A book which discusses the issue is Oil and Honey by Bill McKibben published by Henry Holt and Company, NY, 2013. The honey is he works with bee keeping and seeing what is happening to the bees and the environment helps deal with global warming issues. Mr. McKibben is a founded of 350.org which sends information from an environmental standpoint. On the other side was the Chamber of Commerce lobby which is one of the biggest lobbyist in Washington as well as the oil industry interests. Somewhere leaning to the oil industry are politicians. To play the game, the environmentalist have to learn how to lobby and which rules and regulations to press the politicians.

Linking to dividend paying stocks, as an investor you are more concerned with the financial results on a consistent basis. As a person living in the globe you are concerned with global warming and hopefully your investments and your view of the world mesh together. If they do not, then you have to worry how does the other side play to change the nature of your investments? Books such as Oil and Honey will give your a view of the other side; do not worry they are people just like you.

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