In the Globe and Mail, Chris Umiastowski writes about growth stocks and over the past 3 years his picks are up 275% which means we all would love to have those returns in our portfolio. In his case, as one would expect in the knowledge economy to be technology stocks including Netflix, Facebook and Tesla. The process Chris follows is a 3 step process:

Step one – pick stocks that genuinely excite you. The reason will be in steps two and three. In the past he has suggested trying finding the company which is radically changing what we consider to be the norm. The examples were Netflex is changing how we watch TV; Facebook changes how we interact with others and Tesla is changing how we build cars and a sustainable source of fuel for transportation. Now Chris says most of us have a limited knowledge of niche markets – find something that genuinely excites you. The test is within the industry does the potential company that you are considering investing in making a real difference in the industry? If the answer is not a resounding yes, then look for alternatives.

Step two – think about the long-term potential and what it means to valuation. Use all the regular considerations about what kind of revenue. gross margin, profit it has to make to be traded for 15 to 20 times earnings? If your homework tells you it has the potential put the stock on your short list of stocks to buy.

Step three – this is the reason why the stock should excite you. You need to continue to do homework till you are knowledgeable about the industry and many of the reasons why it might not work out and why the company should grow. If you find the strong company, have an understanding of the industry and being a bear does not crush your interest, begin to buy.

Linking to dividend paying stocks, in the above steps there is homework to be done, if something excites you then it does not feel like homework because you want to do it anyways. If you can understand the framework of the company and its financials begin to work the method you believe then the homework is fun and exciting. The other alternatives is to invest in an index fund of growth stocks or invest in dividend stocks because you need to be concerned with two aspects – is the company profitable and can it continue to pay its dividend. At the minimum with dividend stocks you have very defined exit points.

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

Many young people own bikes and at one point they race them and usually that is it, for professional bike racing in North America is not something many think about. The situation is different in Europe where bike racing is a very popular sport and summer excitement. In North America you might have heard about the name of Lance Armstrong – he won 6 Tour de France victories and for the longest time said he was not using doping techniques. It is safe to say, that the overwhelming majority of elite professional athletes in bike racing used drugs to both keep them in the game and try to gain an extra 4% advantage. In the world of elite athletes where each of them have great natural talents, vigorous training, and great desire to win and many of them are near equal or on any given day one of them should challenge to win, all the athletes are looking for a slight edge. The slight edge is the understanding of enhancing oxygen cells and preserving muscle strength till the end of the race where a sprint is needed to win the challenge. In one sense, the advances the elite athletes and their doctors learn should benefit people around the world on the other sense, it is an advantage that others do not have.

In the book The Secret Race – Inside the Hidden World of the Tour de France; Doping, Cover-ups and Winning at All Costs by Tyler Hamilton and Daniel Coyle published by Bantam Books, NY, 2012, Tyler Hamilton a very good rider and friend of Lance Armstrong tells his story and how the doping is done and why it is done. One has to remember the doping techniques are enhancers a late addition to the training and desire to win. The training and desire to win come first and foremost, the winning  brings a contracts, sponsorship, and the ability to continue to be a bike racer. It is easy to understand why the athletes take the drugs, after they have done everything possible not to take drugs but are just a little bit away from victory or the podium. Training day in and day out takes a toll on your body; injuries take a toll on the body; keeping the right weight takes a toll on your body; maintaining championship form takes a toll on the body; as in every job – the job takes a toll on your body.

Linking to dividend paying stocks, these will typically be the sponsors of the teams. The reason why the companies will be sponsors is in the above example – the bike race brings out many people to watch both in person and on TV. Sports can be one of the few areas where the general population turns to watch because while many can predict the winner, there are many variables to go into winning and given increasingly equal performers the tide can turn quickly. In the bike racing – one rider maybe a generalist; one is better climbing hills (mountains); one is better coached in terms of strategy of the race; and a multitude of other factors. Look at the sponsors of the race, the market share of the ratings on TV, and determine if the companies are effectively reaching to their target market.

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

On the Bloomberg News last week it was reported Billionaire hedge fund manager Dan Loeb said he is building bets against stocks that have surged because companies are relying on dubious financial metrics. Mr. Loeb felt there is sloppiness in accounting and the use of adjusted EBITDA and adjusted earnings has produced companies trading at valuations which are not supported by real numbers. What he is suggesting is companies are saying if you factor out this exception then we are really doing well. The question is the exception really an exception? Every year, people knowing that the standard Price Earnings Ratio (PE) is something investors want to hear, there is a twist on accounting procedures. If the company has not produced what it thinks is enough it needs a good reason, and it order to get the stock trading at a higher PE studies come out to suggest the company should be trading at a higher multiple or its stock price should be higher. Mr. Loeb believes many of the stories are unbelievable and thus is shorting companies.

