Every quarter, the holdings of the largest mutual funds and hedge funds are reported. Afterwards research reports reveal them to the general public. The 10 ten holdings for US Mutual Funds are: Alphabet (google), Microsoft, Amazon, JP Morgan Chase, GE, Facebook, Apple, Wells Fargo, Home Depot, and Pfizer.

For the hedge funds, the top 10 are: Allergan, Alphabet, Charter Comm, Facebook, Time Warner Cable, Microsoft, Apple, Amazon, Pfizer and Pepsi.

In the hedge fund group are some cable companies and an interesting play in cable companies is Viacom. Summer Redstone has been a dominate force for many years and the company he controls Viacom owns Paramount Pictures, Nickelodeon, Comedy Central and MTV. In addition Mr. Redstone controls the CBS TV network.  Mr. Redstone is 92 and is declining health, however through multiple voting shares he still controls the network. The companies are worth billions and still need to operate and this is where drama plays out. Mr. Redstone has long time advisors and a daughter who seem to be on opposites sides of the equation – is Mr. Redstone capable of making business decisions? If no – then someone needs to step in. If yes, then there needs to be a transition in place and someone needs to needs to step in. The pieces are worth money but the value of the stock is pushed down because of the health problems of the controlling shareholder.

To be President of the US means to accept a two term limit or 8 years; when someone has controlling interest in a public stock company, in theory they can stay as long as the company makes money. The problems of staying is the missed opportunities that happen as the Boardroom drama extends. One of the wonderful things on the way up was the influence of the founder in this case Mr. Redstone – he founded networks which appealed to young people and did very well. When you appeal to young people, they often ask what have you done for me lately? and find alternatives.

Linking to dividend paying stocks, part of the responsibilities of every Board is to look at successors and approve plans by senior management. Picking and choosing management to guide them through the economic cycles particularly when the company make money is the easy aspect of being on a Board. The harder part is the succession, trying to ensure people leave when they do not want to. When that part is finally done, then the company’s shares will increase because there will be stability in the Boardroom. The stability allows the  company to concentrate on ensuring it achieves maximum values from its properties, finding new opportunities or selling some of the assets to a willing buyer.

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

 

 

From the library picked up a book about Coal. Most of us know that coal supplies us electricity but few of us know much about the mineral. In the book Coal – A Human History by Barbara Freese published by Penguin Books, NY, 2003 tells the readers about the history of coal.

From the design of the steam engine came factories, workforces and cities. By the early 1830’s Manchester have 7 cotton mills with more than a 1000 workers each and another 76 cotton mills that numbered their workers in the hundreds. The ample coal supply removed the bottleneck that reliance on waterwheels had produced. The factory workers were forming something new to the world: a large class of people whose lives were shaped, and in many ways reduced, by machines. The pace of daily work was set by the regular beat of the steam engine.

Each production task was broken into its most basic unites achieving much greater efficiencies but limiting many workers’ jobs to the most simple, repetitive, machine-like movements, all synchronized to the rhythm of the steam engine at the factory’s level.

The next step is linking the coal fields to the industrial towns with a railway.

In the US, the city which became the steam capital of the Western Hemisphere was Pittsburg, thanks to its cheap coal. Coal was found in the Appalachian Mountains however the problem was sending it to market in Philadelphia and New York. First came canals, later railways. Prior to the railways was solving the problem of industrialization -the lack of cheap coal and lack of cheap iron. With technical innovations, the anthracite coal secrets were unlocked and soon the cost of iron went downwards. The manufacturing age was upon the US.

The first coal pool or monopoly like conditions was organized by the Franklin Gowen President of Reading Railroad who ensured the mines owned by Reading had preferred rates and competitors had higher freight rates. The President of Reading believed this gave stability to the industry and kept coal prices low. When he decided to expand his railroad (he believed in monopoly for coal freight rate prices, but competition for the railroad); the other railroads including JP Morgan bought the Reading bonds and forced Mr. Gowen off the railroad. Mr. Morgan wanted to control what he thought was wasteful competition or Mr. Gowen was too competitive in the railroad business.

