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.

 

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.

Macdonald was in the chewing tobacco business and similar to all businesses sometimes there are problems with suppliers. In this case the problem was a war – the Civil War. Macdonald had been at his business for a few years and the start of the civil war was a surprise to many people. However the problems did not start over night and it was possible to see the bubbles begin to break. Prior to the start of the Civil War, tobacco production was concentrated in Virginia with 90% of production coming from slave states and 56% of that coming from Virginia. Likely, Macdonald was doing business with one or more of the 50 odd plants in the state. When the North began to block the exports of the South the choices of tobacco was Maryland, Kentucky and Missouri. Although similar to all wars, the borders were porous. On the North side, Kentucky replaced Virginia as the chief tobacco producing state. From the manufacturer’s side, Macdonald was worried about receiving product for tobacco could not be stored indefinitely, and the quality as well as the quantity of the harvest of each year was crucial for profits.

No doubt there was much running around, but new supply routes for tobacco from outside the Confederacy were found. One of the reasons was a wonderful discovery. During the war, farmers discovered the traditional dark or black tobacco that everyone favored, had turned yellow due a lack of water. The farmers cured the leaf in the normal matter and found the tobacco yielded a sweeter product. This product help create a distinct tobacco which tended to favor Macdonald’s chewing tobacco line. After the war, Macdonald was buying tobacco from Kentucky and Missouri as well as Richmond, Virginia.

Linking to dividend paying stocks, similar to all manufacturer or merchants of goods, supply side of need goods plays a role in the company. Having alternatives is always a worthwhile and a needed part of the company. How does your company deal with its suppliers? When was the last time it looked at its major supplier and how did it deal with a crisis in supplying goods?

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 t 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.

Macdonald originally worked for a company in Boston and late in his life noted “I started working for a $1.00 a day and that day to the present I have always banked or invested half of what I earned” For most of his life, his furnishings represented this attitude and it was suspected for a number of years he earned more from his investments than from his salary. One of the areas he invested in were railway shares (the high tech of 1850’s).

Eventually, William moved from Boston to New York to Montreal and started a business with little competition. No one really knows why tobacco, but it is believed he made contacts while working in New York and Boston which were headquarters for cotton and tobacco factors. In the 1850’s people smoked cigars (but there was a lot of competition) and chewed tobacco (which was not competitive) for it involved a cost of machinery. He likely bought tobacco on consignment and then sweeten it up to provide his brand. For most of his career, he had two processes: his primary product was nicotine-laced candy, as it was sweet from the flavors (sugar, licorice and alcohol) and pipe tobacco, what was not used in the chewing tobacco process. Over the years the scale became larger the product was the same.

From the manufacturer’s point of view, chewing tobacco – whatever the source of the its leaf – was the ideal product. With its nicotine, sugar and other additives, it was essentially addictive, which ensured repeat purchases, and at times extremely fashionable, which lead to a proliferation of new product lines defined by flavor, packaging and target markets. Cigars typically appealed to the rich and urban; after the Civil War the public began to smoke cigarette and by 1895 they were more popular than chewing tobacco. But since tobacco chewing was habit-forming the new competition did not necessarily take business away from him.

Linking to dividend paying stocks, over the years cigarette companies have proven to be a successful investment, they went through a down cycle with all the government’s trying to sue them, but the companies are still doing business. As long as cigarettes remain legal, they will offer good money to be made. Perhaps, the cigarette companies are thinking about the marijuana industry for the results to continue.

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

 

 

In many countries around the world, one of the jobs for people is to join the armed forces or military. There are many skills which one can learn and hopefully, the world is at relative peace so you can leave with a pension. What happens next? similar to people around the world, the person can take advantage of the skills they have. Some with go into private security and mercenary. There is always a role for them, but it seems the role of the mercenary is getting bigger in the last number of years. In the Middle Ages, many kings paid for mercenary armies and while they were in power the people stayed, when they began to lose, they went home. Now days, the role of the mercenary tends to protect business interests in countries over than where the home office is. The assets lie within countries with shifting power at the top. In the world of the corporation – the desire for stability is a key. Among the countries of the world, the wealth tends to be more skewed than in the G7 countries so they is greater conflict. There are a variety of books about this subject and one of them is Fortune’s Warriors by James R Davis published by Douglas & McIntyre, Vancouver, 2002. In the book, Mr. Davis discusses his role in private security working for an entrepreneur who invests in relatively unstable, poor governments which have great mineral deposits. If he can mine successfully, pay off the required people, there is money to be made.

Linking to dividend paying stocks, in the mining sector which is going through a downward part of the commodity cycle, there are only a few companies which pay a dividend, but they are all in the search for relatively low cost minerals. The minerals are in many countries around the world and some do not have the same lifestyle as the one G7 investors live in. Should your home country protect the investors? It is an age old question which has tended to be yes they should. On Wall Street until someone comes with a higher bid, then you should protect them, when the bid comes higher accept the payment and move on. Sometime when you invest, you think you are buying a steady stream of income but in reality you are buying something more.

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