In another news article by Scott Barlow, he says the good news is that a focus on low stock valuation is a profitable way to invest over the long term. The bad news is any time period less than 10 years they are not much use at all.  Mr. Barlow quotes value investor Charles Brandes saying what growth investors pay in valuations, we pay in time. This means growth investors usually pay high PE Ratios to capture immediate earnings, while value investors who can buy stocks cheaper often have to wait a long time before the stocks appreciated.

Warren Buffet describes this style as simple, but not easy. It is simple to see, but it hard to hold a stock through 5 years of volatility and potential poor performance and trust it will generate high returns in the long term.

Linking to dividend paying stocks, if you pay attention to these stocks then while you wait you can be rewarded with a dividend along the way. Profitable companies will trade at higher multiples than non profitable ones because there will be in business for longer periods of time. If bad news happens to a profitable company, it should be able to continue operating; if bad news happens to a non profitable company – many things spiral downwards including loss of credit. In investing try to keep it as simple as possible and you will be rewarded.

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

On March 25, 1911 a fire occurred in the garment district of New York City in the production of Shirts or Waists for women. The name of the company was Triangle Waist Company and 146 mostly young women died during the fire. There had been other fires in the garment district, but this one changed the landscape and the book Triangle – The Fire that changed America by David Von Drehle published by Grove Press, NY, 2003 tells the reason why at this particular time, change happens in New York. In many cities around the world there is a garment district which is where clothes are made for it was a job which many people have training when they are young and can relatively easy to move to wage work. In New York City by 1909 more women worked in the factories in Manhatten than all the mills and plants of Massachusetts and by far the majority them were sewing or cutting to make clothes. The mills north of Boston took the cotton from the south and made cloth, while the factories in the high rise buildings added value by making clothes which were sold across the US.

Part of the reason for the change was politics – politics is about getting votes and appealing to the mass people to vote people. In terms of immigration which countries welcome, at some point there becomes a critical mass of the immigrants where the face of the party needs to reflect their concerns, For many years, New York had an Irish appeal (look at the size of the St. Patrick’s Parade), it changed to Eastern Europe influence (many Jewish voters) and for political machines how to get them to vote either Democratic or Republican. The reason why politicians are successful besides having committed people to support them is to their ability to read the will of the people about when to change regulations and when not to change. If a change happens besides being a good thing, the forces for and against the change have to be weighed and balanced. It is more of an art than science. After the Triangle fire, the mood of the people of New York after trying to find villains was to support some sort of change so no more fires would not happen. To put in the sprinkler systems and other features would cost money (everyone wants but no one wants to pay, particularly developers after the building has been built) so there is a natural reluctance to do. The skill of the politicians is to weigh what people can and should pay for at the same time to gain votes in the next election. In the book, there is an excellent description of the political process (Chapter 8).

Linking to dividend stocks, for every industry stability can be a good thing and can be profitable, Then it seems something changes and the rules change which puts the profitability at risk. The reality is the things or issues were bubbling for a while and as investors you need to pay attention to them or they will overtake your investment. Remember the overwhelming number of politicians react to problems that have been created with little or no regulations for a period of time.

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

On March 25, 1911 a fire occurred in the garment district of New York City in the production of Shirts or Waists for women. The name of the company was Triangle Waist Company and 146 mostly young women died during the fire. There had been other fires in the garment district, but this one changed the landscape and the book Triangle – The Fire that changed America by David Von Drehle published by Grove Press, NY, 2003 tells the reason why at this particular time, change happens in New York. In many cities around the world there is a garment district which is where clothes are made for it was a job which many people have training when they are young and can relatively easy find wage work. In New York City by 1909 more women worked in the factories in Manhatten than all the mills and plants of Massachusetts and by far the majority them were sewing or cutting to make clothes. The mills north of Boston took the cotton from the south and made cloth, while the factories in the high rise buildings added value by making clothes which were sold across the US.

Part of the reason for the change was fire regulations, in the 1900’s fire regulations were not the highest priority in high rise building. The Triangle Waist Company operated in the top 3 floors of the 10 story high rise building and if you think about the operations of a garment company, there was a high risk for fire – cotton is flammable. The new regulations meant that buildings needed to be refitted and built with sprinkler systems; the fire exits needed to open outwards; and fire escape on the outside of the building has to be built so people can escape a fire without it collapsing. In the fire, the fire escape was mangled and fell which in turn people fell and could not use the fire escape. Another issue was fire drills, at the company there was no fire drills, however the first 5 minutes are critical in a fire, after that it is more luck than anything else. The new regulation was all high rise buildings must have fire drills at least once a year. All very good things which most of us would accept as normal and the minimum one would do.

