It all depends on your income and how sustainable it is for as if you read The Price of a Bargain – The Quest for Cheap and the Death of Globalization by Gordon Laird published by McClelland and Stewart Ltd, Toronto, 2009. If your income is over the average then the price of a bargain is a good thing. One of the reasons for the growth of bargain world is containers. In 1956 Malcolm McLean sent the first ship of containers from Newark to Houston – the cost dropped from $5.83 per cargo ton to 16 cents a ton. From 1959 to 1976 the productivity of the shipping industry increased 6,752%. Average port time shrunk from 3 weeks to 18 hours. The world had changed.

To look at containers the best port is the Port of Long Beach because of railways and the trucking industry centered in Los Angles, the ships come in and goods are transferred and go across America to the markets. In 2003 the 12 importers of containers at LA/Long Beach were all major retailers and discounters – Wal-Mart, Home Depot, Target. Lowe’s, Kmart, IKEA, Payless Shoes, Pier 1, Big Lots, Toy “R” Us, Limited Brands and Michaels. In all likelihood a place where you have shopped. Chicago receives 60% of its imported goods through LA. The big issue is not the stuff inside but after the containers are empty they are returned – sometimes there is waste paper, scrap metal, hay going back but the industry spends $ 11 billion moving empty containers around the world.

To deal with all the containers GPS-based tracking, bar-code links, Web-based management systems were used to improve the logistics of moving things. These can be very beneficial and allowed companies to create alliances with suppliers to share information to make ordering, inventory and accounting more automatic. The changes lead to some cities and countries making investments to handle the trade and others not. Which is both a good and bad thing. If cities make investments, they have to continue to upgrade or they will be bypassed by someone else that does. Expanding in a tight spot can be tough without the government overriding other concerns.

Linking to dividend paying stocks, discounters is a race to high volume and lower margins; while interesting to observer, these companies will have a hard time to continually make profits and pay dividends. An alternative is to look at the suppliers of the software to make profits from the value added.

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

 

It all depends on your income and how sustainable it is for as if you read The Price of a Bargain – The Quest for Cheap and the Death of Globalization by Gordon Laird published by McClelland and Stewart Ltd, Toronto, 2009. If your income is over the average then the price of a bargain is a good thing. If you are on the less than average, then it seems the world’s forces are working against you. In a service economy such as the one in the US, upwards of 40% of the economy is from consumers buying things or shopping. If the average person is looking for a bargain and the stores such as Walmart have done a great job in delivery of that model, then it means other things to the economy. One of Walmart greatest strength is its warehouses are built around just in time and bills only get paid when sales are done. It is the supplier that takes the risk of its stuff not being sold, not Walmart. Walmart has some of the best organization in its warehouses in the business and great enough strength that roughly 50% of Americans go to a Walmart once a week.

Walmart has also pushed prices down to increase volume or it keeps margins relatively low for a mass merchandiser. One of the many ways it does this new products. In the book,  a 2007 study examined an average of 650,000 UPCs annually over nearly a decade; more than 80% of the products available in 2003 did not exist in 1994. Of those 650,000 product codes, more than 60% had been discounted to the seller’s minimum reservation price. In other words, the majority of the products were sold at the very lowest price that retailers and manufacturers could tolerate.

The good thing for consumers is a vast selection of goods, hopefully reasonable quality at low prices, the bad thing is if consumers decide to change or not buy as much, the margins of error for the company are very thin and could lead to bankruptcy. If everything is treated like a commodity, there is a drive to lowest cost and lowest margins. The drive to margins means saving costs on waste; saving costs of wages; and saving costs on just about everything possible. It also means it does not take much for the system to show its flaws.

Linking to dividend paying stocks, it is worth admiring how the retailing industry works, there are numerous things to learn and see how the system adapts to trends and demands new items. It also expects most consumers to buy into the system. It is better for investing to look towards companies which have greater margins and are essentially regulated for as an investor you want a relatively consistent return over the long run. For you as an investor monopolies are a good thing; as a consumer you may enjoy the fierce discounting.

