An article written by Tom Bradley (tbradley@steadyhand.com) titled Why the undiscussed really matters is both interesting from a philosophical point of view and from the standpoint of an investors. The article referenced a column from Gillian Tett of the Financial Times who quoted Pierre Bourdieu of France who said it’s not what we discuss in public that matters, but what we don’t discuss that’s really important in terms of reinforcing the status quo.

Mr. Stanley believes the following items do not garner enough conversation.

Investing based on short-term strategies and forecasts is futile.  If you are focused on the short term something may work for a while, but the world is complex and invariably you will lose money. In addition, the biggest advantage as an investor is time.

Time and risk are at the core of investing  An investor needs time to unleash the power of compound interest. Time is linked to risk, the risk is not achieving a reasonable long-term return.

Valuation is way more important than central bankers, politics and capital flows. While there are many things to consider for bonds the best predictor of medium-term returns for bonds is the yields, and for stocks it is price to earnings multiples.

The interests of the wealth management industry are the not the same as the clients. Warren Buffett said Wall Street makes its money on activity, you make money on inactivity. If you really look at the compensation of Wall Street, much of it is based on new products, sales strategies, and strategy shifts. For the average investor most of the time the best strategy is not to do anything.

Emotion is the most consistent crippler of portfolio returns. You have heard many times buy low, sell high. When markets move you feel the need to change your plan to suit the market. What if you had a plan which took an appropriate risk in the first place, then you could weather the storms better.

Linking to dividend paying stocks, much of what Mr. Stanley has written can be easily translated into dividend paying stocks. The stocks are profitable and you bought them at a low and decided to hold them for a few years. The price will go up and down, but the dividend and the fact they are profitable allows the price to advance as you hold them. As an investor you want to ensure the companies stay profitable or find better alternatives.

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

 

Visiting the local library a young adult book with an interesting idea was read. The area the book was written about 100 years ago some small gold and silver mines were discovered about hour’s drive of the area. At some point the natives in the area – who had a wide trading range used silver in their trading. At some point a map was made and the suspense begins. The average person would love to win a lottery or have access to a rich mine to be able to afford extras in their lives. The book called Finding Silver written by Wilma E Alexander self published in 2009 is about silver – a young girl named Silver and the possible silver mine the adults would like to have. In the book, the map of the silver mine is sewn onto a family quilt – for those who know how to look, quilts have many messages. The book is about learning to understand what is really important in your life and family.

Linking to dividend paying stocks, many people search for the silver or gold mine for their riches when in reality the biggest investment to be made is the use of compound interest. The only problem is compound interest takes a few years to really make a difference in your financial statements. If you can have compound interest working for you such as investing in companies with growing dividends plus capital gains your portfolio will rise over time with you doing only minor work. The difficulty is the first path – looking for a gold mine and quick riches or a gold mine which gives over the long term.

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

After Columbus discovered the New World in the eyes of the Europeans, other ships would visit and collect information. Anyone who has been on a boat in the Caribbean knows it is large area and travelling into the unknown, meeting natives some friendly, some hostile, battling food and the weather would have been trying times for anyone. Eventually, gold was heard about first from the Mexico and the Aztec Empire, then later from the Andes (Peru) and the Incas. To retrieve the gold, Spain sent battle hardened soldiers. In the book The Conquistadors by Hammond Innes published by Alfred A Knopf, New York, 1969, their stories are written about. The Mexico group was lead by Hernan Cortes and the Andes were lead by Francisco Pizarro. They each had different routes, although both started with the groups who felt mistreated by the existing rulers, and felt the Spanish would be better than what is. In Mexico, the Aztec Empire fought against the Spanish, and it was a hard fight to win the capital. In the Andes it was foretold the Spanish were coming and the transition was less bloody than it might have been.

In the book, when war is fought, the Conquistadors were the correct people to send, however when no one is at war, then the management style needs to change. In both cases, the desire of the people in the Spain were the riches in gold and silver which flooded into the country allowing the country to become the richest in the world. There is always a disconnect between head office and the outlaying reaches. There are different agendas – for example: when the Spanish came, they brought the religion of Christianity and saw anyone who was not practicing it as a heathen or undesirable. If they changed, life could change or in many cases they killed people. It is hard for a 10 generation worship system to change overnight, however Central and South America is dominated by the Catholic religion. Some things are better; some are not so good for the natives.

