Today is Halloween and the connection to the witching hour and all things scary. The Korean based company of Samsung recently experienced its scary times in the battery of its Samsung Note 7 phone caught on fire – accidentally. Those of us who own Android phones, Samsung is one of the go to phone types. It would be natural to move up the later when a replacement was desired. Given 80% plus of the sales of phones are the so called smart phones, this is a market where Samsung has to be in. It was good Samsung ordered a recall of all its phones, however for Samsung calling their phones the Galaxy 7 and the Note 7 is an addition headache. Consumers will see the 7 series being recalled and ask for a replacement – they go it and say fix it and the provider will say no the Galaxy is fine, it is only the Note 7. It sounds confusing which means consumers look to alternatives.

In terms of a brand, Professor John Jacobs of Georgetown University says “A company’s brand is their promise to consumers. If you break that promise, you lose customers, you lose their loyalty.” Samsung has said they are stopping making the Note 7, but those in the phone technology world wonder – if Samsung’s cutting features were in the Note 7, what would replace the phone? While Samsung looks for the root cause of the fires, it has issues to consider.

Linking to dividend paying stocks, the relationship line works until it breaks down and what companies do at the time is how the company’s reputation and loyalty will develop. In this case Samsung has recalled their phones, offered credits on their other phones and stopped making the Note 7, that was the right thing to do from a brand perspective. From a corporate perspective it will cost millions of dollars and the stock price has fallen. The next step is replacement of the phone and then the company can rebuilt its loyalty and brand.

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

On You Tube if you look into the Gambling section you can watch videos of how to be a better gambler, but one way to lose less is learn what is a sucker bet and try to avoid them. In Las Vegas or any gambling house, the house has an advantage from 1% 10 18%. If all you do when you go into the casino is have fun and willing to lose some amount of money, then it does not matter what the house rules are. However, if you would like to stretch your dollars there are 3 rules:

1. Learn the game you wish to play. How do you win? How do you lose?
2. Do not lose more money than you can afford to.
3. Avoid the sucker bets or where the house has all the advantage

When you go to a casino if you are a regular person, you want to win something which means you aspire to the possibilities of the game. You could win the lottery size money by playing a game. People for generations have considered the possibilities.

The casino is run to make a profit and it plays attention to the probabilities something will win or lose. Probabilities are math linked for example a 30% house advantage means rather than gambling with a dollar, you are really gambling with 70 cents.

In most games, as much as those who believe in possibilities want it to, the past does not matter for future outcomes. What does matter are the signs in the casino which should be read if the sign says a 99% payout, that means you have a better chance of winning something. In slot games that have maximum payout that means playing 3 coins rather than one coin. The games have some rules, ask the employees how the game works and decide. In slot machines, penny games have a very low payout, although they seem inexpensive. The house advantage is lower at the $1.00 game. In terms of the casino 1% advantage – try craps, blackjack and baccarat.

Linking to dividend paying stocks, while some consider the stock market a casino and there are sucker bets, there are also very conservative bets which make money over time. The trick is to ensure more of your money is in the better companies and for the average person if they pay a dividend, then there is less risk for your money. Over time the capital gains and dividends will help you in your life.

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

 

 

The theory is a stock loved by institution should be a long term steady company with very stable earnings. It is thought institutions have the ability to hire people to study companies and unless they are being fleeced, the people will make good decisions to keep their jobs for a long time. It is worth looking at institutional holding of companies.

Peter Ashton of Recognia examined his data bank and used the following criteria:

market capitalization of $ 5 billion or more.

companies that have between 50% to 80% institutional holding (or at least 20% held by the small investor or public float)

insiders are senior officers of companies and they are buying the stock of the company they work for – they see a good future, the minimum buying is 200,000 net shares

90 day average of at least 1 million shares traded

Company            Mkt Cap        5 of Inst.        Net Insider       Vol 90 Day        Dividend

(US $ Bil)       Ownership   Shares Bought    Average             Yield

Cisco Systems   157.9                 78.2%                392,213            21,588,639           3.3%

Phillips 66            41.5                 72.6                  1,124,620            2,832,920           3.2

Paychex                21.8                  72.9                     215,558             2,027,534           3.0

Abbott Labs         62.2                 74.3                      785,100            9,534,773           2.5

Intel                      175.9                  67.7                    250,192            21,271,607         2.8

Honeywell Intl     88.4                 77.9                    668,536               2,568,945         2.1

VF Corp                   23.5                  63.1                     290,356              2,444,941         2.6

Morgan Stanley     59.9                62.3                     269,754              12,923,500       2.5

Sabre Corp                7.7                 75.2                     484,412                2,787,679        1.9

21 Century Fox        46.1                51.8                    3,000,000             3,142,066        1.5

Leucadia National    6.8              75.9                        200,000              1,552,548        1.3

Linking to dividend paying stocks, while all the above pay dividend they offer good alternatives to the economy. It maybe the institutions have smart money, although their record can be similar to index funds – but for the index funds to work the institutions and public (smaller shareholders) need to trade. The institutions tend to have longer time periods and put more emphasis on the continual dividend, as opposed to whether the stock will be higher next quarter. The issue is not to much lower, as long as the dividend is paid. they can wait for the longer term capital appreciation. Many institutions have reasons why it can not buy or sell as opposed to the public which can have different reasons. Last week some personal stocks were sold to pay the renovators. We all have different reasons and different perspectives on how the markets will move.

