In the Globe and Mail Report on Business, Thane Stenner who works at Richardson GMP wrote some easy lessons for all you us to remember about investing. Mr. Stenner highlighted writing by Howard Marks one of the co-founders of Oaktree Capital Management. Mr. Stenner recommends one of Mr. Marks books – The Most Important Thing: Uncommon Sense for the Thoughtful Investor. The recommendations are:

1. The No 1 job of any investor: Control Risk.

We all start investing with the idea of making more; the idea should be keep your capital safe or try not to lose it. There are many, many different  theories on which venue you should put your money in to make more. Most of them will end up with you having less, a few will give you more; remember the rule in investing is looking backwards is 100% right, looking forwards is an unknown. The rule means to do your homework, say no more than yes and have a good reason why to go forward.

2. Safety comes from buying things for less than they are worth.

If you go to a garage sale or flea market there are many items to be found, if you know what you are looking for in terms of prices you will be able to save money. The idea is you know what you are looking for and whether it is a good buy or not. The same theory applies on the stock markets, you have to study or know when something is trading for less than full value and the reasons why it will go up in value. The only good thing about a market fall is if you have cash or the ability to buy, you can pick up the best stocks at a lower price. When the market corrects itself, your assets are worth more.

3. The Market tends to move in Cycles and People forget, which means there are buying opportunities.

You have seen the charts where the sales or prices grow over time in a seemingly upward progression and everyone is happy, until there are dips. The world operates that way. There is a time to be in a sector, there is a time to seek alternatives.

4. Should does not mean will.

Very bright people will pitch you their ideas of what should happen on the markets, if they are correct the market should do what they are pitching. If they are not, you will incur more risks and wonder why the markets are not reacting to the should do. The reason is the very bright people will need to pitch you something else next week and every other week, rejecting theories or saying no will allow you to lose less or save your money. Build flexibility into your positions so you are not taking unnecessary risks.

5. The vast majority of your holdings should be consider 5 year holds.

If you have done your homework to buy undervalued assets, it will take time before the investments double in size. The idea is to buy stocks generally above $10 and typically more as the company and industry makes changes to be more profitable the stock will increase in value. Try to stay away from leverage and invest in the best quality you can.

Linking to dividend paying stocks, if you wish to lower the risk level even more add variables into your analysis such as the best dividend paying companies available. In this fashion as the market prices rise, you are benefiting from the dividend as well as the capital gains. The risk level is lowered and you are protecting the assets. All companies have highs and lows, as an investor you task is to study them and buy when the companies are beginning to come out of the down cycle and enjoy the ride upwards. At the same time begin to look for alternatives and follow the cycles.

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

Every day we live, we get older, as we get older some will say we do less. There are exceptions and hopefully you will be one of them. An exception was Mary Delany who died in 1788. Mary’s gift is something children and adults do for crafts – collage and her story is written by Molly Peacock published by McClelland & Steward, Toronto, 2010. Mary lived a full life and became inspired at 68 years of age when a petal of geranium fell onto the dark surface of a table. At the same time – nearby was a bit of paper of a similar color, Mary was connected the two and collage was born. It helped Mary loved gardening and plants, for to imitate them she had to study the plants – one of her most famous collages is a pick rose called Cluster Damask Rose. The pink rose contains 71 pieces of paper – each a separate color from pink to red to form a beautiful blush of red. The rose is surrounded by leaves and buds of other roses. In the book, the author tries to connect some of the actions of making the collage to her personal life and some of it works, others it is a bit of a stretch. At the same time Mary was working on her collages she lived in interesting times for Mary lived in the UK at a time when Captain Cook was bringing back plants from about the world. Looking at plants, the issue of how to distinguish them from each other arose and Mary agreed with Carl Linnaeus sexual system or based on numbers of reproductive organs of plants – the stamens and pistils, One method to look at her art – much of it is in the British Museum of History is start with the sexual organs of the flowers and then look at the rest of the flower. Mary collection was 10 years of work, but what a lovely collection it is.

Linking to dividend paying stocks, a question is often asked can you teach an old dog new tricks, the answer is yes. When we are younger, we make many mistakes, as we get older we still make mistakes we hopefully learn more from them. One mistake we make when we are younger is to have lots of money in a short time. As we get older, we know it is possible and sometimes that works but long-term investments will accumulate wealth, providing there are at least 2 ways of capturing the growth. One process is capital gains (which there tends to be a cycle) and the other is the steady stream of income or dividends. Whether you learn it in your 20’s or 60’s for we are living longer, the point is to learn for older people can still learn many tricks.

