Today is Valentine’s Day and love is in the air. One method to ensure love is in your portfolio is to start with companies with a high quality of good management. Warren Buffett believes that when you find companies that possess excellent businesses that are run by managers who are both talented and shareholder oriented you should increase your holdings in them. The question becomes how do you access the quality of management?  Jennifer Dowty wrote an article titled How to access the quality of management?

Experience: Research management’s background and read their biographies on the website from the perspective of how that background helps your investment. What have they done successfully in the past? what challenges are you expecting?

Execution: Find out whether management delivers on its promises. Ideally you want to under-promise but over-deliver, for when the street hears and reads about it, they will react positively.

Management’s objectives: Are your objectives and management’s objectives similar? Do you want the company to focus on growth or income?

Ownership: who owns the shares of the company? does senior management own shares and how much of their wealth is tied to the shares? You can check with the website http://www.sedi.ca.

Linking to dividend paying stocks, as a part owner, the company becomes a partner in your finances which allows you evaluate management. If you like the management, then the other analysis of the business needs to be done. If you are buying for dividends, you will want to ensure the company is profitable and earns enough free cash flow to continually increase the dividends or at least as long as you own the shares.

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

 

Wal-mart recently released a press release that it intends to create about 10,000 jobs in the US. The press release feeds into President Trump’s position that companies need to create more jobs in the US. On first glance, that is good news.

According to Nandita Bose and Sruthi Ramakrishnan of Reuters this would represent less than 1% of its US workforce of 1.5 million. Many of the new employees will include hourly employees (the bulk of them part time workers), some full time managers and supervisors in 59 stores the company expects to open. The stores are part of a $6.8 billion capital budget which will include construction jobs.

President Trump tweeted he was happy the jobs are coming.

A little bit of reality, Amazon recently had a banner year with its e-commerce, Wal-mart is still far behind and has let thousands go it can focus more on e-commerce. The next reality is many of the jobs at Wal-mart will be part-time starting at the minimum wage or within a $1.00 of it. Minimum wage is $7.25 in Nevada and generally less than $12.00 a hour across the country. Part-time work is 28 hours or less (7.25 x 28 hours is a gross of $203), that income is not going to stimulate spending in the country. Given the size of Wal-mart, an increase in 10,000 jobs while individually a good thing, the reality is the company is essentially not growing.

The other reality check is many of the items in the store come from China or South east Asia. Every time President Trump mentions tariffs, it will mean higher prices at Wal-mart and other stores. Will Wal-mart be lobbying the government not to include retail items?  In seems there are some cities devoted to supplying Wal-mart stores, what happens to them? will China sit on its hands?  Will Wal-mart start sourcing in the US, remember the buy in the US campaign, the main thing in the store was the store is a an American owned company, not the goods inside the store were not American-made. What will the reality be?

Linking to dividend paying stocks, Wal-mart is a leader in the retail space and similar to all large organizations can easily send out announcements which on the face of it seem to be good. It is good Wal-mart is growing; the not so good aspect is that is slow growth rate and although it is a giant in retail, there are many challenges. Read the press releases for the good news, but then look behind the headline to what it really means for the company.

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

For a number of years, and you may still hear stories the time England ruled the seas. England became the world’s leading sea power from 1763 to early 1900’s. In many ways it was a long time, but how did the country emerge as the leading country on the sea? There are a variety of answers to the question for it is a combination of factors. One author who offers guidance is Tim Clayton who wrote TARS published by Hodder & Stoughton, 2007, London.

One of the factors is up until the 1750’s French is the international language of the seas – maps were in French and the English captains learnt French.

There was inventions or better design of sailing ships for the Royal Navy. The Royal Navy similar to much of Britain was a combination of upper income or socially upward were the captains and did the strategic planning; while the common folk did all the other things needed to make the ship run, including use of cannon. As the ships became larger, they had more fire power.