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

 

 

 

In negotiations, what is the end result? Chris Voss who teaches negotiations at universities on both coasts as well as worked for the FBI and has a consultant group called Black Swan Ltd. would say the answer is Yes and How? You can watch a number of You Tube videos and read the book. Mr.Voss’s book written with Tahl Raz is called Never Split the Difference published by HarperCollins, NY, 2016. As you prepare for your negotiations (there is an example of what to prepare for) you need to know what you think is good. If the object is to remain someone to deal with in the future and do good deals, how should you negotiate? what clues do you look for?

As you go through your negotiation you have to consider no is not the end of the conversation. No means under the existing parameters the answer is no, so your task is to remain calm and pleasant and ask if other ideas could work. There is usually space between a yes answer and a no answer. As you are talking, if you can summarize the facts as you see them and hopefully the other person agrees and tends to say “that’s right”. Now you have made the person at ease or relaxed them and the negotiations may still be very tough, but both sides are in a relaxed mood.

One of the keys you are looking for is the unknown, unknowns – what are they thinking about? what is driving the deal? what their emotions are? what are they passionate about? What they do not say, can be as important as what they do say. If a negotiation is a more relaxed phase, it is possible that when you are summarizing a point, the person corrects you accidentally. This accidentally correction can be the missing piece of the puzzle you are looking for, which allows for the deal to be done.

If you achieve a yes, the reality is in about 50% of deals, they will not be completed. The reason can be someone wanted a deal, but people back at head office said no for a variety of reasons. Therefore what you want is a yes and how? how will this get done. What do you need to do to accomplish it? Can you?

Mr. Voss believes lying is the wrong thing to do, because someone will find out. Once they find out you will realize the industry is small and your reputation will be gone – no one will want to do deals with you. One of his lines – never be mean to someone who could hurt you be doing nothing. Remember people always have an option.

Tactical empathy is important so if there is an “elephant” in the room – deal with it at first – turn your negative into a positive. If you deny your elephant, then the person will become defensive, you do not want that. Deal with it and move on. The idea is to make the other person feel like they have won because they will need to deliver on Yes and how?  Try to end positively for some a simple question of is there anything else you can do or are you powerless? It is often amazing how people will jump through hoops to do something.

Linking to dividend paying stocks, there are a multiple theories in negotiations and Mr. Voss offers his. For owners of dividend paying stocks, we expect the companies to be in business for years to come, which means we want their people to do deals when both sides feel they have won. If your company has a chief negotiator that no one in the industry really wants to do business with, people will try not to. Reputation matters – what is your company’s reputation.

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

 

 

Normally the US Presidential election is a toss up between 2 equally good people and within reason you know what to expect. This year one of the candidates has a knack of throwing into the mix something no one expects which has meant one is less predictable than the other. When you are investing for the longer term, the less predictable although interesting is not desirable. Given much of the world’s events are less predictable what should you do?

Julie Michaels of Morningstar Group has an idea in terms of trying to find those undervalued companies with the potential to continue growing.

She started with the S&P Index, picked companies which have a dividend and the other criteria are:

forward reinvestment rate (the rate the company is expected to reinvest earnings back into their business)

forward price to earnings

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

price to book

5 year beta against S&P 500 index

price changes from 6 months ago

Company                    Fwd      Fwd reinvest  Earn   Trailing      P/B     Beta      6M price     Div

P/E             Rate (%)      Var       ROE                                     Chg (%)       Yield %

Wyndham World      11.1             63.4            2.5        64.9         10.4      1.2        -3.9               2.9

Western Union           11.3            43.8             5.8      63.5            7.8      1.2         -1.1                3.2

AmerisourceBergen  13.9           53.1             7.2       78.0           9.6      0.7        -4.7               1.7

Rockwell Collins        15.0           26.9           2.2        35.3           5.3        0.8        -4.6              1.6

Scripps Networks     11.6             30.2           3.1        40.0          4.3         1.2         -1.1             1.6

Foot Locker                13.0             21.7           3.1         23.9          3.6         0.6          10.5           1.6

Robert Half Intl       12.6             26.8           3.2         35.8           4.8       1.0           -0.7           2.3

Northrop Grum       19.1              25.6          1.8          30.3            7.1       0.7             6.4          1.6