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

 

 

In the world of investing there are active and index methods to choose from; however the core of both is constantly learning and looking in the correct direction. Recently some active portfolio managers were interviewed by Shirley Won who wrote about them in the article Come for the payout, stay for the growth. The idea being some stocks offer both attractive yields or payouts and a high degree of expectations their stock price will rise in the shorter term. From the universe of stocks to look at the following with give you an indication of what to look for:

Fortis – a utility company that has grown through acquisitions and recently bought ITC increasing its holdings to 60% US. The advantages are as a company that has grown through acquisitions, it should be able to manage the growth; the new company gives a greater revenue base or diversifies its revenue base. Utility companies are regulated and regulators tend to give predictable increases. The company has increased its dividend every year for the last 42 – more are expected in the future.

Telus – is a telecommunications company but has not diversified into the volatile media business similar to its rivals. Its turnover among its wireless customers is the lowest in the industry. Its bundles help keep its customers loyal.

Brookfield Infrastructure – owns ports, toll roads, electricity infrastructure and other investments around the world. 90% of the cash flow is regulated or contracted largely to inflation.

Cara Operations – owns restaurants and recently bought another chain of restaurants in a different province. The restaurants sell chicken. Most of the chain is franchises which produce a royalty fee and the new acquisition means the royalty fee should be more predictable.

CCL Industries – manufacturer of labels and packaging. Recently bought CheckPont Systems and has a proven management team to integrate the two companies to wring out the necessary synergies.

Linking to dividend producing stocks, all of the companies produce a dividend but the active portfolio managers believe the stock price with increase in value as the stocks are underpriced or trading at lower than normal multiples. There are reasons for it – expected integration does not always work, but if does not work the companies still produce enough profits to pay their dividends. It is hoped you looked for works such as regulated (it is tougher for outside companies to set up shop); proven management team in dealing with acquisitions (some serial acquirers run into cash flow problems – too much to the banks and not enough to pay off the banks) so there are always risks involved, the key is balance among the management team. Look for monopoly or monopoly like situations for they can raise prices and still make profits for the long term.

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

Recently looked through the book Special Forces Survival Guide by Alexander Stilwell published by Marshall Edition, London UK, 2014. The author is a former British SAS and some of the highlights of the book is how to train in the desert, the arctic, mountains, jungle and urban settings. For me the closest I hope to get to any of these environments is a drive in the country towards the cottage, however it is possible the car could have problems. Special Forces are typically placed in one of these terrains with limited resources on them and told to come back in a week or more. They will need to learn to live off the land or learn how aboriginals do it. The theory being if you can live off the land and be able to adapt to living conditions in extreme conditions, you will do much better in any situation. The Boy Scouts motto of Be Prepared along with learning to use what is there or the tools on site, not using what is not there. It seems much depends on being healthy, while you can learn new skills – health is particularly important.

Linking to dividend paying stocks, if you were to do a survival guide for your portfolio in all kinds of markets would it still produce income? In this case, the markets are similar to the weather – it changes and we adapt or we try to adapt. The idea might be to have an adaptable portfolio to start with. If there is a solid foundation, then add in the expected changes, life maybe easier. One method is to start with dividend paying companies for they are profitable and have been through various economic cycles. In this fashion you do not have to worry about survival but also enjoy what life offers.

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

Country Music has various appeals some like the old time music, some like the new country and some just like the music. All music has some roots and some singers you want to hear more than others. In country music, the starting place is the church and then the church is what you are suppose to be, country music is more about life around you and sometimes about you. In all music, people have their reasons for listening more to one genre than another. In all music, there is touring by the musicians and trying to sell recordings to people to listen to on a regular basis. Most people have bought music in their lives for it is rare to go to an event without some music in the background or even the foreground. In the book In the Country of Country – People and Places in American Music the author Nicholas Dawidoff, published by Random House, NY, 1997 visits some of the great stars on the country circuit. Each of them had a gift of music and more importantly needed to share the music as opposed to doing something else in life. Entertainment magazines give an idea of what life is like after making it on the charts, however most of the entertainers put thousands of miles on the road going from one venue to the next. The important element is the drive to succeed as well as the knowledge that many others share the music. Over the years we have seen shows such as American Idol and others of people who believe they can sing ( I not in the group) and make a good living. The two elements are not interchangeable; but when you do find someone who can – it maybe a joy to listen to.