In the end of the 7 years war with France in 1760’s, the English used their bigger ships to blockade the French ports. Putting your ships in the harbor of another country is a relatively easy thing to do; keeping them there for the blockade to be effective is a different matter. The English had a supply system which was better than any other country. The efficiency of the naval supply system and the quality of food had improved. Partly with the ability to do it themselves – they manufactured their own victuals; the Navy had flourmills and other mills to grind oats. The navy owned a slaughter house for meat and its brew master was top notch. The ships at the blockade could be reloaded with food and drink, so the men could stay out longer. In addition to the food being replenished so was the gunpowder which must have hurt moral of the French.

Another aspect to the Royal Navy was if the boats captured opposition ships, part of the value of the bounty would be distributed to all the members of the crew. This was part of the incentive to stop Spanish ships from taking gold and silver from Mexico and Peru to Spain.Not surprisingly the admiral and captains took a larger share, but everyone received a healthy bonus relative to their normal pay. One effect is in every port city there are pubs and brothels nearby, for the ladies and gentlemen to take the money from the sailors.

Linking to dividend paying stocks, whether it was 200 years ago or now the reasons why organizations develop remain similar. A combination of the innovations and updating the method in which the organization does business. Profit to ensure some risk is taken rather than resting on the past laurels and a vision to become the leader. There will be challenges along the way, for example after England ruled the waves – it received healthy investments in ship building and financing of the slave trade. There will always be some trade offs.

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

 

 

To gauge the overall economy, the easiest way is to examine railway stocks. Railways move goods over a long distance at a relatively inexpensive price. The companies were built to move grains from the farms in the plains to the markets in Chicago and beyond; consumer goods to everyone – think of containers and Wal-mart; all the big coal electric plants need coal; you car needs oil – where the companies have made extra money, until the pipelines get built. The railways move things those of us in the city need.

Norfolk Southern has been on a roll since Feb 2016 when its price was $70 and now it has touch $110 and was highlighted in an article by Gordon Pape. The company perates 20,000 route miles in 20 states serving every major container port in the eastern US and is a major transporter of coal, automobile and industrial parts.

The railway has been doing many things right including earning more money  $1.25 billion ($4.21 a share) compared with $1.2 billion ($3.90 per share) in 2015. The reason for the increase per share is the average number of shares has decreased as the company has purchased 7.2 million shares. Since 2006 the company has bought back 158.3 million shares.

In terms of operations, the operating ratio is 67.5% and the achieved $250 in productivity savings. The stock pays $2.36 dividend a year to yield 2.1%.

Linking to dividend paying stocks, Norfolk Southern has paid a dividend for 134 quarters or over 33 years and over the years the company’s share price has moved from $50 in 2009 to $70 in Feb 2016 to $110 now. It just shows dividend paying companies can both have price increases and decreases; but if you buy a good company and as your expectation for the future improves there are opportunities to be made. One of the reasons the price has moved is the expectation of a growing US economy particularly on the east coast. As the economy improves, so does the strength of the railways.

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

When you think of patient capital, the first thought tends to be institutional in nature for it tends to mean long term thinking and a steady dependable stream of income being added to the fund. However Tom Bradley of Steadyhand Investment Funds believes you are perfectly positioned to be have patient capital as long as you believe you will be living for more than 10 years. If the doctor has given you weeks to live, it is different story – the best advice is to ensure your will is up to date which will allow for a reasonable easy transformation for your heirs. If you expect to live, you will need to exhibit some of the traits of the patient capital proponents. The second thing to do is ensure those in your investment process buys into the program.

The traits we all have which start with an independent view. We all believe our country was formed with an independent view, if everyone else is doing it, do you have to? Another trait is buy when opportunities present themselves, not when the money is available. Cash does not burn a hole in their pocket. When they buy assets, in their reasoned opinion, the assets will eventually be worth more than they are able to purchase them for. The key word is eventually.

The picture is patient capital is focused on the long-term value creation. It is comfortable being out of the sync with the popular trends and it does not get distressed by market dislocations, it gets excited by the great opportunities to be had.

The next part of the process is to make sure everyone who touches your money buys into what you are doing. You do not need to be a great investor – but you can hire and fire people who do follow your philosophy.

Patient capital is not about day trading or rotating the portfolio to catch the latest trend. Your advisors should not be phoning you about quick tips or short term results. If you buy you are looking for a 5 year hold. The reason you buy and hold is the stock is lower priced and in 5 years the price will be much higher.