Linking to dividend paying stocks, much of the economy is based on alternatives and seeking alternatives when prices are too high. If prices are reasonable, people are not inclined to switch to the alternative and the balance remains. As you examine your dividend paying company, always ask what are the alternatives or the real competition.

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

 

 

 

 

 

From the library picked up a book about Coal. Most of us know that coal supplies us electricity but few of us know much about the mineral. In the book Coal – A Human History by Barbara Freese published by Penguin Books, NY, 2003 tells the readers about the history of coal.

Coal is important for what comes out of it: enough energy to change the world profoundly. For billions of years, almost every life form on earth depended on its existence on energy fresh from the sun, on the “solar energy” arriving daily from outer space or temporarily stored in living things. Plants capture sunshine and convert it into chemical energy that animals can eat, the energy not converted is stored. Animals eating plants take that stored energy into their bodies in a concentrated form and disperse it throughout the lands. Life on earth is a vast and sophisticated system for capturing, converting, storing and moving solar energy. The evolution of each species depends on how well it taps into that system.

In one of first chapters, coal is easily found in England and thus an English story. After fire was invented people used what was around them and generally it was trees. As the population increased, the number of trees or the ability of the trees to grow and be useful firewood diminished greatly. It was either pay more or find an alternative and the alternative turnout to be coal. Coal was easily found in Newcastle (about 5 hours north of London). The coal was exposed, the seams were good and thick and it was above the water lines. Newcastle has a port and soon ships were going from Newcastle to London.

This is where the story gets interesting – King Henry VIII wanted a son to continue the family as being King of the country. His wife had given him a daughter, but succession rights went only to males. At the time, the religion of England was Catholic, however the religion has a no divorce policy. Henry decided to change religion of the country to one which allowed divorce and The Church of England was formed. In addition, the Church of England took over the lands of the Catholic Church which was 20% of the lands of England bringing in rents three times that of the government. Some of the lands were in Newcastle where the church owned many of the coal-bearing lands. In the next 5 years, the land was transferred to the Church of England who either sold it or leased much of the lands to merchants. The merchants were eager to find ways to profit from coal.

Soon coal was the number one method to heat homes (which lead to increased air pollution) In addition the merchants were continually trying to find ways to drive down costs through the use of technology. Newcomen and Watt’s steam engines are invented for this reason. This has the effect of starting the industrial revolution – changing coal into motion and heat.

Linking to dividend paying stocks, government whims and policy change things, sometimes for the better, sometimes for the worse. If the Catholic Church had given an exception to Henry maybe England would be a Catholic country and the Church would have kept their lands. It is rare for a country to confiscate another’s lands without on going repercussions. In this case, the changing of the lands gave rise to a merchant class and eventually the industrial revolution which made England the most powerful nation in the world until the end of the 19th century.

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

 

The CEO of Canada Post was new to the job and similar to all Postal companies owned by the government, the internet changed their business model. What many of us use to send in the letter, now goes by email and we by past the postal company. Mr. Chopra was in his early days and received a proposal with a yellow post it note about an innovation team. One would have thought the innovation team at the Post Office had a floor working on all kinds of things. It turns out the innovation team was 4 people, who were working on an app for the iPhone and using their own iPhone because the iPhone was not on the list of company issued. Mr. Chopra saw the great merits in being able to use your iPhone to track parcels and look up post codes, he also liked the enthusiasm and energy of the group. He decided to greenlight their project and today it is one of Canada Post’s most popular app.

In the late 1990’s 2 models of innovation and growth were introduced to business leaders and they are still relevant today. In 1998 Every Business is a Growth Business by Ram Charan and Noel Tichy argued most business defined their market too small. To expand you must expand the circle you play in. The classic example is Coke who had a 35% share of the soft drink market but if you at all fluids it was only 2 ounces against 64 of all liquids consumed. From that perspective, Coke went into bottled water and other drinks to grow the 2 ounces.

The other approach is Clayton Christensen’s 1997 book The Innovator’s Dilemma. He suggested to truly innovate, companies need a safe zone for ideas-driven teams. They would be away from head office bureaucracy and this would create the conditions to blossom with the potential to new growth engines.

