When we look south of the border beyond Mexico we see Latin America and often we do not know much about them except for they supply raw materials in terms of people and resources for some of the countries operating in the US. We know from President elect Trump many millions of migrants move from south to America in search of better opportunities and higher wages, but we rarely wonder what is so bad they left behind? One of the books about the subject is The Heart that Bleeds Latin America Now by Alma Guillermoprieto published by Vintage Books, NY, 1995. Although the book is old the stories seem to remain the same – a wealthy and somewhat related upper families who control the government and the lower income population trying to make a living beyond subsistence. It also seems the only time the lower income people matter is election time then the upper income families divide the spoils of the government and whatever private sector income there is. Much of the private sector is still part of the feudal system which the rebels would like to destroy.

If you begin to link the countries together similar to other puzzles in the world, one will understand why the old war on drugs was bound to fail. In Bolivia coca crops are legal (the Spanish gave the mixture to the mine workers for generations in lieu of paying them well for the silver; in Columbia for a while the Columbian gangs did an excellent business plan to ensure money circulated in the areas the government did not service and could also provide protection for the Columbian gangs; in Panama once the money was put into the banking system it was concerned clean; or in other words depending on the country depends on how the government would want a war on drugs to succeed. Of course if American buyers would not buy then the system would have shut down. If you jump to 2016 is a possible truce between the rebels and the government in Columbia.

Linking to dividend paying stocks, for most consumer stocks as long as there is a good middle income in the country consumer staples can be sold and maybe that is all you need to worry about. The middle income and a growing middle income group in any country helps buy the consumer goods which keeps the economy moving. How well the economy is balanced between the rest of the population maybe not be something you can control. For you consumer companies operating beyond North America check out the growth of the middle income to determine how much growth you should expect.

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

One of the best performing stocks over the last decade is Altria formerly known as Phillip Morris or the cigarette company. The stock is up 228% versus the S&P 500 of 58%. If you add in dividends the gain rises to 455% and if you go back over 20 years the gain is 2,162%. It is hard not to own the company or have it as a significant portion in your portfolio.  In a recent article, David Berman examined the cigarette companies to see if they are still worth owning. There is the concern over cigarettes cause cancer; there is the concern that tobacco companies which essentially sell nicotine and it is addictive; but cigarettes are legal and people still smoke. The above combination is the ideal in business – people have brand loyalty and the continual purchase of cigarettes allows companies to raise prices on average 2 to 3% a year.

The competition of Altria is Reynolds American Inc which owns among over brands Camel the stock was risen 480% over 10 years. Reynolds recently bought Lorillard and BA Tobacco has offered $ 47 billion for the company.

Altria has raised its dividend 50 times over the past 47 years and currently distributes about 80% of its profit to shareholders. Since 2008 the company has doubled its quarterly dividend.

Linking to dividend paying stocks, if you just focus on results, owning cigarette companies where they make cigarettes for pennies and sell them for dollars; it is very hard not to own them. In investing there is always a philosophical considerations which is why in examining people’s portfolios you can generally tell where they are from or what business they are in (we tend to be local first). The companies are in the index funds, even if you do not own them directly, you will likely own the stocks indirectly, for proven performers you may want to own them directly.

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

 

 

One of the most studied and continued studied insect is the honey bee. Every since honey was discovered and tasted, people have been trying to figure out how honey is made and how they can eat it – similar to Winnie the Poo and the honey pot. It turns out the bee collects pollen while at the same time allowing flowering plants to pollenate or have sex. It is beneficial relationship and depending on where the beehive is will determine the taste of the honey. It is one of those local taste and global taste all in one. The beehive is ruled by the Queen who after becoming queen lays millions of eggs for bees to go out and bring back nectar. The average worker bee uses a combination of smell and dancing to determine and show where the great sites for pollen are and fly incredible distances between the beehive and the flowers. It is complex and simple all at the same time and we get honey from it.