Linking to dividend paying stocks, often times these companies will get bigger with acquisition of hungrier firms and this is when you see management from the acquired company leaving. The older company will be more beaucratic, there will be more rules to follow, however there will be more resources to do something. Some efforts will succeed, some will not but no actions are betting the future of the company.

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

We are told over and over how important brands are and many of us who work for companies know about their brands. One of the reasons brands are so important to an investor is pricing power – can they raise prices and retain market share or make more money? Scott Barlow (sbarlow@globeandmail.com) recently wrote a column called Brands with true pricing power. In the column he started with a research report by Merrill Lynch chief quantitative strategist Savita Subramanian. The research about pricing and brands was two indicators are gross margins which are stable or increasing and brand equity. She wrote companies that with gross margins that have remained constant or increased have outperformed companies whose gross margins decreased by almost 40%. As an investor you are asking which stocks are those?

Mr. Barlow took the 100 top brands as nominated by Forbes magazine and listed them.

Some were private (IKEA), some belong to companies which have multiple brands (Porsche, ESPN, Rolex, Pampers, Frito-Lay) but he could bring the total to 70 companies and the world’s most powerful brands. Mr. Barlow then ranked the companies by standard deviation of gross margin results over the past 5 years using Bloomberg

Company                                        5 year standard                Gross         3 year annual    P/E

deviation of GM              Margin      return%             Ratio

Wal-Mart                                         0.27                                   25.13             0.48                  15.22

Home Depot                                    0.43                                   34.19            25.95                 24.02

Colgate-Palmolive                      0.65                                    58.62              9.35                  24.23

Coca-Cola                                      0.77                                    60.53               8.45                21.56

Estee Lauder                                  0.92                                   80.51               15.30               29.35

Accenture                                       0.93                                   29.80              14.40              19.90

Deere & Co                                     0.97                                 30.21                -1.83               14.61

BMW                                                1.17                                  21.15                   7.52               8.55

Pepsi                                                1.17                                  54.99                 12.63             21.70

Siemens                                         1.19                                   28.88                   7.66             13.29

Starbucks                                      1.22                                   59.36                 28.71            36.21

Nissan                                            1.29                                   18.76                  6.80            7.93

Daimler                                         1.31                                     21.27                 17.41             8.60

Nike                                               1.33                                    45.97                 32.38             30.00

Adidas                                           1.36                                   48.29                 10.33                30.33

Linking to dividend paying stocks, all the above companies are leaders and make profits, some years are tougher than others but they make money. Starting with best in class or strongest brands because of the advantages in the marketplace which that offers is a great place to start. These are the companies which keep and grow your money over the years as you enjoy the brands.

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

 

When markets turn or point in a new direction, Wall Street does a pivot and brings about products which will generate income in that direction. The fall of the interest rates lead to investors wanting vehicles to generate income similar to what the governments were paying. The easiest choice was utility companies which sell renewable energy – divide the companies into parts. The developer of the power source would sell the power to the yield company which would offer steady, sustainable dividends thanks to the selling of the power to the government which offered higher rates than selling to the public. Within a short time there were many yield companies and all were happy. Now some stocks have fallen for energy prices have fallen and governments are wondering about their subsidies.

David Milstead wrote a column Yieldcos are not such a safe investment afterall and he quotes analysts Andrew Hughes and Brian Chin of Merrill Lynch is that after dislocations (stock price going down) you should own the tail with the strongest dog. What they mean is a yieldco is often only as good as its sponsor or parent, that is selling assets to it. For the company to grow it needs a good pipeline and sometimes its parent had some wonderful assets but there is a delay in building more. Companies such as TerraForm Global and TerraForm Power spun from SunEdison had lots off problems. Companies similar to NextEra Energy Partners sponsor is Florida based NextEra Energy Inc and NRG Yield from NRG Energy Inc of New Jersey are able to have good flow throughs from parent to yieldco.

Linking to dividend paying stocks, when energy prices are high, people look for alternatives and governments want to encourage less energy usage from oil which can be a good thing. It usually takes a couple of years to see if companies business model makes sense for a longer period of time. While you may love the concept, only nibble to see how the business model works; when you see it does for the longer term jump in. Patience is often a virtue in keeping money.