Linking to dividend paying companies, there is always a trading range in dividend paying stocks. The idea for you is to buy them on the downfalls and as they reclaim their market share you benefit from a higher stock price. The dividend ensures the company is still making money, attracting great talent and can do a rebound. All stocks go through set backs, it is the patient money that knows what it is looking for and grabs the bargains which turn out successful in the long run.

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

 

 

 

When this can be viewed, Donald Trump will be the President of the United States and it is clear that his Presidency will be different than the others. Not necessarily better or worse but different and one of the ways is Twitter. Under the old normal of the Presidency, the President carried a big stick, but talked in a soft voice. The reason was the United States has been a world leader which the President as one of the most important people in the world or at least the office. Fitting to all Presidents of any organization, when the person says something. particularly about an area of your interest, you pay attention and likely change to meet the expectations of the office holder, this is a normal thing to do, if you wish to keep your job.

President Trump has been using his Twitter to lavish favor on some companies and for the other companies he has unleashed his displeasure. The concern is partly about the President, it is also about the public which believes in all things which the President tweets about – good or bad. In thinking about President Trump’s tweets, Barry Ritholtz who runs a management investment firm and is a columnist at Bloomberg News came up with the POTUS Index Funds. (POTUS is short form for the President of the US). There would be two indexes one for all the companies who have made the good list and the ones that made the bad list of the POTUS. For Mr. Ritholtz he called his funds Oligarch index and the Drain the Swamp Index. Since winning the election the Oligarch Index has performed better than the Drain the Swamp index.

Linking to dividend paying stocks, it may turn out Mr. Ritholtz has come up with some both fun and profitable method to invest or it may mean all the companies will eventually go back to the normal. There are many ideas to make money on the markets and new ones come every week which is a good thing. For the average person, investing in profitable companies over the long term and those profitable companies can pay a dividend means you have passed the number one rule of do not lose money. As the dividends continue year after year, the market will reward you with higher stock prices or Price/Earnings ratios.

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

The Dow Jones and other indexes have risen to new heights and the rally has been going on for a 7 years, will there be a correction? It is with these thoughts, people turn to ensuring their portfolios will be able to withstand a correction. What stocks will protect you or ensure that if the market was to correct, they would not go down too far? In early January, Khaled Eniba of Thomson Reuters pondered the question and came up with some criteria you need to consider when investing defensively:

stick to traditional sectors of consumer staples, health care, telecom and utilities

stocks with a training price to earnings (P/E) ratio of less than 21 and forward P/E of less than 17

free cash flow greater than the dividend yield

5 year average dividend payout ratio that does not exceed 60%

5 year net income volatility is less than the S&P 500 average of 21%

Company                    Mkt Cap   Beta    P/E    Forward   Dividend    FCF    Div   Net Income

($ Bil)                                P/E            Yield %      Yield   P R    5 yr vol

J&J                                 316.343  0.75    20.38      16.31           2.8            5.00    54.5        10.8

Wal-mart                    211.158    0.09   14.92    15.84            2.9            7.54    36.6          3.0

Amgen                         118.164     1.16    15.87    12.28             2.9           7.13    31.9         12.5

CVS Health                   87.128   0.86   17.43     13.93             2.4            6.94   25.0         3.5

Anthem                         37.615   0.67    16.76    12.40             1.8            9.25    17.9        5.5

McKesson                      33.198   1.06     16.48   11.83              0.8           9.02   13.2        10.0

Kroger                             30.883   0.78   15.69   14.77             1.5            4.81    21.8       18.5

Tyson Foods                  22.410   0.16    13.82   12.90            1.4             9.02   12.5        9.9

JM Smucker                   14.904   0.53   20.86  16.05             2.3            8.43    49.2     14.8

Quest Diagnostics       12.814   0.67   19.57    16.94            1.9            4.27     25.2     15.0

Universal Health         10.817   1.10     15.72    13.82           0.4            5.93       6.5     3.6

Linking to dividend paying stocks, all these companies pay a dividend and it is a reason to own them. The markets will go up and down, generally we all like them when they go up, but if the companies pay a dividend you will protected on the downside. Profitable companies tend to have higher P/E ratios because they make money, while you are searching for your investments look at the ability to sustain the dividend – payout ratios and free cash flow. If you buy these types of companies, you will have less stress in your life and be able to either reinvest the dividends or use the dividends to buy other companies.

