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.

It is interesting to read about Microsoft, a company most people feel very comfortable with and expect their computers to easily work for them. The has been many many changes along the way and in many ways we all think we know about Microsoft because Apple and Microsoft have been leaders in the computer software industry for years. One of many books about Microsoft is The Making of Microsoft by Daniel Ichbiah and Susan Knepper published by Prima Publishing, Rocklin, California, 1991. One of the great myths about Microsoft is it landed the contract with IBM and it became the big cheese which IBM went down. The myth is not exactly true, what is true is landing the contract with IBM allowed many aspects of software development to be standard, it did not make Microsoft the big cheese. It was not until Microsoft moved on to launch Word, Excel and Windows which brought computers from corporations into households and small business which made Microsoft billions of dollars. In each of those occasions there were tough battles against Word vs Wordstar; Excel vs Lotus 1-2-3; and Windows which was built on MSDOS. Each of those developments were essentially betting the store and fortunately Microsoft won out.

Microsoft is in the software business and those in the hardware business saw margins fall rapidly as companies duplicated their efforts around the world. The name on the box is not the important aspect in the computer world, it is what is inside. Unlike the automobile business, it is the name on the vehicle not who makes what is inside. However, when that happens if the software inside is not deemed to be the best or very similar to the best, there are methods to change to companies which offer better software. This produces a high expectation on new Microsoft software and updates or there will be challenges in the marketplace.

Linking to dividend paying companies, it took a long time for Microsoft to become the gorilla in the software industry and for the average user, it has worked out well, however there are always many competitors in the marketplace. Being able to use technology changes lives and allows for more creative outlets for the people of the world which is a great thing. There is a constant demand for the next great thing, although one wonders what else needs to be in place for the next great thing. In the early days it was the quality of the chips from Intel; the more we expect the more all the pieces have to align.

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

Listening to the radio a radio program by Terry O’Reilly called Under the Influence was heard. The program is about the advertising industry, brands in the marketplace and as a regular consumer it is interesting to know what the industry is trying to do. The show on the radio featured brands that have existed for hundreds of years. One such brand is a beer called Stella Artois. If you order the beer it will be priced as a premium beer. The company has existed for over 600 years and Mr. O’Reilly said the company wanted to enlarge its market and tried distribution at supermarkets. People shop there and they could easily pick up beer which is the good part. What they did not put in the contract was supermarkets use items as loss leaders to ensure people come into the supermarket. The price was considered cheap, and binge drinkers started to drink it and creating chaos on the streets, particularly after soccer games. The TV crews coverage of the atmosphere and people could see the rowdies  were drinking Stella Artois. This caused their base premium buyers not buying the product and what should the company do?  The company after 600 years of positioning itself as a premium beer, dropped the supermarket distribution deal and changed its advertising agency to go back to the element of quality beer or what it is now. The moral of the story is no matter how old the brand is, troubles can appear for what was a simple idea (increase distribution).

Linking to dividend paying stocks, even though one would think after 600 years of promoting the beer as a quality product very few things could go wrong, they can. Outside of general cycles in the economy, quality of management, and normal people’s lifestyle there are a host of elements which can go wrong and since 80% of companies fail in their first 18 months, much does go wrong. For your profitable stocks which pay a dividend, things will happen as an investor you may prefer few things to happen but challenges exist. See how the company is meeting their challenges and if you do not believe, management has their fingers on the pace of the business, ensure you have alternatives to switch to.

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

 

In the economy most people work for the service economy and that tends to give us biases towards those industries. We see them on a daily basis and we believe everyone should be in those types of industries. The reality is the economy is based on basic materials and then has thankfully branched off from there. In a recent article from Peter Ashton of Recognia looked at US Basic Materials Stocks and some of them still look good. We know that resource industry is cyclical industry but when the cycle turns there is money to be made. Mr. Ashton began with companies great than $ 2 billion in market cap threshold and whose stocks are up 5% or more. In addition the stocks have a dividend yield of 0.5 or greater. The keys are remember to start with the best quality stocks possible and you should easily benefit when the cycle turns. The data allows you a place of beginning.

Company                Mkt Cap    Price Performance   Debt to Equity    Dividend

(US$Bil)    (YTD)                           Ratio                       Yield (%)

Nucor                            15.0         19.9                             0.60                        3.1

Reliance Steel             5.0           20.8                           0.49                         2.3

Cameco                        5.0              6.0                           0.27                         2.3

Steel Dynamics          5.5            27.8                           0.97                         2.4

Martin Marietta         9.9            13.4                           0.39                          1.0

Wothington Ind         2.2           19.9                            0.88                         2.1

Vulcan Materials       14.1          11.1                             0.45                          0.5

Eagle Materials             3.5         16.2                           0.48                           0.6

Linking to dividend paying stocks, we all look for the great systems but there are normal waves in the stock market. Look to quality and ride cycles, let the market do what it does best and ride with it. Sometimes making money the easiest way takes a long time to see, but when you do take advantage with low risk.

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