In reality, both are correct. Mr. Chopra argues that reinvention is best inspired from the very idea or role that made the company successful to begin with. In the case of Canada Post they are making the transition form letter-centric to parcel-centric models. .

Linking to dividend paying stocks, similar to Canada Post had the assets of being everywhere or linked to everyone across Canada. It makes great sense to move from letters to parcels. Dividend paying companies will have great assets or distribution ability to something which allows them to make profits. There is always change in the marketplace and leveraging a company’s assets is always a good thing. As you examine your investments, listing of their greatest assets and seeing how they use them will help you determine if the company is still worth holding onto.

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

In the movie the Terminator 2 – the main characters are trying to destroy a company that leads in artificial intelligence, in the movie one of the scientist says something to the effect, we found this old arm and seeing how it was constructed gave us great advances. Well that is the movies and this is real life. It turns out there may be an animal on earth that does may give us similar things for humans. The animal is the Octopus. Recently an Octopus escaped from an aquarium by escaping through a small hole which lead to more stories on the radio about the octopus. While looking in the library a book was read called Octopus – The Most Mysterious Creature in the Sea written by Katherine Harmon Courage published by Penguin Group, NY, 2013. The Octopus is one of those very adaptable animals for a variety of reasons but it has to protect itself against fish that would eat it. This adaptability is the what makes the octopus so interesting to research.

The Octopus is eaten around the world and is high in protein, all you need to do is clean it and boil it. The boiling tenderizes the meat and you can add potatoes and season with garlic, olive oil and paprika.

The reasons science is interested in the Octopus is they are very adaptable and can be found living in both hot and cold waters of the ocean. They tend to live in small spaces and if you were to scuba dive looking for them, unless you know what to look for you would likely not see them. The octopus has the ability to change its skin to its surroundings, but at a much higher degree than other animals who blend in. They can change color in 3/10s of a second. When you start analyzing all the surroundings including light combinations, the ability comes to an amazing one. This is one of the reasons the military is interested. How does it do it and could it be duplicated or come close to?

The Octopus is an interesting creature because it is a smart one. It is believed to be one of the smartest invertebrates above or below water. It has engaged in complex behaviors, from play to navigation to tool use and no one ever taught it or it is all self taught. The female lays millions on octopus in the expectation a few live (similar to other fish) and as they grow up they are by themselves. Octopus can and do recognize individual people or their researchers or feeders.

Another interesting feature of the octopus if one of the arms is eaten or broken off, it can grow back. The octopus will close off the affected arteries to avoid blood loss until a small stub stats to form and sprout a new arm. Imagine if we could figure out what the octopus does and use to regrow nerves to fix people with neural injuries or diseases.

Linking to dividend paying stocks, as we look around in our world we see things in nature which can help us. As we try to understand it is possible to have seeming a better world. Most of us tend to live in the urban environment because we believe there are more opportunities to make a living. In reality, there is more learning in the rural areas because you have to live with nature. In the above example, the abilities of the Octopus could make our lives better, which means there are other animals we can learn from. In real life, the octopus tends to be almost sleeping or watching most of the day. They use their abilities to catch food and then back to resting. If you wish to do that in real life, add dividends to your stock purchases and then you can enjoy a laid back lifestyle.

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

 

When companies introduce new products (or new funds) they put out the best message possible. Recently Bristol Gate Capital Partners listed why dividend growth investing makes sense in today’s investing world.

