Have you ever used a microwave oven? The technology evolved from radar detection of planes during WW II. Prior to this time period no one really knew where planes were until they heard them overhead. The defense department in the England could see the German war production was increasing and eventually those planes would be turned on their country. The Ministry sent out a proposal to zap the pilots when they came across. We still cannot do that except in the comic books, however one person can up with the idea of trying to detect the planes – the analogy used was tying a string between 2 trees with bells on it and it and when something touched the string you could hear it. The theory was if planes could be detected 20 minutes flying time before they reached the border that was enough time to send up the British planes to defend and shoot down bombers. It took a lot of work – many different ideas but the core of the group was 6 people. In other words, the research and development team which was working on a seemingly unsolvable problem or trying to make the impossible possible was a small one. The movie Castles in the Sky starring Eddie Izzard produced by the BBC distributed by Warner Home Video in 2014 outlines the ups and downs of inventing of radar technology. The person who led the team was Robert Watson-Watt who was knighted for his work. Radar technology makes the invisible visible. The story is a typical start up with not enough money, borrowed resources, but staying focused on the goal, the obstacles were overcome one by one. Since the setting is a large organization (the defense department) there are competing visions – committees to control funding and to push along the way. There were many technological innovations to be used but cunning, using what exists pushes the project along the way. One of the many solutions is determining the new TVs have the smaller and more powerful tubes which are needed to do the job – learning to use what there is not what there is not.

Linking to dividend paying stocks, while much is said about research and development, the reality for most companies expanding the uses of what exists is more profitable. The team in the movie invented radar, but the growth in the economy was using the technology for other uses such as microwave ovens and tracking passenger planes. There will always be a competing visions in companies or there should because people are people and we do not know what will happen until it happens. Ideas can transform but implementation and rolling out the idea takes organization and that is where the larger company has the advantage. Dividend companies may or may not lead in ideas but they have a great advantage on implementation and rollouts.

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

If you are an investor, chances are you will look at oil companies whether they are big or small; particular as the price of oil was approaching $100 a barrel for there was plenty of money to be made. Over the past 5 years, one of the approaches the oil industry used is  called fracking and it proved to be successful in extracting more oil and gas from the ground. On the other side because issues tend to have good and bad sides was the fracking sometimes caused water problems, earthquakes, and methane explosions. Most of the time, investors focus on the good side which is using technology to enhance the production of the oil. However, listening or reading about the other side is important. One of the many books about the concerns is called Slick Water by Andrew Nikiforuk published be Greystone Books Vancouver/Berkeley, 2015. The book tells the story of one woman’s struggle against the oil industry and its regulators because in the area where she lived the fracking caused methane to get into the water supply. In Flint, Michigan the water supply has lead which means all the pipes need to be replaced. In rural area or away from cities, most people depend on wells for their drinking water. As long as the oil companies take the oil, pay their royalty the system works reasonably well. When the methane gets into the drinking water the first line of defense is denial that the company caused it.

When you deal with the environment, you deal with many theories because the environment is not static, the earth and weather change. What is the route cause, no one really knows, but it is possible to say some actions have a more direct cause than others. One of the direct cause of methane going in the water supply was fracking. For those who may not know, conventional oil production is to send down a pipe directly into the earth and using pumps bring up the oil. This process does a good job, but there will be oil left; fracking is designed to loosen the earth to collect the rest of the oil. When prices of oil go up, it does a very good job of collecting the rest of the oil. We have seen the use of fracking in North Dakota, Montana, Texas and Pennsylvania where oil is found in shale structures. At the beginning of the oil boom in Pennsylvania – fracking was used but it was very dangerous and not effective. The years have gone by to improve the effectiveness of fracking.

One of the problems with the book is the regulators. As citizens we know regulators have a bias towards the industry because they report to politicians who prefer the industry be productive and have few problems. However, it was disappointing to read as a citizen how tough the regulators made the process. The fight to have clean water in the rural area brings memories of the movie Erin Brockovich movie and the fight against Pacific Gas & Electric.