In a book by Holley Bishop title Robbing the Bees published by Free Press, NY, 2005 outlines he journey from being fascinated to learning about bees to having beehives in the country to enjoying the bees. In turns out a great way to think about honey is the same thinking about wine. The taste of honey is reflected in the local flowers the bees gain access to and provides a distinctive taste to it. As wine tastes can savor the local nature of the wines, so can honey tasters. Think about the past and consider most did not have access to sugar, but they had a sweetener in honey which is the reason you find honey cakes and to drink – mead.

Linking to dividend paying stocks, the honey business has few barriers to entry – need some hives and one can learn how to harvest the honey for if you respect the bees and the fact over the years people have learned the best design to extract the honey from the beehive, it is possible to enjoy honey. To make a living at it, takes work to bottle the honey and sell it, but it is a local product and we expect bees to continue making honey for generations to come. For most of us we can learn from the honey bee and allow our investments to continue for years to come.

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

It is a new year and given the stock market was up in the wake of President elect Trump victory as well as commodity prices have risen, one can hope the economy will continue to grow. If it continues to grow we all make more money, along the way it would be nice to win lottery size gains, but for 99% of the people the slow and steady approach is the one to take. The reason is we do not know? We expect at the end of the year something similar to what we are waking up to, but we do not know. What we do know is many companies will still be operating and generating dividends and until the federal reserve bank interest rates are raised, dividends and those companies with reliable income streams will be valuable to hold on to or accumulate.

Julie Michaels of Morningstar examine conservative stocks with a reliable income stream in early December.

the following criteria were used:

5 year beta vs S&P 500

earnings variability (earnings per share variability in percentage terms around the 5 year EPS)

Price to trailing earnings

Price to Book

Dividend Yield

Expected Dividend Yield

A few others which are not recorded for space limitations

To narrow the list of all the dividend paying companies, she selected companies with a market capitalization of greater than $ 3 billion

Company                    Mkt Cap   Div                Beta     P/E    P/B   Qual Earn  Payout Based On

($ Bil)        Yield (%)                                        Surprise %  Trail Div and EPS

First Energy           13.857          4.4                 0.2      11.5     1.2                 17.1             50.9

Southern Co           47.343         4.6                  0.1      16.1    2.0                  4.2             73.3

Consol Edison        22.138          3.7                 0.0      18.7    1.6                  1.7              68.6

Duke Energy            52.614         4.5                0.1        16.1     1.3                 8.5               70.0

Deere & Co               31.552          2.4                0.8       20.7    4.2              170.6           49.4

Public Svc Ent          21.672         3.8               0.3         14.7    1.6                   9.0           55.7

AT&T                       242.446          5.0               2.8         14.1     2.0                  0.0           68.1

Everst Re                    8.661           2.4               0.5           9.2     1.1                  35.2           20.0

Garmin                        9.797          3.9               0.9          18.2     2.9                36.0           71.6

GM                              52.696          4.4               1.4            5.6     1.2                  17.5            24.1

The other companies on the list include

Archer Daniels, Kohl’s, People United Fncl; Western Digital and Teva Pharma

Linking to dividend paying stocks, if the year is better than last year, these companies are expected to continue doing all the things that make America great and continue to have a revenue stream to pay dividends. One might notice some of them are utilities and if you are paying to one of them, a good investment is to own stock in the utility. We all would like to have a lottery win and when times are bad for one group they are better for another and it is possible; on the other hand if you own slow and steady earnings and reinvest the dividends into more stock you will be wealthier with the combination dividends and capital gains with a low risk and high return ratio.

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

 

According to Reuters the biggest commodities trader and miner on the planet Glencore will pay a dividend of $ 1 billion starting new year or in a couple of days. This is good news going into 2017 for it says Glencore has sold assets and more importantly commodity prices have risen due to demand. Glencore still has plenty of debt $17 billion, it assets sales will be in the $ 6 billion range, but commodity prices have risen. The commodity’s Glencore is involved with include copper, zinc, nickel and coal. The good news for Glencore is prices have risen but not enough for more supply to come onto the market. Glencore had announced forward coal sales for 2016 and 2017 of 55 million tonnes or about half of its annual production. If it had could have waited, the same forwards coal sales would be at $400 million more. (even companies have could of, should have moments.)