1. Demographics – if you look at models at what the average person should own, as they reach into their 60’s the models stress more dividend stocks (try not to lose your money). The baby boom at the end of World War II is retiring and they will shift to more conservative models.
2. Historically low interest rates – the economy has changed and no central banker quite knows what to do, at this time 60% of the S&P 500 stocks offer dividend yields higher than 5 year US Treasuries bonds ( the alternative and designed not to lose money)
3. Interest rate correlations – dividend growth is positively correlated to interest rates or if interest rates ever rise, the growth of the dividend offsets the rise in interest rates. If interest rates rise about 5%, you can always move more money into bonds.
4. Payout ratios – dividend growth stocks have earnings growth of more than 10% which help make dividend payments sustainable. If you only look at the highest yield dividend stocks, some of those companies do not increase their dividend payouts.
5. Cash reserves – payouts as a proportion of profit are lower and cash reserves are higher than ever. (the dividend growth companies can continue to pay dividends)
6. The dividend growth story – if a company increases the dividend by 15% a year, over 5 years your dividend has doubled.
7. the lower dividend but increasing dividend growth leads to more money a)  100,000 2% dividend, annual dividend growth rate of 10%  2,000 this year and 13,455 in 20 years.b)100,000 5% dividend, annual growth rate of 2%  5,000 this year and 7,430 in 20 years.   Compounding effect advantage.
8. Valuations – at the moment high dividend growth stocks are trading at a discount to stocks with high yields, they tend to be less expensive to buy right now.

Linking to dividend paying stocks, in this example a dividend stock is not just a dividend stock. The company was highlighting higher dividend growth stocks and opposed to low dividend growth. Either way, the dividend adds to the total return and the concern is always can they continue to pay the dividend? Is the company profitable? If yes then you can count on receiving your money and having options to do more.

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

 

We are all faced with changes and there are many books which offer advice. One of them is called Switch – How to Change Things When Change is Hard by Chip and Dan Heath, Random House, Toronto, 2010. One of the reasons to read the book is it helps define a road map to get the change needed. In the book they believe the brain is made up of two parts and it generally functions as an Elephant and a rider. The rider can direct the Elephant but the Elephant has a mind of its own, when the two parts work together – magic can happen. In many situations, it is not that organizations do not want to change – it is only targeting one portion of the brain be it the rider or the elephant and unless they both receive attention the change will not happen or last.

The 3 stages to facilitate change Mr. Heath believes are:

1. Direct the Rider:  what looks like resistance is often lack of clarity or communication. Provide crystal-clear direction.
2. Motivate the Elephant – what looks like laziness is often exhaustion. Engage their emotion to go in the direction.
3. Shape the Path – what looks like a people problem is often a situational problem. The authors call the situation the path.

If all three happen, then dramatic change can happen even when you have little power or resources.

A wonderful example is Jerry Sternin was working for Save the Children in Vietnam. His job was to fight malnutrition and he was given 6 months to do his work. It would be easy to say malnutrition was the result of poverty, sanitation, lack of clean water or large institutional fixes that require dollars for infrastructure. Mr. Sternin had a small budget and  travelled to rural villages and measured babies. When they came back eventually someone asked  did you find very, very poor kids who are bigger and healthier than the typical child? The answer was yes, so he said let us see what they are doing. It turns out the mothers were feeding their babies 4 times a day (smaller amounts at time) and adding shrimp, crabs and sweet-potato greens. The result Mr. Sternin devised training programs for mothers to add seafood and greens to the diet and feed smaller amounts. The result was 6 months later 65% of the kids were better nourished.

Another example is women with breast cancer at the University of California at San Francisco Hospital.  The good thing is the treatment was wonderful, the bad thing is similar to many large institutions, all the departments were not in the same building and for very good reasons were run according to their department needs. Laura Esserman decided the concern should be the patient first. They started small and the Breast Care Cancer Center grew to include all the disciplines on one floor working to help ensure the needs of the women who come in, their needs are first.

Another example is BP Petroleum. BP drills wells to bring oil and gas out of the earth. If they are successful, they make lots of money. However, Ian Vann BP’s head of exploration decided to change the rules and rule should be No Dry Holes. The reality at the time was 1 in 5 did not work, but people thought at least the other 4 are making money. To do No Dry Holes – greater emphasis was put of the mapping and aggregating the information they had and sharing it with the others. No dry holes meant drilling in the best locations first and using all information possible. There are still dry holes, because you do not know everything till you drill, but there far less and less money is wasted.