Linking to dividend paying stocks, not all singers are the same and not all stocks are the same except for their are listed on the stock exchange. The quality is different and that is why to lower the risks, picking profitable companies is the key to long term success. There are lots of reasons why companies are successful and learning about them is a continuing process. If the company can produce profits on a regular basis, it can go on your list. Narrowing list of excellent companies means there are no losers or as few as possible, then you are well on the way to success. If those companies that are making money can also pay dividends as well as reinvest in their business, it stands to reason as long as they can do those actions, you will make money from holding the company. In the book the author talked about some of the singers taking complex ideas and making them simple and meaningful to the audience. It is easier said than done.

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

 

Up to last summer one of the hottest stocks on the exchanges was a drug company called Valeant Pharmaceuticals International. At the moment, the company is in the news because it owes $31 billion and the stock is no longer high flying. The company was a serial acquirer of drug companies, then increased the prices of the drugs and decreased research and development or the strategy was to continually acquire companies with increasing stock price. As long as the price on the stock was increasing, Wall Street allowed it to increase the debt load and sung its praises. When the government decided to cut back some of its price, the effect was a tumbling stock price which meant fewer acquisition or even second and third tier companies to acquire. The stock price has fallen from close to $300 to about $30.

David Milstead writing in the Globe and Mail wrote about two companies which have done similar strategies as Valeant but are thriving. The first one is called Gilead Sciences which invests money in research and development and has a number of drugs on patent. The company has developed a dominant franchise in the HIV treatment and through their learnings has branched out to treatment of hepatitis and other similar fields. Their patent on their best name brand drugs runs to 2030 before the generics can take their place.

The other similar company is Danaher Corporation which has bought many companies is in the industrial equipment franchise which the reputation of being one of the best managed companies. Analysts love Danaher’s success in bringing operation disciplines to grow earnings – it has acquired 71 companies in the past 5 years. Over the next year it will likely spinoff its more mature companies into one company.

Linking to dividend paying stocks, there are many high flying stocks but the big question is how well do they execute to bring value into the company. If you had invest in Valeant Phar you would have likely lost money. When you invest in other companies such as Danaher and Gilead, they will not be the highest flyer on the stock exchange but with consistency of execution they will return you capital and give you a dividend while you wait.

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

If you look have at globe of the world or an atlas of the world, have you ever wondered who filled in the pieces or drew the land shapes. From an European point of view the known world was known and the rest needed to be filled in. One of those people who filled in great pieces of the globe was William Dampier. The exploits of Mr. Dampier work is published in a book called A Pirate of Exquisite Mind  by Diana and Michael Preston published by Penguin Books, London, 2004. Mr. Dampier for his exploits should have been knighted or have a title except in his background he was a Pirate (he had to make a living). He was also was one of the few people to go around the world 3 times, sailing more than 200,00 miles in his lifetime. Along the way he observed wind currents, he drew maps of where they went, the floral and animals along the way and in the Oxford English Dictionary he has over a 1,000 entries. With these drawings he produced books which Captain Cook and Darwin took on their voyages. his descriptions laid the foundation for the method we still use. He was quite a man and still remembered in what was called New Holland later to be known as Australia. His books opened peoples eyes to adventure and books such as Robinson Crusoe and Gulliver’s Travels resulted. He was better on the sea looking, recording and learning about the world than one land. On his later journeys they were partly sponsored by the Royal Society to gather information and by business consortiums (some of who were members of the Royal Society) this group engaged the privateer aspects – rob a Spanish ship of her gold and bring it back to England.

Linking to dividend producing stocks, Mr. Dampier was an adventurer and satisfied the need to know, whereas the money is made afterwards. Australia becomes valuable when resources are found in abundance, while it is an interesting country worthy of visiting, from a monetary point of view its resources make it important. We should celebrate Mr. Dampier for bringing knowledge back to England and then that was distributed around the world, but let the universities and governments sponsor his trips. The money from Mr. Dampier was as the books caught the public imagination, other products and services can catch their pocketbook.