Linking to dividend paying stocks, no matter what industry you invest in there will be some negative implications as well as many, many positive reasons to invest. There will be industry practices which can be better and when things go wrong how does the company and industry react? and who pays for the damages? As an investor you see a role for government to help pay (or even to pay the bulk of the costs) for in the case of fracking – the water table is not changed every time. There are problems but they change with the different structures below the surface which we can not see until there is perfect information and there is rarely ever perfect information with the earth.

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

 

This year the Olympics are in Rio de Janeiro, Brazil and if you heard or read about the leadership of the country, you would know there are many scandals going on. This means the leadership of the country is less than stable. A recent article in the Globe by Mark Pastin who is the CEO of Council of Ethical Organizations gives lessons to staying ethical.

Mr. Pastin is a ethics consultant and offers 5 practical lessons from ethical leaders:

Say less, but say the truth  When the CEO speaks every work is measured by your employees, doubted by journalists, parsed by analysts, and weighted against laws and regulations by a hungry plaintiff’s bar. CEOs do not offer their opinion, for when they speak, they are speaking for the company. They have to limit what they say to what they know or think they know to be true.

Know the stakeholders While shareholders are important, companies have a wide range of relationships which they depend on. CEOs should try to balance them all so they align in support of the company.

Surround yourself with truth tellers This will one of the hardest tasks of the CEO, find direct reports or people in the organization who do not want the top job but will tell you the truth about what is happening in the company, even when it is uncomfortable to do so. Many of your direct reports will not tell you the complete truth, because if they did they would be out of the running for the promotion or bonus.

Learn for yourself   Nothing beats field trips to the offices where policies are put into place and what works and does not work from corporate.

Pass on some opportunities  In all companies, there will be opportunities that seemingly could make money, but are rejected because they are iffy situations. For example who gets the big bonus? money shouts volumes about what is said to be policy and what is reality.

Linking to dividend paying stocks, most large company executives are in bubble, think about tours of the President to offices or stores to see. What do they see? When a company goes off the rails, such as you see in Brazil, the good money will move to the sideline. If you see the company is not ethical (lawsuits result which means senior management is managing the lawsuits rather than new or existing business). There are many challenges for a company, it is easier to be on the ethical side and more long term rewarding if they are. How does your company respond to problems?

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

 

When you are investing it is good to see how high-net-worth individuals are doing with their money. One gentleman who writes about their doings is Thane Stenner (ThaneStenner@RichardsonGMP.com). He writes most of this group did not make their money in the stock market, they are current or former business owners – they sold their business and put the money into the markets. In business the goal of the owner is to build wealth by concentrating assets, in investing the goal is to preserve wealth by diversifying assets.

Mr. Thane recently talked to Richard Stammers of the CFA Institute and asked his opinion. The discussion lead to some points, that everyone can learn from:

They have clear investment goals  Besides to make money, they tend to have specific goals and through their backgrounds execute the goals better and gives them the discipline to stick to them.

They know when to delegate  The good news for Mr. Stenner is the group tends to delegate to professionals to manage their money. In business they did not do everything themselves, investing is no different.

They think risk first  If you think about wealth protection, the idea is not to lose money first or how do you make money back. This means you tend to avoid unnecessary risks and you tend to have a diversified portfolio.

It’s business  In business, decisions should be made on the facts, not gut decisions. In this fashion you are more likely to move on when ideas or investments do not work out.

They keep the news in perspective  Many are news junkies but the focus is not on the day to day, but the longer term trends. This means decisions take time to make based on the news of the day.

They seize the opportunity in crisis  This is when most make their money, in business they have gone against the grain to enjoy success. When the markets are down, they are looking to buy (remember the diversified portfolio with cashable assets) for they are looking to profit from volatility. Buy low, sell high.

Linking to dividend paying stocks, capital preservation should be the goal because stock markets go up and down. Not losing money is making money and dividend paying stocks allows you to have dividends to reinvest or buy the best companies at lower prices and wait till they go up in value.

