In recent weeks, you may have heard or read that Apple sales of iPhone were down in the quarter and Carl Icahn sold his stake in the company, do you have reasons to worry? Apple has been a darling of the markets for many years and has changed mobile phones forever. It is still worth owning? Chis Umiastowski’s column  Apple shines as a long-term growth story is worth considering.

If you have an Apple product and many people do whether it is iPhone, Mac, iPad,  you may have Apple Music because it offers 30 million songs. Apple starts the subscription for free for the person to experiment and listen and soon they are paying for it because the access is great and there is always another song to listen to. To put all this into perspective, there are over 1 billion people in the globe with active Apple devices; 13 million are paying subscription fees to Apple Music (do you think it will rise?) Apple has $ 153 billion in net cash and it grows everyday. Apple has added services such as iCloud to back up devices in the cloud. With all these possibilities do you think Apple can add even more potential subscription services?

Mr. Umiastowski writes Apple’s service business adds a new layer of revenue. But it also creates even more sticky customers. It’s becoming harder to leave the Apple ecosystem. This makes it easier for Apple to command higher prices which result in shareholder-pleasing gross margin levels. Apple should be able to leverage in enormous installed base.

Linking to dividend paying stocks, as consumers we want the best deal; as investors you want consumers to see value in paying more to the company for its goods and services. As long as Apple customers believe Apple is worth the extra money, the ability to leverage more services at higher gross margins means that the $153 billion can change to $200 billion and everyone smiles at the bank.

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

Some of the most profitable companies have been banks and it depends if you work for one or not will depend on what do you think. If you work for the one, generally the employment is secure, the profits are great and the outlook to be employed in the long term is good. If you do not work for a bank, you might think the fees they charge me make all those millions in profits. Is there another way? The answer is maybe and financial technology or fintech companies are being established to answer the question of another way. Rob Carrick column in the Globe and Mail was about this subject.

In the column, Mr. Carrick focused on how one Canadian bank understands e-transfers. E-transfers are done through mobile phone and it is easy way to transfer money from one account to another. Rather than write a cheque, it is simpler to do an Interac e-Transfer.

Linking to dividend paying stocks, Mr. Carrick asks you to look at how your bank or banks you have an investment in to see how they are trying to keep the business at the bank and still enjoy the bank fees. If you bank is doing it well, then that is another reason to keep the investment. If you believe they are not doing e-transfers well, then it is time to look for alternatives.

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

 

At this time of the year, many annual meetings are to be found and if you go besides listening to the speakers and depending on the size of the company enjoying their hospitality, there are some strategic thinking you may wish to do. Harvey Schachter recently wrote around business competition and quoted Jeffery Phillips a North Carolina consultant who asks – instead of competing what if you could make your competition irrelevant? Instead of trying to defeat the competition, try to outmanoeuvre them. The example is the hotel industry. You may have thought with the large chains, blocks of brick and motor buildings filled with beds and washrooms there would be a tremendous barrier to entry. Then along comes Airbnb taking advantage of existing homes and facilities.

Mr. Phillips and Alex Verjosky have 3 outmaneuvering strategies to consider:

Pre-emption – moving to a valuable, unoccupied location, channel or market position before your competition exists and seize it limiting the options for others to follow.

Hotels had reservations systems but did not fully utilize it.

Maxwell House never saw Starbucks coming.

ITunes changed the way people listen to music – no more physical just digital.

The change is hard for others to act, because when they do the newcomer is the established brand.

Dislocation – most companies work on a cycle, carefully cultivated over the years and everyone thinks the cycles are the right one.

The fashion industry has 4 seasons, Zara challenged it with more selections during the year.

Disruption – distract competitors from implementation of their plans to force them to spend time and energy on topics that are not strategic.

An example is Southwest Airlines noticed it was first on US Department of Transportation lists- on time performance, best baggage handling and fewest customer complaints gave itself a Triple Crown award and publicized it. Others had to say what they were doing or not doing.