Aon PLC                     15.4              28.9          2.6         28.9           5.4        1.0             5.2         1.2

Torchmark                13.6              10.3          1.7          12.2            1.6         0.9          11.1         0.9

Linking to dividend paying stocks, in this example all 10 stocks are dividend paying and in Ms. Michaels chart in the Globe there were more companies. From the data, you can receive as much metrics as you want and more. There is no shortage of metrics to try to determine which stock to buy or not to buy. If you were to go through the list you could add why the industry is in favor or not, but the important aspect is they are all consistent money makers and likely will be around for many more years to come. At least your money is protected and it will accumulate through dividend payments as well as capital gains. Charts like this one is useful to narrow down your list to what is important to you.

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

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Many people have heard of Spartacus who lived in the calendar year 72 years BC, he was a slave in Rome. Roman Italy was based on strong families in the Senate, a very well trained army and millions of slaves doing the work in the fields and construction. Now days we have machines, Roman Italy had slaves. Similar to all people, some slaves were do doubt treated better than others, however there were many slave. Spartacus was an entertainer and his job was a gladiator. Gladiators fought in the forum and one or more people involved in the activity was expected to die, if they lived, they would fight another match in the coming months. For a number of months, the roar of the crowd, the fans would cheer for their favorite, but the gladiators were slaves.

Spartacus organized a breakout from his training base and were quickly joined by many other slaves (it was estimated the group grew to over a 100,000) . Spartacus went south towards Sicily but never made it, they went north through the mountain passes but never crossed the Alps which is the northern border of Italy and ended up in a battle south of where they started from. The problem with Spartacus was what did he think Rome was going to do? where did he think he was going to be able to live in peace? Rome sent a legion who underestimated the resolve of Spartacus and the people with him to be a free man. Spartacus had served in the military (knew what the military would do – how it set up camp) and together with the agility of the people he used the terrain to defeat the Legion. Over the next year, they kept legions away until Rome decided it was the time to kill all who were with Spartacus. In this instance, because the Roman commander had time on his side was able to pick and chose where he would fight and given the better tools of the military, he was able to kill Spartacus and his followers.

Linking to dividend paying stocks, many companies and people will have a reason to fight but they forget what do you think the big institution will do? rollover and sleep? or fight to the end? There are reasons in the company history of how the company achieved the size it did (no it did not have the best products, but it monopolized something – the distribution system; etc). When a company has become a dividend paying company, the expectation is it will continue and if the executives make a mistake they will be replaced by hungrier executives. Their first job is to keep the reasons why the company makes money – it monopoly? its control of the distribution? something. Your job is to understand what that is and to ensure the company is willing to fight for it.

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

Joel Peterson has a variety of jobs over the years and decided to write a book about trust because in our economy we see a lack of it. Mr. Peterson teaches at Stanford; is the Chair of JetBlue Airlines; runs some private equity positions and is an interesting speaker – you can see one of his presentations on Google Talks on You Tube.

Trust is one of those elements a free society is founded on and when done well – it elevates everyone around; when done poorly everyone feels betrayed. Therefore it involves a balance. Trust is one of those intangible elements where it takes a lifetime to build up, but can be destroyed in a single act. Then it depends on what the actors do to begin to build it up once again.

The definition of trust is seeding authority to another or giving away some control.

In many times there will be minor betrayals because we are human – the best response is to nip it in the bud or try to get to the root cause and understand why the person took the action they did. If it is a major betrayal, it will be tough to overcome; for individuals it may takes years and the only time you will be over it is when you can think of the future rather than the past.

For a company – the words and actions of the leaders must sync up. Companies all have value statements – in a crisis do the values and actions link? If they do not, the company will have major problems. If they do, the people in the company will be better. Part of communication is using the two ears, one mouth or listening to people. When you communicate – do not just communicate the good stuff, do not put a positive spin on the bad. People will see through the words – be honest, as open as possible and care about people so they can act properly. Mr. Peterson believes in the power of accountability which means give trust incrementally and measure the results. As people deliver on their actions, then you can give more trust and measure the results. In this fashion, it is good for people to played and worked on teams – you have to trust your teammates to do a good job. For management it is a continually process of who you want on the bus and who you do not want on the bus. Mr. Peterson believes leadership can be taught or learned.

Mr. Peterson gave an example of JetBlue. At one of the airports, a forced landing happened and one of the attendants got off the airplane before the passengers. One of the core values of the company is safety (its number one value). Every Monday Jet Blue sends an email to every employee and the issue on the next Monday was it asked its employees what should happen to the person that went off early? The overwhelming response was the person broke the safety value and should be dismissed. The person was let go.