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

Individually we all want enough money (and everyone has a different version what is enough) to live reasonably well and invest for the future. In reality we know there are people in poverty and as citizens of the world we both wish to understand and help limit the worst, knowing that there will be poor in the world. There are many books about the subject, many paths to travel and no perfect answer. In one book Out of Poverty by John Stackhouse published by Random House, Toronto, 2000 added to the subject. Mr. Stackhouse went to many of the poor areas of the world and offers his views of what it is like and possible solutions. There are many inequities and very hard ingrained “systems” such as India’s caste system in place. In India, it will take many generations before meaningful change happens, but things are starting.

In some of the poorer countries of the world, big institutions have a bias towards big projects and governments like big projects. An example is Our Lady of Peace Basilica in Yamossoukro, Cote D’Ivoire. This is a church the size of St. Peter’s in Vatican City located in a small town 200 miles from the largest center in a country which is 1/3 Christian. Why the church and the infrastructure that supports it was built there is always a problem with countries with a powerful leader. The church is wonderful, but little of the structure used the materials from the country which means most of the money went to the western countries that were funding the big loans or only a small fraction went to local people. This is a strange method to build a country.

All the above means there are many,many problems in the world and even closer to where you live.

Linking to dividend paying stocks, it is easier to pay attention to the companies in your country and try to make your community as good as possible. There are many inequities in place, some of them are almost ingrained in the system, but things can change. Perhaps you can use some of your dividends to make small changes and hope they get bigger.

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

Ideally the company you wish to buy both pays a dividend and puts money back into the business. How does someone determine which companies are investing back into the business? Charles Martin of Thomson Reuters examined companies using the Thomson Reuters data base. He focused on US large capital firms or market valuations greater than $10 billion. Next we went looking for growth rates in their free operating cash flow (FOCF) by 20% or more over the last 3 years and reinvested at least 10% annually of retained earnings. In addition Mr. Martin was looking for a return of at least 10% and dividends have grown by 10% a year over the last 5 years. There were top 16 are:

Company                        Ticker    Reinvestmt   FOCF 3Yr  Return on      Dividend              Dividend       52-week

0                                          N          Rate %          CAGR%     Invested Cap%   5YrCAGR       Yield %       % Change

Walt Disney                     DIS-N         13               23                12                    18                    1.3                14.3

Visa                                     V-N         16               22                 20                    26                   0.7                30.9

Nike                                  NKE-N       20              64                 23                     12                   1.0                 42.5

Boeing                                 BA-N       27              62                 30                     12                   2.7                   5.2

Qualcomm                       QCOM-Q     13             20                 20                     19                   3.5             -28.0

Honeywell                           HON-N     16            37                  16                      10                  2.1                  1.3

Lowe’s Companies             LOW-N     17            20                   13                     16                  1.6                28.7

TJX Companies                  TJX-N      41             25                  38                     19                  1.2                 20.7

Estee Lauder                        EL-N      20              31                 21                     26                  1.2                   4.1

Cardinal Health                  CAH-N      12              43                 10                     13                  1.9                   9.1

Southwest Airlines              LUV-N      14              39                 12                      61                 0.8                14.0

Aon PLC                              AON-N     15              24                 11                     11                  1.3                 4.0

Ross Stores                        ROST-Q    35              23                35                      25                  1.0                31.0

Magellan Midstream Part      MMP-N     15             86                17                     15                   4.7               -25.3

Rockwell Automation            ROK-N       19            23                21                     14                   2.5               -11.2

Gap                                        GPS-N       29            21               29                      10                  2.9               -26.8

Linking to dividend paying stocks, the chart shows a wide variety of companies and although the stock price ranges from going up to going down, the risk level is lower given the reinvestment and dividend paying. Picking stocks is still an art but lowering the risk and raising the return is what you should be looking for. Charts such as these allows you to start and equally important to eliminate companies to invest in, giving there are always many alternatives.