Glencore will pay $ billion in 2017 in dividends and afterwards start with $ 1 billion and add 25% of free cash flow from mining which could add another $ 1 billion depending on the performance and commodity prices.

Linking to dividend paying stocks, when the commodity cycle for any company gets on the downturn, that is when your research has to kick in. The research is not to buy the companies, but determine as the commodity cycle changes know which companies to buy. At that point in time your risk reward is the lowest for risk and highest for reward and you can buy low and sell high. It takes willingness to understand the commodity price changes, the markets and patience to choose the best of the breed stocks. Ideally if you can also purchase a stock which can and will pay a dividend in helps to limit downside risk.

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

One of the great things about the stock market is there are a host of methods to try to use to make money on the markets. For most of us, we tend to more lucky than not, as in the case of mergers we already own the stock for different reasons or the company that is doing the buying we own because it pays dividends. The merger arbitrage occurs when one company has made a bid to take over another one with the prey trading well below the price that the suitor has offered. In an article Benj Gallander and Ben Stadelmann of the Contra the Heard Investment Letter examined two  drug retail companies Walgreen Boots Alliance who wishes to buy Rite Aid Corp for $9 a share.

This merger has been on the table for a long time and there are reasons why it is taking so long including the merger between the number one company and the number company three needs to be regulatory approval from Washington. There are issues with competition; overlap of stores and trying to sell them; and debt issues. Another issue is there does not appear to be any other suitors to raise the price. It is entirely possible with a new President elect administration is more favorable to  the deal than the former President so the bid was extended to after the new administration comes in.

The tough part of merger arbitrage is if the deal does not succeed, the price of the stock will fall and generally you are using borrowed money to heighten leverage. If you are going to do arbitrage know what are all the things that can or could go wrong and what will that do to the stock price.

Linking to dividend paying stocks, if the stock market things happen to companies all the time  they have strategic plans and some parts fit better than others. Divisions picked up now no longer fit as well or are as profitable or are not related to senior management as before. If you are going to participate in the merger game doing your homework before investing is the key – what is the upside? and downside? If you not comfortable with the risks it is time to look for alternatives. Companies which pay dividends are always seen as valuable for they generate cash flows.

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

 

If you fill a coin a number of times over the long term the odds will come out 50 -50, we all should now that. There is a computer game which adds a twist that everyone can learn from – Rational Decision-Making under Uncertainty: Observed Betting Patterns on a Biased Coin by Victor  Haghani and Richard Dewey. They authors did an experiment on if you know the heads is going to come up 60% of the time and had $25 to start with – what would the result be? The issue is in the short term how much do you bet on each flip of the coin. In the experiment, 30% lost all their money, but they should have done better. The reason they lost money was the although they knew the long terms odds favored them, the short terms were unknown. The issue is how much money do you risk on each toss, when you have the one period of negative performance do you double down? betting all of your money  hoping you will make it up on the next flip? Some were betting on tails, instead of heads? They were doing what people do in the market place generally do.

The key according to the Kelly criterion which consists of a constant fraction of your bank account. This fraction is tied to your probability of winning. In this the ideal was betting 1/5 of your bankroll of each toss. In the experiment 13 of the 61 did manage to reach the top payout within the 30 minutes.

The writer of the article Ian McGuguan believes the most important lesson the coin toss teaches is the discipline in investing, not the brilliant idea. The discipline to reach a reasonable reward because they did not stick to a simple, consistent strategy that realistically balanced risk and reward.