Linking to dividend paying stocks, in the book there are many examples however the ideas are does the company have good direction, what are the consequences of not making better decisions and are they doing better? Often times the process of the change or how sustainable is the change will make the difference. As you examine the companies you have investments in, what are they doing? what does the annual report reveal? what stories do you hear or read about those companies in relationship to the change process?

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

 

We are all faced with changes and there are many books which offer advice. One of them is called Switch – How to Change Things When Change is Hard by Chip and Dan Heath, Random House, Toronto, 2010. One of the reasons to read the book is it helps define a road map to get the change needed. In the book they believe the brain is made up of two parts and it generally functions as an Elephant and a rider. The rider can direct the Elephant but the Elephant has a mind of its own, when the two parts work together – magic can happen. In many situations, it is not that organizations do not want to change – it is only targeting one portion of the brain be it the rider or the elephant and unless they both receive attention the change will not happen or last.

The examples of the book do not necessarily require more money as a solution. They require using what you have and changing the road map to accomplish the change needed. The first example is good for food manufacturers, lousy for public health. If you give people bigger sizes they will eat more.

Another story involves the St. Lucia Parrot, a young man was involved with the conservation of the bird through his studies. He was asked by the government to stay on and do something although there was little money. The reality was few people knew about the parrot so there was no ecotourism; and many would not have missed it if it was not there. However, Paul Butler was convinced of its importance and would have to make an emotional case to the people of the country.

Mr. Butler started small – puppet shows for the kids; t shirts; asked people to write songs; asked ministers to include it in their sermons – be a good steward of the things that we in their trust; had a telecom company use the parrot as a symbol. As people were seeing the parrot, their attitudes changed to wanting to protect it and then came legislation.

Another example is the Lovelace Hospital System in Albuquerque, New Mexico where there was turnover of nurses. Turnover costs money in replacing, training, and allowing them to do what they need to do. The normal thing is investigate why people are leaving and it is important to know. The consultants looked at is why are they staying? When they determined a prime reason was the loyal to the profession of nursing – the solution was how can we enhance that passion?  A number of measures were introduced and satisfaction levels climbed, people stayed longer and patients satisfaction levels increased.

Linking to dividend paying stocks, one of the great things about these companies is they generate profits which pay the dividends. The not so great thing is many times a solution is put resources and money without being creative first. Often times in companies, creativity is stressed when the money is not making enough money, then ideas are asked for. The secret is to be creative in the first place – to see what the results can be. Then built, in an institutional setting there will be barriers, both departmental and people for some have done things the same way all the time. It is important to look at your companies – when are they creative? what solutions which make common sense to the outsider is the company not doing? then you can look at alternatives.

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

 

 

 

 

If you own stocks, it is a good feeling to sell at a higher price than you bought, after all that is what part of the stock market is for. The question is always did you make the right decision – if it was part of reason to buy something else, than maybe for your new stock should out perform the old one. If you are chasing performance, then in all likelihood your returns are going to be lower. Thane Stenner of Richardson GMP writes many investors chase performance for lower returns and it possible, that if they changed their behaviors the returns would be higher. Mr. Stenner specializes in high net worth investors and writes generally what they do is:

1. Expect to have a 3-5 year period of buy and hold. If you have done research and the product fits into your strategy first; you will have more confidence to buy and hold.
2. Control your speculation. There will be some situations that cry for you to do something either short or long; many you will not know, although you might have an opinion. The special situations do not come up everyday, so control your expectations to those areas where you have a significant advantage. Remember to separate speculations from core holdings and routinely take profits to reduce risks.
3. Exercise selling discipline. When they sell try to use rational reasons: a)  Business reasons – the business has changed and is going through restructuring. b) Valuation reasons – the investment is at full value – it is time to look at alternatives. c) risk management reasons – the individual’s tolerance for risk changes. d) personal reasons – to buy something or to pay for something or use the money outside the market.

Linking to dividend paying stocks, notice how buy and hold and using patience fits into dividend paying stocks. If a company is growing its dividend and expects to continue to do so, it can easily be a hold for many years. If something changes, then one can look at the alternatives. If the stock is growing its dividend, it has to be profitable and that will be reflected in a growing stock price.

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