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

VW announced it had been fudging tests with US Environmental Protection Agency (EPA) over its tests for toxic emissions, they were higher, perhaps owning a diesel car is not that more environmentally friendly that normal gas. In Germany, there is a desire to be greener than other companies and VW believed diesel is better. Toyota has hybrid technology on some of its cars and people in general are concerned. There is a growing market for these types of cars for we all know that automobiles  contribute to global warming, so we in the public would like to do our part in the solution. At times, we wonder if we are doing enough or we have to accept the consequences for things are changing in the environment. We do know that many changes in the environment can be adapted to, we just are not positive of how long it takes to adapt. Within this mix – VW as a company lied to the EPA and more importantly even though it does not sell a lot of cars – its reputation has taken a large hit as well as the price of its shares has gone down. The company is now is a crisis mode and this means it not only has to correct the lies; it has to come up with new technology that surpasses its lies and pay fines for its lies.

Linking to dividend paying stocks, every company has a reputation, breaking the trust of the customers and the public is the worst thing it can do and the prudent course is to find alternatives to the stock. The stock price will be down for the next quarter as the costs begin to be discounted into the operations of the company. In another quarter or 3 months the stock may be worth buying again for the company should have gone through the process of cleaning up the lies. People will lose their jobs and the company will have to do better than before, the stock price should eventually come back to where it is trading up and go even higher for VW still has a healthy market share for their non diesel cars. Honest is the best policy.

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

The easiest place to look for dividends are banks and utility companies which people use and pay fees to and fortunately for the companies there are few choices to avoid the fee. For the banks, people need loans to buy homes and cars; for utility it is either gas, oil or electricity to run the home, once they are in it is reasonably difficult to change. The harder aspect is to find the bargains and Craig McGee ran a chart looking at North American diversified banks.

Using the sources Morningstar CPMS and Bloomberg data bases Mr. McGee pick the following criteria:

price to book ratio (P/B)

forward PEG ratio (P/E divided by sustainable growth rate)

dividend yield

3 month consensus earnings estimate revision

Rank   Company                        Ticker           Mkt Cap       P/B      PEG    Dividend         3M EPS

($-Bil)                                    Yield %           Revision %

1. CIBC                                 CM-T          37.36            1.88    0.94      4.76                1.78
2. Citigroup                            C-N           151.37            0.74   1.03      0.40                 0.93
3. National Bk of Can            NA-T            14.17           1.56    0.88      4.84                -1.42
4. Bank of Montreal              BMO-T          45.10           1.27    1.44      4.67                 0.64
5. Bank of Nova Scotia         BNS-T           70.17           1.44    1.23      4.82                -0.49
6. Bank of America               BAC-N         162.42           0.71    1.59       1.29                0.95
7. TD Bank                            TD-T             95.77            1.55    1.31       3.95                0.42
8. Royal Bank of Can            RY-T            104.34            1.89   1.07       4.36                0.00
9. JP Morgan Chase             JPM-N           225.36          1.04    1.24       2.89                0.00
10. Wells Fargo & Co              WFC-N         262.01           1.56    1.29       2.94                0.11
11. US Bancorp                       USB-N           72.50            1.84    1.13       2.48                0.00
12. Comerica Inc                      CMA-N           7.20              0.96   2.28       2.08               -3.48

Linking to dividend paying stocks, the chart allows for a comparison but note the yields are very attractive for the risk of owning the shares. When share prices go down, for new money going in there is the ability to upgrade to the highest quality for the least risk and given the companies will continue to be profitable to pay their dividends, the share prices will rise accordingly.

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

There are more

Continuing with looking past your borders is a book called Abel’s Outback – Explorations and Misadventures on Six Continents 1990-2000 written by Allen Abel, published by McClelland & Steward Ltd, Toronto, 2001. Mr. Abel is a journalist and for a decade was able to travel the world to find stories. The interesting thing about the stories is the people who he meets while going to and fro. Although we are all different, it many instances we are the same – we adapt to wherever we are and find the good where we are to stay there. Even though on the outside looking in, there are some large obstacles. For example in one story dealing with the Australian outback – he is driving with a postman and seeing 2 cars on the road in a day is an exciting thing; however when they arrive at the destination it was worth the journey. There are many other stories along the same line, when you are travelling talking to people is a good thing and you can hear great stories and even make a few connections along the way.

Linking to dividend paying stocks, in line the journey is the important aspect, in investments the results are the important aspect. Along the journey, dividend paying stock owners want to collect money or dividends along the way to ensure that over the years the value of the shares rises and continues to rise and not fall too much. Investing in profitable companies allows the journey to be interesting and allows lingering to get to meet the people. For in the end, we are similar.