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

 

 

In a global world, anyone could be your customer, and invariably some will for reasons you likely do not understand. One person trying to understand why people buy the way they do is Jan Chipchase who wrote the book Hidden in Plain Sight – How to Create Extraordinary Products for Tomorrow’s Customers published by Imprint, NY, 2013. Mr. Chipchase specializes in figuring out how customers are for in the communications industry. This is important because roughly 80% of the world lives on less than $10 a day, yet more than half the global populace owns a mobile phone and every year people around the world can do more with their phone.

With design, there are two standards – one the one the company thinks people will use and the one people actually use. Mr. Chipchase’s company tries to determine how people use products in “real life” settings. For example, Tata the car company in India has a car priced around $3,000; yet lower income Indians are not buying it. Why? some of the world’s toughest customers are the lower income because they can not afford to buy poorly designed products. It would be too expensive to repair it for the Nano was designed cheaply and had a reputation for catching fire.

Another example is how do people in the city send money back to their village? Remembering the branch system in North America does not exist. One method was to send it with someone (hopefully they are trustworthy). The method that grew up was to buy mobile phone airtime credits; the person who had the phone in the village (the operator of a small business) would redeem the airtime,  which she would then charge villagers to use. As villagers used the phone money would be paid to the family. No one knows who devise the system, but it works and money is sent to the villages.

The world’s busiest commuter station is Shinjuku Station in Tokyo where 3.64 people pass everyday. If you watch closely very few put paper ticket at the ticket gate – they use their phone which has a prepaid commuter card built in. Many other uses have flowed  from the need to move people quickly. Using your phone to pay at vending machines, etc. You can imagine with that many people, carrying bulky knapsacks is not something people do, but they can use their phone.

If you want to see a creative industry, check out how porn is delivered to meet customer demand. Try not to watch the porn, but concentrate on how it is delivered.

As you observe people you will see human behavior can be framed, decoded and analyzed well beyond what is articulated. You may even start to enjoy the things left unsaid more than those are expressed outright. For when a new technology comes along, you will have a sense of long-lasting benefits that point to a permanent shift in behavior or it is a novelty? How will they use your product?

Linking to dividend paying stocks, every day or every week new products are launched and many go by the wayside. There are reasons for it, some are designed that way, some are designed poorly. Trying to understand the end user of the product can make the success more likely. Generally, what you think people will do, is not what people actually do. Look at the products of the companies you own stock in – how did they do? or is it a good thing the original brand worked really well?

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

 

 

 

Continuing along the theme on how to do more with less, is a book called The Frugal Innovator by Charles Leadbeater published by Palgrave Macmillan, London UK, 2014. In the ideal world there is lots of money; in the real world we have finite resources. Frugal innovation tries to provide better solutions for more people by using fewer resources by doing things completely differently. If you never dared to dream the impossible dream or were not afraid to ask for something seemingly impossible this book is for you. While resources are very important, it is never about the amount of resources but doing with what you have and adapting.

Make allies, share value – successful innovation is rarely just about creating a standalone product. Remember Edison built the first working lightbulb but he also created a means to generate and distribute electricity (there is a reason why the electrical system was Edison. Make the product but work with others to make it work in people’s lives.

Stay flexible – frugal innovators have to be able to look for different ways forward when they hit an obstacle. In basketball it is called pivoting. You have a wonderful product start, learn from others about the weaknesses and work on them. What systems does it need to go forward? More often than not, pivoting means to looking for a different way to engage consumers and create a business model.

Creative muddling through – you do not know everything. Things happen, life happens.  Everything cannot be planned in advance through analysis and rational planning. You can creative muddle through by ensuring you are focused on using your scarce resources effectively; and going with the flow.

Thrive on constraints, use crisis to be creative – Use constraints to work in your favour. Use the crisis to unlock new solutions by enabling new thinking, making people drop their ingrained habits and forcing a sense of urgency. Try to see the world differently.

Frugal innovation can be done by many and that is what is exciting about it. The process asks what is the impossible? and start working on it. As you work on it, the resources are likely to be scarce, but simplify, share your work, try not to invent the wheel again, and results will happen.

Linking to dividend paying stocks, frugal innovation can be done by all employees, how does your company take advantage of the ideas of its employees? How are ideas unleashed?

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

 

 

 

 

 

Continuing along the theme on how to do more with less, is a book called The Frugal Innovator by Charles Leadbeater published by Palgrave Macmillan, London UK, 2014. In the ideal world there is lots of money; in the real world we have finite resources. Frugal innovation tries to provide better solutions for more people by using fewer resources by doing things completely differently. If you never dared to dream the impossible dream or were not afraid to ask for something seemingly impossible this book is for you. While resources are very important, it is never about the amount of resources but doing with what you have and adapting.