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

 

In general people are wonderful, if you look around you can see many traits to be duplicated. Having said that, Scott Barlow wrote a column in the Globe and Mail called 5 ways human psychology can wreck your portfolio. Scott writes when we existed our main goals was not to eaten by predators (stay alive), finding food (eating on a regular basis), being social (learning to live with others) and procreation (having children). Many years have gone since the early days, and sometimes when we look around we do not see many changes.

Mr. Barlow 5 picks of the ingrained psychological tendencies that investors must guard against to make investing more successful.

1. Loss aversion/anchoring    For investors, losses feel worse than gains feel good. This means according to Tim Richards author of Investing Psychology that if you buy a stock (after your due research) at $15 and saw it drop to $12, you will not likely sell even if the stock market in general is going down. The investor would rather believe the stock will come back to $15 and all will be good. Selling early is hard.
2. Herding  People like to do what other people are doing, this can be a good thing. However the time to buy is before the stock market rises makes the front pages of the newspaper. By the time, it is newsworthy for the mass market most of the bull market will be over and people buy high, hold and sell low.
3. Choice supportive bias or confirmation bias  You have an idea, do your research and come to a conclusion. Soon you are reading or hearing that others agree with your conclusion, this makes you feel good. The tough part is to read the negative aspect of your conclusion.
4. Regency bias This concept refers to the idea we expect previous events to repeat themselves. In normal times we expect to see a cycles of up and downs for the stock market. The last down was the collapse of the real estate markets and liquidity in the capital markets (that may be once in a lifetime) are you being too conservative?
5. Outcome bias This is the belief that a good investment outcome automatically means the process to select the investment is a good one. (if you are an athlete and did well, you will review what you did and try to repeat it). The problem with the outcome bias is stock prices will go up or down, but there is not a 50/50 chance it will do either.

Linking to dividend paying stocks, to start we all have biases. If you agree with that then you can move along. Sometimes the biases are because we are human, and for those ones we have to recognize them and try to make rational, objective decisions. The are methods to try to go around the biases, one method is have a longer time frame and try to purchase profitable companies which pay dividends. Whether the stock goes up today or tomorrow will not matter, but it will not go down too much and while you wait you earn a good dividend return. Because the company is profitable, the street will recognize it and the stock will trade at higher multiples which means capital gains.

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

 

Listening to the radio one day, a producer of a new podcast was the guest. The podcast is called Someone Knows Something about police cold cases or crimes that have not been solved. In the interview the host of the Current asked Adrien McNaughton how does your team pick the cases to work on? There are many unsolved police cases – many of us have seen TV shows which focus on them or the question is how do you narrow the information? Mr. McNaughton said his group look for 3 pillars as a base. An interested family member (because if they find something the family will be in the news again); law enforcement interest where they can share information and possible suspects. With these pillars, jogging memories, going back through procedures, having fresh eyes see can lead to more research and possible solutions.

Linking to dividend paying stocks, as generalist people we do not know about everything, but they can understand the process. How does it work and what steps lead to narrowing the field to concentrate on the best prospect. In your investing world, unless you only buy index funds, eventually you have to pick one stock over another one. Learning the process is half the battle; the bias in this blog is to start with dividend paying companies because they are profitable companies. Profitable companies stocks will go up and down as the market goes up and down, but you will lose less and gain more over the longer term.

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

 

There is old adage of investing – buy low, sell high and you will make money. For most of us that is hard to do because to actually buy low you need to travelling up river or against the current. We see many trends in the industry and to buy low is to buy when valuation of a good stock is low and expectations for it to do well in the next quarter is also low. The trick is to know at some point the market will begin to increase the expectations of the stock to do well and this will push up the multiple which pushes up the stock price.

It is relatively easy to be seduced into flowing with the river so what are strategies to try to buy low and sell high. One always start with the best of the breed companies.

Tom Bradley of Steadyhand Investment Funds recommends to have a Strategic Asset Mix in place or SAM. The SAM lays out how your portfolio will be allocated across different asset types. It is a road map that give you a long-term perspective and ensures you do not get caught in the latest trend of the investment industry. The idea is to put restrictions on your asset category or your purchases have to be truly diversified. For example if you love energy stocks not more than 15% of your portfolio, not 50%.  Another tip is the investment industry can easily make new products, before you buy one of them ask yourself how will this implement my strategic asset mix and why is the new product better than what I already own?