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

One of the good aspects of dividend companies is if you divide the dividend by the stock price it equals yield. That means it is a relatively easy method to determine if the yield is better than alternatives as well as other dividend stocks. As an easier method, often people will start to use the yield as a selling point to suggest the stock is good. The reality is in the stock market, some yields are higher than others for good reasons – either the commodity price has fallen, but the company still has enough cash to pay out the existing dividend or something is happening to the company. If you see companies with higher than expected yields, it generally means more homework to ensure the risk is okay. In a column Jean-Didier Lapointe of Inovestor Inc offered some highlights with a column called Beware the risks of chasing yields. He used the service from StockPointer.

Starting the search with companies paying dividends in the S&P 500 Index.

From that list, he narrowed down to companies with a dividend yield of 2% or more.

A dividend payout ratio of 100% or greater or negative. (The dividend payout ratio is dividend per share divided by earnings per share. A negative number means dividends are fully financed by existing cash, debt or new share issue)

Negative free cash flow to capital. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows which could be used to stimulate growth, pay dividends, reduce debt, etc. A negative figure is a red flag.

Company                   Price     % Div                      Div                  FCF/                       Mkt Cap

$               (last 12 mon)      Payout %       Capital %                  ($ Bill)

Chevron                   96.33       4.76                      171.20              -7.9                        183.00

Bristol-Myers        66.07       2.17                       165.56             -5.2                        110.00

KraftHeinz              78.47       2.34                    -566.67              -1.2                         96.32

Occidental Pete     70.60       4.39                     -28.02             -9.50                        55.24

ConocoPhillips       41.23       6.30                     -81.67              -5.5                           52.87

Kimberly-Clark     137.49     2.77                     125.71               -0.10                       50.09

Crown Castle            88.05    3.87                     223.33              -1.10                        29.71

PG&E                          59.30    3.42                       101.11               -5.0                         29.36

Anadarko Pete         48.29   2.22                      -8.0                 -19.0                        26.11

Weyerhaeuser          31.24   4.00                    133.33                  -1.0                        24.46

Linking to dividend paying stocks, while the fact the company can pay dividends is great, the other decisions is the company profitable and generates enough cash to continue to pay dividends is why you look at these numbers. If the company is profitable and can raise its dividend, then that is even better. Understand the economy goes in cycles, but at times you can take advantage of them and then there is easy money to be made. If you believe oil prices are stabilizing and increasing, oil companies are worth looking at. If you believe KraftHeinz is paying down its debts from the merger, then it can easily be a long term hold. The important aspect is there tends to be a reason why something is away from the normal – it is not till much later do you find if it is good thing or not so good, which is why in the markets the only perfect decision is looking back. Something will happen when you look forward, you might as well get paid well you see if you are correct.

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

 

 

 

Picked up an interesting read at the library The Pessimist’s Guide to History by Doris Flexner and Stuart Berg Flexner published by Collins, NY, 2008. The Guide starts at the Big Bang and goes through events to 2007 which affected many people. Whether it is war, famine, air crashes, earthquakes, floods, mechanical and financial disasters. There is more than 1,000 entries and only 6 financial disasters. If you are in the financial world, things happen but not often to the financial world; because there is protection or insurance. The titles prior to 2007 are the South Sea Bubble, Stock Market Crash in 1929, Barings Bank Collapses (losses on the derivatives market), Financial Turmoil in Indonesia (the end of the Suharto regime); bankruptcy of Enron and WorldCom. No doubt over the years, individuals could pick different companies which people lost money. The point is most of the time, it is events other than financial. If an earthquake happens and they still happen, it is going to be hard going for those involved and given a global economy somehow, somewhere a firm or people of your country are going to be affected. However it is possible to diversify your holdings and if desired you can assist them through other investments.

It is easy to see how catastrophes and massacres and mayhem occur, the harder aspect is risk management to ensure your ability to generate income is not too affected and how do you react when you see things happen in the world. This is when you typically have a bias towards events near you or where you have been over the years; biases are good and can be used in stable secure income generating investments.

Linking to dividend paying stocks, we know climate change is happening just as floods and fires will happen. We do not know when they happen and need to use risk management to try to ensure profits are continual. There is always a great amount of change in the world, it does not mean your income has to be affected by it. Ideally we have multi lateral agencies that look after most of the clean up; as individuals you should know about the past and try to figure out what will continue to happen to make money from it.

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