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

 

 

Prior to World War I, the lands known as the Middle East were controlled by Turkey through the Ottoman Empire and governed at Constantinople (now called Istanbul). The major powers of the day – England and France were interested for the same reason people have been interested the land for centuries the middle east is between the trade of  India/ South East Asia and Europe with  the connection in Egypt of the Suez Canal. Pilgrims of both major religions Christianity and Muslim would go to the holy sites once a year, but they generally went home. In many areas, the land is desert or desert like which makes access to water critical to surviving and thriving. The land was relatively peaceful and feudal in economic structure or few landowners and most people survive on farming.

After WW I, everything begin to change. A book to read about the history of the region is The Balour Declaration – the Origins of the Arab-Israeli Conflict by Jonathan Schneer published by Random House, London, 2010. The British and French believed they had their same influence in the lands, but the local population did not want to be governed by Turkey. They wanted independence although with the Muslim world similar to Christian world of Protestant and Catholic, there is Sunni and Shia depending on who you believe came after the prophet Muhammad. During WW I, the local rulers believed they did not need or want British or French influence, they wanted an uprising or jihad. The British and French decided to counteract the possibility of jihad around the world, they countered with the Arab Revolt. The anti Ottoman Empire foes would fight and then the British and French would divide the Middle East into their lines of business influence. France was to influence what is now Syria and parts of Iraq and England was to influence what is now Saudi Arabia and the countries in the south and life would go on as it had in the past.

Unfortunately for such well laid plans, in various countries of Europe including Russia and Romania decided to make life very difficult for people of the Jewish faith. Where were these people to go and live in relative peace? Typically they would have gone to another country where they could live in peace and participate in the economy, but the thinking was the best choice was a new country. Over a period of time, the Zionists decided the best place to go is Palestine which is now known as Israel. It took many years before the British  made the institutional commitment in what is called the Balfour Declaration or to recognize the Jewish ideal for a homeland, by doing so the British did not make good friends of the existing people in the neighborhood. The colonial way of thinking was as long as all religions had access to their holy sites, the people could live in relative harmony. It was considered some people would go to Palestine because Palestine had not changed in hundreds of years, but many would go somewhere else or it would be manageable.

Linking to dividend paying stocks, in the world of diplomacy countries use other countries as pawns in their chess game. If the country has greater influence, it can affect the other country’s economic life and generally it is interested in it for its resources first. The middle east was important because it was in the middle of a trade route, then oil was discovered. What economic benefit is the country to the influencer? In investing, the large companies have influence over their markets and some have natural or ingrained monopolies which allows them to be profitable over many years even though there is competition. Business can be seen as diplomacy between economic competing companies rather than countries and in many ways as interesting as diplomacy between countries except fewer people die.

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

 

Many people across the country have at least one pair of runners and that will continue for generations to come. How many of us think about where the shoes are designed. We generally suspect the shoes are made in China or South east Asia but the design work, where is it done? According to Philip Marcelo of Associated Press most of the design is in the Boston area. For a long time Rockport was based there, but it seems all the other companies have open or expanding operations in the Boston area. The New England area  has a large concentration of workers versed in design, sourcing, marketing and other aspects of the industry according to Nate Herman of the American Apparel & Footwear Association. There is a large cluster of colleges and universities in the Boston area and working for a running shoe company in the artistry, design and development of the merging of fashion, innovation and design. The companies profiled include Reebok (owned by Adidas), New Balance, Converse, Nike, and Wolverine World Wide.

Linking to dividend paying stocks, the shoe company convergence in the Boston area is reflective of many industries and why most of us are bias towards a few areas. If many people are working in the industry then they are paying attention to the industry and its suppliers and supply chain which they can follow easily. It is wonderful that Boston is an area for running shoes. As you do your research you will be able to focus on the companies and see how the industry tends to concentrate in one part of the country or another.

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