Linking to dividend paying stocks, part of investing in these companies is they are profitable and should be once you own them. If you keep your investments in profitable companies over the long term you will do well or not lose money, because profitable stocks do not lose as much when the stock market goes down for when they go to a lower multiple, the dividend ensures institutions will buy the stock for it is a bargain.

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

Bloomberg News columnist Brooke Sutherland recently wrote an article about Honeywell International pursuit of United Technologies. The deal is $108 a share or $105 billion. United Technologies said no because of possible antitrust objections. However the writer believes for the industrial sector to expand there no many other options. The slow growth environment as well as all the cost cuts have run their course, if a company is to grow then they have to expand externally. If Honeywell does not succeed there are other companies of various sizes which Honeywell could easily buy given of the $105 billion cash and stock bid – 39% is in cash. Companies which are named in the article include: Crane, Moog, Lennox International, Meggitt, Ingersoll-Rand or Pentair. There are also assets of commodity producers which have been hurt by the lower commodity prices.

Linking to dividend paying stocks, in all cycles there will be companies which can buy other companies and those needing to pay down debt. There are opportunities, the best method to be involved is choose the best of the breed companies in case the company is not acquired. If they are acquired you will make a significant capital gain, if not the dividends of the company are sustainable for the next round of mergers.

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

 

When travelling to other cities eventually many people go to the University of the place. Some of them we have heard about and want to see to the lands or the people – the last visit to Boston included a walk around Harvard (for example of all the law schools  in the United States the Supreme Court Justices went to either Yale or Harvard). A number of years ago, when in Montreal went through McGill University and saw the name Macdonald. It turns out there is an interesting legacy as outlined in the book Sir William C Macdonald – A Biography by William Fong published by The Macdonald-Stewart Foundation, McGill-Queens University Press, Montreal, 2007.

With every company, they would love to have limited competition or at least have stable prices or have prices go up every year across the competitors. Some industries are regulated by the government (think utilities) and others are not. The ones that are not invariably have some sort of price fixing history in the past. Tobacco is no exception – there have been wholesale grocers price fixing; for a time there was the monopoly pricing of the biggest company – the American Tobacco Company and the Tobacco Trust lead by James Duke. Mr. Duke was in the cigarette business having invented a machine to roll cigarettes and then ensured American Tobacco received a royalty from every company operating it. The Trust was broken up and 4 large companies were the result: American Tobacco, RJ Reynolds, Liggett & Myers, and Lorillard. The size of the company invariably results in the public believing or not believing there was or is price fixing. In some industries, it is follow the leader but Mr. Macdonald would say they had an influence, he was not directly involved

When Mr. Macdonald ceased operating the business he passed it his partner’s sons who eventually sold the company to RJ Reynolds. For much of his life, Mr. Macdonald seemed to be a solitary figure who went about building his business, as he entered the last 25 years of his life he turned his eye to donating his money to good works. The good works he chose was to enhance the University around the corner of his home – McGill. He liked the approach of the leadership, he like helping young people and he was interested in the research students at a university do. He was impressed with what MIT had done and was doing in the Boston area and wanted to duplicate it in Montreal. With his money and an one million dollar grant from the Rockefeller Foundation, McGill developed a leading reputation in the areas of medicine and sciences.

Linking to dividend paying stocks, in running a business, particularly a large one there are many challenges for all sorts of places – the competition, the government, and the public. Some times they will see you as the enemy (in some ways you are); sometimes you will be seen as the friend; as long as you are relevant in your customers eyes in the important thing. Giving some money away helps the world see you in a better light. In the book, the author writes what motivated Mr. Macdonald to give the bulk of his hard-earned and carefully saved fortune to education? This was a man who saved or invested half his income. Perhaps he delighted in creating superior opportunities for educating others.

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