Linking to dividend paying stocks, the ideal is to bet on a favorable outcome, if you do not know the outcome at least you can pick up dividends. We never know the short term performance of the market, once in a while you can see stocks that are undervalued and should be higher but need to wait till the street sees the market as you do. Since we do not know, you might as well gain insurance on your pick by choosing a stock that pays a dividend and wait till the market increases the P/E ratio.

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

 

 

When the Europeans came to the northeastern part of the US or the New England States region, they came for fishing. The source of their fish for generations was the North Sea but the fish were becoming less and people started travelling further from their homes. News had been reached there was a new and great site, better than the North Sea – the fish were offshore what is now called Georges and Grand Banks. Grand Banks is off the coast of Canada and Georges is off the US. The ocean starts with a beach then goes reasonably shallow for sunlight to get in and then goes deep to what people think of the ocean. Now days, every country has a 200 mile limit around their shores and that is where the fish are larger and grow faster. When people started coming, they were harvesting fish and need the landscape to give them a natural harbor and a place to allow the fish to dry and before being salted to be sent to market in Europe. One such location is Gloucester, Massachusetts which is located northeast of Boston. If you know Cape Cod from the Kennedy’s or the song, go straight as the crow flies across the Bays and you will find Gloucester.

In a book about fishing and the history of Gloucester, Mark Kurlansky titled The Last Fish Tale published by Ballantine Books, NY, 2008 tells the tale of fishing. If you want to see a movie The Perfect Storm with George Clooney gives an idea about fishing and people that go to the sea. It starts with except for the storms – fishing has been a good way to make a living. Fish until the last 30 years were seen as inexhaustible and catches can be made, although the work is and was hard, it was dependable year in and year out. After a couple of years of work, your boat would be paid off and life was seemingly easier as a small business person. From the hard work needed to commercially fish, the way of life was celebrated by those afar and up close. On a clear day, people in Gloucester can see Boston or the towers of the city which makes Gloucester now part of the summer cottage country, but earlier on the attitudes were much different. With their blue collar approach to life and relatively inexpensive real estate artists were attracted to the area and many painters and writers did and still do their work in the Gloucester area.

Linking to dividend paying stocks, the story of Gloucester is the story of fishing from the sending fish to Europe, to people living year around in the community to seemingly improvements in fishing – factory fishing to small business fishing. The issues of sustainable fishing are complex, the costs to fishing rises – boats are more expensive; the season is different; lots of changes happen. In terms of the community of Gloucester it has changed and seemingly adapted to its location but fishing has changed. One can learn much about how communities and industry deal with changes by reading books such as The Last Fish Tale and sometimes your money has to find different alternatives.

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

A few weeks ago, as the bike was going down the road a box was seen on the side of the road, as it was garbage/recycling day, a thought was to kick the box to the curb as the bike went by. Then other thoughts became to appear, if the box was empty and being on the bike, if it was kicked to the curb, that would likely be fine. But what if the box was full? would it cause discomfort or make the bike unstable? Invariably the bike passed the box left untouched for the seemingly next person. Investing can be seen similar to the do you kick the box or not?

For investors who see a solution to moving the box, for conservative investors we tend to want to see tangible proof the box is empty. In this case the box was upside down, but the flaps were out and it was possible to suspect their was nothing in the box, but maybe? maybe not? To verify, the bike would need to be stopped to examine the box and put it with the rest of the recycling.

For the more adventurous investors who see a solution to moving the box, it was seemingly only needs to move to the side and not on the curb or in the box, there was a high probability the box was not full. The risk is maybe the next time the box will have something metal in it and soreness would result from the kick.

One could make a variety of scenarios about whether to touch the box or not and what the result could be?  The idea is what do you think you would do? that is the type of investing you should do.

Linking to dividend paying companies, when you buy a company you know or expect a continuing dividend. If that does not happen or the dividend does not meet expectations you know to either sell or begin the search for alternatives. However, before you bought you should have a reasonably good idea from the analysts and what their opinion is. In the case of the box, doing research to lower the risk return ratio is an easy thing to do.

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