Linking to dividend paying stocks, with these stocks they tend to like regulations because it is a barrier to entry. If someone is not following the regulations the lawyers talents at suing can be used. Regulations can be beneficial for investors.

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

There was a HBO series on TV called Boardwalk Empire which had been heard about, but finally watched season 1 from a collection at the local library. The setting is Atlantic City which is halfway between New York City and Philadelphia or it was the playground for both families and adults. During the day, families walked the Boardwalk to see the sites, watch people, and enjoy the beach. After hours, the city came alive with gambling, shows, and liquor because it refused to enforce the laws – instead, the highest level of civil servants and politicians accepted bribes to keep the city going. The leader was Enoch “Nucky” Thompson who ruled the town in his role of Treasurer. In season one, one of his driving forces was to have new roads built to make it easier for people to come to Atlantic City as well as trucks loaded with booze to go to the cities. In the show there is a healthy mixture of gangsters – Al Capone, Meyer Lansky, Lucky Luciano, and Arnold Rothstein. The setting of the show is in the era of Prohibition however, Atlantic City decided not to enforce it, at a time when most of the USA took Sundays off, Atlantic City was open 7 days a week. You can watch the show from the entertainment value, you can watch it for the emphasis on gangsters and you can watch it for how to secure monopoly control.

Linking to dividend paying stocks, most profitable companies do not have to deal with organized crime on a day-to-day basis although these companies do pay their bills, sometimes healthy advances. In the show, Nucky was an able disciplined executive who was able to keep his operations going smoothly, when others tried to take his place they failed and Nucky had to solve crisis. The show highlights his abilities for he is based on a real person and the average person in Atlantic City accepted how the operation worked and the benefits of it. Not having seen Season 5, is expected the show would show how the world changes and what was good before, needs to be changed now. It is easier to invest in stocks which stay on the right side of the law.

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

Many years ago, there was discussion of bankers hours which include not being in on Wednesday afternoon as it was to play golf. Times change but still people play golf, in the book, The Anatomy of a Golf Course – the Art of Golf Architecture by Tom Doak published by Frizhenry & Whiteside, Markham, Ontario 1992 there is a wonderful quote about golfers. Every golfer believes they can design a golf course similar to every moviegoer believes they could be a director. The fact that golfing is an interactive sport, gives people a license to criticize for they know what they like and do not like. Lucky for the golf architect, the really good golfer tends to remember his misfortunes while the average golfer remembers the positive of the course – why they could make a great drive or a special putt. This is the reason why every golfer loves their home course – they played it more often and had more memorable stokes.

It is impossible to quantify what makes a great golf course. It is easy enough to come up with a list of principles of sound design: the course should be playable to all levels of golfers; the course should work with the landscape which means the artificial aspects need to blend in; the holes should reward good play and the course should be easily maintainable.  The problem with most golf courses is paying attention to the false idols of good design such as length, difficulty, balance and setting. The golf course needs to have a great variety in its design.

Another factor to consider is fairness, the answer is in the eye of the beholder. When people golf they have different skills they bring to the game from beginner to competitive, the answer the question what should a golf course do? One of the first aspects to take into consideration is are they interesting to play from the tee to the green? For the majority of golfers, they expect the birdies and bogeys to balance out. They typically judge themselves not against par but against their own expectations or by the measure of fun derived from the game.  Golf should be no more fair than life itself. One of the qualities is that in golf you learn from the past and move onto to the next shot. This means some holes should be more difficult than others. Bobby Jones once said  each player must be given something to do and that something must be within the realm of reasonable accomplishments.

Linking to dividend paying stocks, Mr. Doak’s description of how to design golf courses has many other chapters in it, but for investors learning what a great investment is and the fairness in the system are two important lessons. In investing there are many aspects which can be focused on, but to you the biggest ones should be how do I not lose money and make money and this is where the dividend paying stocks can greatly assist you in your lessons. Profitable companies trade at highly multiples than non profitable (unless your are buying a growth stock which means prices go up and down more rapidly); profitable companies tend to have higher prices on the downside. If you receive a dividend along the way, you will have cash to do something with. Learning the basics can help you decide what is an ideal stock.