There are 8 rules of thumb for frugal innovators:

Get real – work in the real world to solve real problems in the world. Move from the lab to the real world quickly.

Design – but do not overdesign – there is a difference between a wonderful looking product and being able to use it easily. ideally consumers want both, the ability to use it will overrule the shiny, new product.

Stay close – understanding the lives of the consumers, how they will adapt a product and what else they need to complement it are vital. Often times the success is the what else they need to complement it or the easy part is the product. For example, in Mexico a cement company sells large quantities to big companies; the frugal part is selling small packets for small homeowners to do it themselves. To make that work, the cement companies works with architects and financing companies so people can do what they wish to do.

Borrow – rapid, real world learning encourages innovators to borrow from existing proven approaches rather than inventing from scratch. Frugal innovators reuse and recycle because it is a more efficient and effective way to learn. Learn to look sideways – what exists that we can use? what simple ideas were discard for more complex ones?

Linking to dividend paying stocks, your company does research and development, how much is linked to frugal innovations and how much is linked to increasing the budget?

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

 

Continuing along the theme on how to do more with less, is a book called The Frugal Innovator by Charles Leadbeater published by Palgrave Macmillan, London UK, 2014. In the ideal world there is lots of money; in the real world we have finite resources. Frugal innovation tries to provide better solutions for more people by using fewer resources by doing things completely differently. If you never dared to dream the impossible dream or were not afraid to ask for something seemingly impossible this book is for you. While resources are very important, it is never about the amount of resources but doing with what you have and adapting.

Frugal people have to use the resources available to them – you can wish for something wonderful, but what is around them that can be used for their ability to solve the problem. The people tend to start with the people the large companies overlook (what are their problems often times it is the ability to pay); they prefer to do radical things with proven, often quite old fashion technologies which are known to work, familiar to consumers and easy to maintain. They welcome borrowing ideas and putting to a new use. They recycle, reuse, repurpose, remediate. They like nothing better than finding a new use for discarded, overlooked or wasted resources. They prefer simple, shared, social solutions. Simple because they are easy to use, make and maintain. Social to make it more affordable. Shared solutions to help people to learn from another. Frugal innovators have 4 main common features: they are lean, simple, social and clean. They learn from trail and error, experimentation and trying again. In many ways, frugal innovators are people who come from the family farm – on the farm there are all the problems and opportunities in running a farm. Most farms do not make a lot of money, so people learn to improvise or adapt or use what is on the farm. How does the land

There are many problems in the world, there are many solutions in the world. There will be readily available solutions at the top income level sector. The are more opportunities to help at the lowest income level sector but to start the innovator must ask for the impossible.

The first step towards creating a simple solution is to crate a simple product by reducing it to a basic core: the 20% of the features that create 80% of the value. For example: if you fly a low cost airline all you really want is cheap, safe and reliable. If you stayed in a Travelodge you received a clean bed, cupboard and shower. Complex products show off their multi-functionality; simple, frugal products hide their complexity.

When new products borrow from the old they are easier to learn how to use.

Frugal innovation creates better outcomes for more people, while using fewer resources, by developing completely different solutions.

At the core of frugal innovations are the four linked design principles: lean and simple, clean and social.

They are lean to eliminate waste in all forms. To be lean, frugal solutions have to be simple. Simple solutions can be used by more people, more easily. Innovations that can be lean and simple can be low-cost without being frugal. To be fully frugal they need to be clean – the rethinking, reuse, recycle, repurpose and remediate. In addition the solution needs to be social.

The reality is the frugal innovation is hard to manage because there are many moving parts, consumers may or may not see the benefits right away and frugal innovators are generalists who see connections between products.

Linking to dividend paying stocks, when investors heard about research and development it is generally aimed at the middle and upper income groups who can pay their bills. The process is rarely aimed at the lowest income groups of the world – although many could benefit. The great advances in technology – smaller size, more powerful chips movement from desktop to laptop has changed the abilities of people to access all the great things about the web. The reality in most of the world, the infrastructure to be on the web does not exist or is too expensive for many in the world. Frugal innovation can help make lives better for the world, but it starts with some resources.

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