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

We are all from one place or another and being familiar with the place we are from gives us a bias. The bias is good, for example where my parents are from the memories of the roads, the hills (particularly in the fall), the farms and some of the people who lived there give a bias. Although there is an effort to understand parts of the world, my bias is generally within the area I grew up in, this is why books such as Black Sea written by Neal Ascherson published by Vantage Press, London UK, 2007 help fill in the large gaps. The Black Sea is the sea between south-eastern Area and western Asia. Countries of Russia, Ukraine, Turkey, Romania and Bulgaria and several smaller countries from the breakup of the USSR including Georgia border the sea. It terms of Russia from the ice-free Black Sea the navy can go to the Mediterranean Sea. The Black Sea is an very important connection from Asia to Europe which means for thousands of years people have been trading or exchanging goods. The Ukraine is known as the bread basket of Europe for the ability to grow wheat and for thousands of years Europe has eaten its grains. The Greeks were running out of food in their area and went north and discovered the steppes and grain growing areas. The Greeks originally followed the fish and there was plenty of fish to eat. The Romans had influence in the area as well as the Italians through the merchants of Venice. The Black Sea is the end of the great Silk Roads where goods moved from China to Europe,  at the Black Seas they were transported to Europe on ships. (when the Suez Canal opened the goods moved by ship). From the plains or steppes came the Mongols who controlled the region for a time. In addition to the mix is all the religions including Christian and Moslem which exist – people have conquered regions only to lose them back and regain them. There are a great many stories which can be found around the Black Sea.

Linking to dividend paying stocks, reading about the Black Sea and the history of the people who lived around this sea stories about changes to political structure happen usually caused by wars. The rulers change over time – some better, some worse which means towns and cities changed over time. For the worst ones, surviving was the biggest challenge; for the better ones – peace allows for opportunities. As a dividend investor, part of you outlook is for the long-term and when peace exists it is easier to invest and you can enjoy the prosperity.

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

The ability to generate financial data is easier everyday, more companies use the data and financial institutions tend to pay their bills on time which is why companies cater to them, This means as an investor you can pick and choose as never before and you can always find out what companies are the best of the breed (as Jim Cramer) calls the best stocks. Jean-Didier Lapointe is a financial analyst at Inovestor Inc and he looked at the companies in the S&P 500 that generate high economic profit for their shareholders, above-average dividend growth rates and are presently (Sept 15) trading at a seemingly discount.

To do the above he looked at 7 variables:

• return on capital (ROC) is above 10%
• an economic performance index or EPI (return on capital / cost of capital) above 1.5
• all companies must pay a dividend
• one year dividend growth is 10% or more
• 5 year average dividend growth is above 10%
• price to earnings is below 15
• current price to earnings is below its 5 year average

The result of 500 stocks only 10 fit the criteria or the field was continually narrowed to minimize the risk level.

Company                                Ticker            ROC    EPI      Div Yield   1-Yr Div   5 Yr Avg     P/E     5 Yr Avg

%                      %            Growth %  Div Grth %           P/E

American Express                AXP-N           24.80     2.4         1.55        11.54        12.67          13.2     15.4

Ameriprise Financial             AMP-N           21.0      1.6          2.44        15.52       34.7             12.4     13.5

IBM                                        IBM-N            16.90    2.4          3.53        18.18        14.26          9.8        12.6

Qualcomm                           QCOM-Q         17.30    1.7          3.51        14.29        22.04          14.8       18.2

Scripps Network Intact           SNI-N            18.20    2.1          1.73        15.0          27.14          12.3       17.6

T Rowe Price Group            TROW-Q          23.0      1.9          2.93        18.18        13.85          14.8      19.2

21 Century Fox Inc               FOXA-Q           14.4      1.6         1.13         10.0          18.10           6.7      20.7

Union Pacific                           UNP-N           16.10    1.8          2.55        10.0          28.52          14.7      17.1

Viacom Inc                              VIAB-Q           13.5     1.6           3.61        21.21       19.68           10.3      14.4

Western Union                            WU-N          19.4     2.0           3.39        23.08       19.52           11.3     11.6

Linking to dividend paying stocks, whether you pick the above stocks or others it is possible to continually reduce the risk and have a quality return on your investment. If your first rule is try not to lose money, then the use of financial data to limit your criteria is a wonderful way to start. The next step is to determine why the companies should be able to generate income particularly as the economy continues to improve. In this fashion your choice of which company or companies or index is a good one and your should be well rewarded.

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

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