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

Many years ago, there was discussion of bankers hours which include not being in on Wednesday afternoon as it was to play golf. Times change but still people play golf, in the book, The Anatomy of a Golf Course – the Art of Golf Architecture by Tom Doak published by Frizhenry & Whiteside, Markham, Ontario 1992 there is a wonderful quote about golfers. Every golfer believes they can design a golf course similar to every moviegoer believes they could be a director. The fact that golfing is an interactive sport, gives people a license to criticize for they know what they like and do not like. Lucky for the golf architect, the really good golfer tends to remember his misfortunes while the average golfer remembers the positive of the course – why they could make a great drive or a special putt. This is the reason why every golfer loves their home course – they played it more often and had more memorable stokes.

If you are going to design a golf course, ideally there is a look to the past and one of the things that you will learn is the great golf courses were designed with nature rather than against it. The natural forces of wind and water were left alone as the equipment and rules of golf were designed around the challenges of the early golf courses. In many golf courses, for a variety of reasons including because you can, the environment is pushed around to make you feel like the early courses, but nature always overrules. If a golf course is built on a flood plain, there is a very good chance one year there will be a flood. If a golf course is built-in the desert and the typical golf course of 150 acres but 75 irrigated, will uses between 4,000 and 10,000 gallons of water per acre per day or between 300,000 and 750,000 gallons per day. Having access to water, no matter what the temperature is a key variable. It also helps if the golf course is not the secondary reason for being – a development is first and takes the best lands or the golf course is on a former garbage dump or quarry with no natural landscapes.

The golf architect’s primary task is to route the 18 holes to take the greatest advantage of a property’s natural assets. The subjective part is no two experts can agree as to the composition of an ideal course. Therefore the design has to be one of visualization of the course and doing the best they can with the tradeoffs that will come forth.  The clubhouse should be situated after the loops of golf holes begin to come together, not before.

Beauty of the golf course is in the eye of the beholder. For the golfer, the acid test is that the visual elements jibe with the strategy of the golf hole. A stream maybe beautiful, but not if your ball lands in it.  Continuity of character of the golf course can separate the truly great courses from the merely admirable ones. Most of the great courses have a visual character all their own.  The greatest courses do not fall back of the natural beauty of the property. but are designed to enhance the beauty by allowing the golfer to see all its aspects and blending in views which help the golfer.

Linking to dividend paying stocks, while many golf courses can be built most will not be great. While many stocks exist on the stock exchange, most will not be worth holding. Narrow your field by starting with dividend paying companies which are profitable and then move a little into growth. There is a reason why great companies as well as great golf courses exist and continue to exist.

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

When you think about the economy of the future, what do you think about? It might include electric vehicles, wide use of solar power, and many other options. At the moment, one of the driving forces to bring these ideas to reality is Elon Musk who made a great deal of money through pay-pal and invested it in Telsa, SpaceX, Solar City and other things. When he began his investments the infrastructure did not exist, thus his story makes a wonderful read. One of the books about him is called Elon Musk by Ashlee Vance published by HarperCollins, NY, 2015. Often people believe if you made millions, you can establish brand new worlds, although it is possible, it is also expensive, which is why most people only do a part of it. Elon Musk was fortunate he was able to do 3 industries and to have sales pick up, just as he need even more money to continue the work.

One of the advantages large companies have is access to financing or credit, with access to credit companies can and do throw money at problems or possible solutions to the future. In every industry there is more than one alternative and until the market embraces the technology no one really knows how the market will react. In Mr. Musk’s example, the electric car has been thought up by many, including GM’s Volt version. There are many wonderful things which can happen, and it might be Telsa will be part of the future if the price of the car comes down for the average consumer. If that happens, it could be the standard, but for now the development of the car is similar to many other industries. People began working on it, and seemingly the barriers to entry are falling in the auto industry, which is why it is a good learning lesson. In the case of Telsa, through software what used to take physical cars and testing can be done in much short time periods with greater learning. The difference in procedures to achieve similar results between the established companies and Telsa are amazing and speaks highly of the understanding of the information age. The connection of the engineers to the people in the plant and when they work together – America could actually have a manufacturing base.

Linking to dividend paying stocks, for many years, the thinking has been dividend paying stocks because they are profitable have a tremendous advantage over their competitors. The financing or access to credit is important, however small teams of people working for dreams can partly overcome the barriers. Thus it is important not just to look at how the barriers to entry are holding up, but how does management uses its people to bring products and services to consumers? Small nimble teams are trying to do break down the barriers and gain a piece of your pie.

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