Trust starts off with good character then you have to add on competency. Competency means the ability to deliver the results including the authority to act. In the case of JetBlue – Mr. Peterson often asks a training sessions do you believe the pilot is of good character. The usual answer is yes. Do you believe your mother is good character. The answer is yes. Do you believe your mother could fly the plane? The answer tends to be no. Just having good character is not enough, they have to have the ability to do the job.

Living the values is what values do you commit time, money and mental energy on? If those three things are what the company says it values are then the values are what the company says they are. If the time, money and mental energy is something different then the values of the company are different. The values of company are the values of the people who work there. One method to determine the values is ask what does winning look like?

How do you know a person should be taken off the bus? There tends to be red flags  always asking for confidential information; lack of transparency; holding information close to the chest; giving spin information; someone who never asks but always knows it all; not a team player.  What happens if you work for someone like that – Mr. Peterson believes it is very hard for people to change their values which leads to your solution of change internal jobs or move to a company which has your values.

Linking to dividend paying stocks, we trust the management will continue to act in a good measure for their company has been in operation and profitable for a number of years which allows them to pay a dividend. While we hope no major crisis will occur, they usually pop up from time to time, it is what does during the crisis which is important. If they performed to our expectations, the company will likely come out stronger and the stock is worth holding. If they did not do what their values say, it is time to look for alternatives.

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

 

 

 

What does a diversified portfolio of 10 stocks really look like? Ian Tam of Morningside Research offered an opinion. Morningside Research provides independent investment research around the world and from its data base, Ian used the following criteria:

Market cap (the larger the better)

Dividend yield – needs to be paying a dividend

Variability of earnings over 5 year period – looking for consistency of earning money

Quarterly Earnings Momentum (QEM) – the latest 4 quarters of reported earnings compared the same figure one quarter ago

the Return on Equity (ROE) which is a profitability measure

Price to book multiple ( a value based ratio)

Company        Morningside Sector       Mkt Cap   Div.    Earnings    OEM   ROE   P/B

$ Bil           Yield    Var %         %          %       Ratio

GM               Consumer Cyclical            49.044      4.8          23.1           10.5      24.1      1.2

AT&T           Communication                242.142      4.9           2.8            0.3       14.5       2.1

Cisco             Technology                       152.636       3.4            2.2           1.7        19.5       2.5

Altria             Consumer Defense        122.428      3.9             1.5            2.4    200.2     62.9

Pfizer           Healthcare                         198.286      3.7            3.4            3.4         23.2       3.3

Southern     Utilities                                 48.106     4.4            3.0            0.9         12.9       2.2

AMEX           Financial Services               55.500    2.1            2.5              2.3         24.9     2.7

GE                  Industrials                           259.696   3.2           14.9           18.9        11.0       3.1

LyondellBassell  Basic Materials            33.332    4.2           10.2          -3.4        62.7      5.7

Enterprise Prod   Energy                           56.615    6.0             7.9           -3.5       12.9       2.7

 

Linking to dividend paying stocks, the above stocks are some of the companies that power the economy every year and play important roles in their sectors. In Mr. Tam’ s research if you kept these types of companies you would have better the index fund by 3%.The fact they pay a dividend and are profitable allows them to trade at higher multiples and that is good for you.

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

 

Prior to September 8th, if you had asked what is the best US bank stock to own one of your top choices would be Wells Fargo led by President John Stumpf. The bank specializes in residential and commercial loans and more importantly did not have to write off billions of mortgages due to the mortgage back securities downfall. The bank seemingly did what was right thing for banks to do and consistently earned money for its shareholders. Then on September 8 it revealed the bank had let go five thousand people who had entered 2 million names for products and services without authorization from those 2 million people or customers. Perhaps the bonus or reason for doing it was to increase existing customers using Wells Fargo services. If you had a mortgage you were given a credit card or line of credit or something where fees could be charged, since September 8th Wells Fargo paid a fine for opening the accounts. The fallout has been the stock fell from the low 50’s to the low 40’s and senior management has been concerned about this issue for the past month and will have to deal with it for the next few quarters and new faces in the executive suite. In the banking business as well as the service business the business you are selling is trust, integrity and reliability. If the first two go – the trust and integrity then people will quickly look to alternatives and there are many. It will be a very hard sell and will need a number of new faces to regain the past trust.

Linking to dividend paying stocks, it is accepted these stocks have a long history of paying their dividends as they are profitable companies. In every business, there are areas of the business where the selling is hard and gaining market share is critical, so things happen. The difference is with dividend paying companies, they should have been through that cycle and not have to do what Wells Fargo did. The consequences means doing everything perfect for the next few years (which many institutions rarely do) and trying to regain the trust of its people. Essentially someone has to contact all its profitable customers to retain the bulk of their business with Wells Fargo. It can be a very good thing to do – if done right and there maybe some customers who will increase their business because of the reaching out. No one can predict what happened at Wells Fargo, but there is expectation the bank could come out of the woods knowing what can not be done in the future.

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