Linking to dividend paying stocks, the outmaneuvering strategies are often aimed at companies which can pay dividends and therefore they need to consider what the competition will be doing or how to handle and react to the them. If your company is not considering, it is time to look for alternatives.

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

 

 

 

 

 

The last column dealt with the California Gold Rush, but there has been many gold rushes throughout the years and likely will continue to be. If you cast your eye on the map towards the north – go past the great lakes and the cities of Kirkland Lake and Timmins are to found. The railway age opened the towns for silver and gold were found and new towns quickly developed. In the book Fortunes in the Ground by Michael Barnes published by The Boston Mills Press, Erin Ontario 1986. The railway opened the area – first to build it and then when it was operational, people started to prospect the land. In the north – the method to bring the mineral out of the ground was to dig down into the earth by following the vein. Naturally, although the site is mineral rich it took a work to separate the mineral from the non mineral rock leaving large tailings. When the silver and gold were found the mines were some of the riches in the world and they would lead to new railways, a boom in people coming to mine, prospect, lose money on the stock market and some would receive great dividends, particularly when you consider the gold price at the time.

Linking to dividend paying stocks, although we think all the world has been mapped and where gold mines should be located, just the thought of one sends gold prices upwards. As companies increase in size they look for institutional sized deposits, when in reality there are still many smaller finds to be found. There are many stories about prospectors who had they only drilled to the left rather than the right, things would be different. In the world of mining, stories are still to be found which means look at the services – the hydro or something to invest in and then you can continue to listen to the stories.

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

Most of us have heard about the California gold rush or perhaps the San Francisco 49ers football team named after the gold rush era. Have you really thought about what that meant?  There is an interesting book called The Age of Gold by H.W. Brands published by Doubleday, NY, 2002 that does. From 1848 to 1869 is the heart of the gold age of California when thousands of people rushed in to find their riches. After 1869, gold mining becomes more industrial or harder for a few to pan for riches. It also meant California changed from a frontier to another place to find opportunity for a better life with a difference. The people that came wanted instant wealth and by the beginning of the Civil War more than  $600 million in gold went from California to New York which meant many did find their dream. However this was different from the previous 10 generations – the puritans who were content to accumulate their modest fortunes a little at a time, year by year by year, The new American dream was different  – success could come overnight and signified not virtue but luck. In the goldfields, life was about gambling, winning and losing and winning until the energy ran out. Where failure was common, the previous generations virtues lost its stigma – the entrepreneurial culture was upon the state and the country

There of course was another side of speculation, corruption, and consolidation. The lines between government and business were blurred as evidenced by Leland Stanford who was one of the financial backers of the railway as well as being Governor. It helped but things were different back then. The mining of gold in California lead to the finding gold in other places such as Nevada, Montana, South Africa, South Dakota and Alaska and around the world.

Linking to dividend paying stocks, the discovery of gold in California brought people towards an opportunity to be wealthy very quickly or at least make more than their foreseeable future earnings. There were great challenges just to make it to the fields and then find somewhere to dig or pan – they are great stories. In all boom times there is easy money to be made and at some point more money to be made giving services. Eventually things begin to balance out as consolidations happen and then the best mines run for a few years where dividends can be collected. There are always many ways to invest, look towards the one which makes you the most comfortable and you may not be the wealthiest but you will have more money and happiness along the way.

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

 

Most of us have heard about the California gold rush or perhaps the San Francisco 49ers football team named after the gold rush era. Have you really thought about what that meant?  There is an interesting book called The Age of Gold by H.W. Brands published by Doubleday, NY, 2002 that does. The gold find at Sutter’s Mills (not far from Sacramento – the state capital) brought California into the United States as well as made the US a wealthy country. The journey from New York to San Francisco is a long one because of the need to go around South America and it is not easy being close to the Antarctica – cold and heavy winds. The number of people going to the west would lead to the Panama Canal being built as people looked for shortcuts or seemingly shortcuts to the west. If you went by land, all was good until arriving at the Sierra-Cascade Mountain range where there are few passes and a desert known as Death Valley National Park. The desert has extreme heat in the day, cold in the evenings and lack of water almost everywhere  which few people would have known how to cross the land and many lives and cattle were lost.

Reaching California did not mean the end of the journey but the next step for it was an effort to reach the place to pan for the gold. Along the way, provisions were expensive both in terms of the high cost of transportation as well as high markups because of the high influx of people. Boomtown meant daily life is expensive however it is also the place where one hears of someone else gaining a rich strike  in a short time period. The stories were all over the place and some must be true. With the influx of people came the saloons and gambling. As thousands came to the state, most started with the intention to strike it rich and go back to where they started, however life happens. The people coming in needed services and living similar to where they came from – need housing, restaurants, financial services and safety. When people starting feeling safe, they built more permanent residences and soon there was a city rather than isolated sections. Similar to most cities people first went to the area where others from their country settled. The stories of people who did not go to the mines are with us today – Levi Strauss – built jeans with rivets so they did not fall apart. Leland Stanford owner of a general store which took stakes in mines as payment for goods. Stanford is known for the endowment of Stanford University. Charles Crocker eventually founded a bank which in the 1980’s merged with Wells Fargo; another bank which was formed at that time was Bank of America. Two other well known merchants were Mark Hopkins and Collis Huntington who teamed up with Stanford and Crocker to build the Central Pacific Railroad.

Linking to dividend paying stocks, often in boom times people focus on the commodity which is driving the boom and in many ways it is good thing to do. There is also money to be made servicing the boom and sometimes it is more patient and long lasting. Finding gold is wonderful, takes harder work, but can change your net worth very quickly; a slower way is to make money from the boom and be more selective on which of the quick get rich possibilities that seem to easily be found.

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

Most of us have heard about the California gold rush or perhaps the San Francisco 49ers football team named after the gold rush era. Have you really thought about what that meant? There is an interesting book called The Age of Gold by H.W. Brands published by Doubleday, NY, 2002 that does. The gold find at Sutter’s Mills (not far from Sacramento – the state capital) brought California into the United States as well as made the US a wealthy country. The world at that time was in a recession which meant when gold was discovered, it set off many middle income people to look for new opportunity by going west. In the US, the journey to California from NY area to San Francisco took about 6 months to close to a year whether by land or sea. People from all over the world came to the city by the bay and most stayed. The book has chapters of people leaving Europe, Australia, China, and of course the US to arrive in the golden state. There are many places in the world to find gold – you can google the big gold miners and see they are mining in many countries however most of the mines are digging in the earth or going down to follow the streams of gold. In California the gold was near the surface and was easily gathered by using water or panning the gold (which everyone can do). As time, went on people learned where to look for the gold and what needed to be removed, but for the first couple of years – the gold was easily found and many found something which lead to more people coming to California.

In the 1840 and 50’s the way across the oceans was by ship. The ship trade was fiercely competitive and often the first ship back to New York with tea could charge premium profits which meant profits on its cargo and sometimes paid for the entire cost of the ship. With premium profits to be made, shipbuilders experimented with new designs – they grew taller, leaner and longer. The era of the clipper ship was upon the seas.

The 1840’s the US Navy had begun sponsoring research into exacting how did the winds blow and what were the current patterns. Up to this time, sailing was more art than science; for although sailors knew about the general features of the trade winds and doldrums the more detailed knowledge was either undiscovered or jealously held by the discoverer for it gave the ship a competitive advantage. The US Navy was bringing the information to the public realm or for everyone.

Linking to dividend paying stocks, in the above case information was guarded because large profits were made; as more information is seemingly made public other factors will be available to determine profit. With all goods and services, when large profits are made more will try to enter into the marketplace. With dividend paying stocks that are profitable being consistent is more important than making great sums of money at one time or lower risk, higher long term values.

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

For many of us in the urban environment in North American we live by the standards of the infrastructure built for us. We turn on the taps for water and all is good, until such time as droughts or lack of rainfall and then our civic leaders tell us we have a problem. If we go back in time we see cultures throughout the world have used captured rainwater as part of their infrastructure. In the urban environment (cities in which we live) we installed bigger pipes to take it away from view and concern. A book such as Design for Water – Rainwater Harvesting, Stormwater Catchment and Alternative Water Use by Heather Kinkade-Levario  published by New Society Publishers, Gabriola Island, BC, 2007 asked did we really get it right? For urban areas that have problems with rainfall; capturing as much water as possible is the proper thing to do; for cities that typically get more rainfall than normal, it is the proper thing to do; for other cities if they capture the rainfall – they can use the water for irrigation at a lower cost to the city. This means cost is a factor in looking at alternatives. My home has a rainwater barrel to put on the plants during the summer and it works well, but in the neighborhood the barrel is an exception rather than the rule. We as a society still see water as very plentiful and low cost. In the book, there are many examples of different projects capturing rainfall for both harvesting and saving money and passive rainwater harvesting which slows down the flow of water going into the storm water drains and allows for the water to be treated. The passive is using nature to help rather than using pipes.

Linking to dividend paying stocks, if you look at the state of engineering and the graduates of engineers you will find some terrific companies but many do not devise plans to work with nature. We seem to want to take the place of nature which we can not do as well as nature does its stuff. In the long term, going back and learning to work with nature rather than drawing straight lines as if did not exist is going to be more sustainable. Companies which recognize this will have losses as the environment changes and insurance companies change how much they will pay out.

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

 

 

From everyplace in the world, people develop attachments to where they are living, it is normal thing to do. Every place in the world is subject to cycles of the economic cycle for cities it involves more people. For a city such as Detroit, Michigan it also involves a city which when it was at the top of the economic cycle was one of the greatest cities in the world in providing good jobs for its citizens, its ability to generate wealth and its ability to attract people to the industrial age. The city in decline is how long a city takes for a city to try to come back. A journalist who was born and raised in the city but spent many years away came back to the place which has a hold on him. The book Detroit – An American Autopsy by Charlie LeDuff  published by Penguin Press, NY, 2013 is Mr. LeDuff’s take on what happened to Detroit. In the end it is complicated and simple. It is complicated in many factors are in play, it is simple because all the things which made Detroit great are hard to be found. Detroit’s story is about race because even though the city attracted people it was an essentially segregated city and what your race mattered to where you lived and essentially what jobs were available for you. In the up climb of the economic cycle – jobs paid well, not mattered what you did. As the jobs paid less, all the problems with Detroit quickly came to the forefront.

Mr. LeDuff outlines the city proper, where anyone who makes a reasonable amount of money to have the simple pleasures of having children play in the front yard safely moves to the suburbs. In Detroit proper there are very few supermarkets but lots of liquor stores, churches and many abandoned houses and factories. The houses are abandoned for a few reasons – the value of Detroit real estate is very low, so it does not make sense to pay a mortgage; the services to keep the water on, the police in the neighborhood and the fire department doing their jobs are lacking or response times grow every year. When the “whites” started moving to the suburbs in great numbers, there was no one left to maintain the city properties and sometimes it was more lucrative to have a small fire (arson) than to fix up the house in order to collect on insurance. The lack of public services help feed the move to the suburbs and as houses turn to crack homes, those remaining were happy some burnt down. If city hall and higher governments were innovative rather than being corrupt in ensuring those who supported the mayor got jobs (many which paid well but were not performed well) things might be a little different; although when jobs losses are in the hundreds of thousands a better solution is still hard to find.

Linking to dividend stocks, if you look at the city as an investment from the perspective of bondholders – for a while Detroit was a great place to place your investments. The city was growing, the automobile companies were generating great wealth and many talented people were trying their best to continue the cycle. Economic cycles happen, but it seemed the automobile companies were not prepared nor anyone in government seemed to know what to do. The great thing about Detroit is the infrastructure of the city still exists, there are wealth generating aspects to the city, but what to do with all the people?  There are no great answers but there continues to be people that try. Maybe something good will happen; as a dividend investor you would have long ago looked towards cities which are growing and have made transitions to the new service cycle.

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