As an investor, it is hard not to like Jim Cramer and if you read his books you will gain plenty of ideas on not losing money and more importantly making money. He wrote a book called Get Rich Carefully published by Penguin Books, New York, 2013. One of the wonderful things Mr. Cramer does is tries to ensure you do your homework before investing.

Mr. Cramer has a Charitable Trust company to be an open showcase of how to run public money; he has a private company, but to allow people see what decisions he is making. Running the charitable company allows him to showcase execution – when to pull the lever to buy and sell. One thing it does show is no one on Wall Street is perfect – people make lots of mistakes and have lots of winners. Some lessons

1. Changing you mind about a changed company.  Wall Street rewards company’s that have extra value technology or products as opposed to commodity products. Commodity products can be produce anywhere and somewhere in the world it is cheaper. Extra value products have higher margins or make more money. Companies change but it takes time to see ie PPG
2. Learn to like Stock Offerings – companies issue stock for lots of reasons and they are not necessarily bad for shareholders. Issuing shares is cheaper than debt – the question is what are they doing with the money?  Sometimes all shareholders benefit greatly so learn to take advantage of the situation.  Ie Real Estate Trusts, Kinder Morgan Energy Partners
3. Buying an Estimate Cut – sometimes the cut means the bottom and next year will be better.
4. The market will always tell you if they are low enough.
5. Buy when linked quarters bottom – on the charts if you believe in the company and the quarter is no worse than the last quarter, this is a buying opportunity, it should be better next time.
6. Know your Metrics – each industry has a key metric which needs to ranked first, then EPS.
7. Don’t touch that core holding! – you own for many reasons, if the business is still the reasons why you bought it, keep it till the business changes, then sell – you will leave less money on the table
8. Make each buy matter – how to buy. In the example Mr. Cramer uses if you want to buy 150 shares start with 50, see how the price goes. If it goes down a point, you can buy more. Always buy at lower prices. Remember the general market goes up and down, when it comes down there are great opportunities to buy.

When Not to Buy

1. No worst-of-breed buying – always buy the best companies – there are lots of them
2. Cash isn’t always king – cash is wonderful on the books, what matters is what is done with it.
3. Don’t blame the customer – if a company blames a customer, check to see if the customer is buying from someone else, perhaps a better product or service.
4. Don’t tell us not to worry – when the company says don’t worry, exit quickly. If the company has accounting irregularities exit quickly or just stay away for 6 months.
5. There is more to life than cost cutting – companies that can cut costs but not grow revenues are not worth having.
6. Stay true to your convictions – if you have done your homework, and you think a stock is cheap on the numbers continue to hold. Stocks bottom when companies meet expectations after repeatedly missing them. The question to ask are expectations being met?
7. Don’t violate the cost basis – never buy any stock above your cost basis unless something absolutely transformative has occurred that you think has not been given its due by the marketplace. The change has to be material to its expected earnings performance.

Linking to dividend paying stocks, Mr. Cramer offers great advice which is hard to do. With dividend paying stocks, you are likely to hold for the dividend which means the price goes up and down, however when it goes down there is buying opportunity if the reasons why you own it still remain.  If you try to follow Mr. Kramer lessons you will lose less money and get rich.

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

As an investor, it is hard not to like Jim Cramer and if you read his books you will gain plenty of ideas on not losing money and more importantly making money. He wrote a book called Get Rich Carefully published by Penguin Books, New York, 2013. One of the wonderful things Mr. Cramer does is tries to ensure you do your homework before investing.

For long term investing, the key to understanding is to identify the big-picture themes or megatrends for the era in which you are in. After identification, instead of a spraying of a shotgun, figure out the best companies to and can take advantage of the big themes. Taking advantage means to make money and managed the company. The advantage to doing this piece of homework is Wall Street goes through cycles or goes up and down. On the down cycle, you can buy bargains, which is why Mr. Cramer only recommends going after the best companies in the theme.

The themes Mr. Cramer believes the trend s will be around for the next 5 years are:

1. Tech companies that embrace the 3 aspects of Social, Mobile and the Cloud.  If you are older than 30 you might think tech as the desktop, the theme is tech as the laptop and mobile phone. It does not mean the other companies are not as good, but for growth companies  – the names of companies to examine are Google, Facebook, Salesforce.com, LinkedIn, Amazon
2. Companies that keep you healthy – the attitude towards food has changed.  Companies such as Whole Foods, Hain Celestial, Chipotle, GNC Holdings
3. The New Frugality – saving money or low cost, good quality – Home Depot, Lowes, TJX Companies, McCormick (spice) , Costco, AutoZone, Six Flags, Priceline
4. Anticompetitive Mergers – airlines mergers US Airways and AMR;  car rental companies – 3 companies control 87% of the business Hertz, Avis and Enterprise; Gannett publishing was able to buy into TV stations; Walt Disney; PVH and VF Corp, Eaton
5. The Power of Innovation – tech in the old style companies for them to change and innovate. Examples are Colgate, International Flavors & Fragrances, Under Armour, Domino’s, DuPont
6. The New Pharma – Celgene, Gilead, Biogen Idec and Regeneron
7. Oil and Gas produced in the US – EOG, Core Labs, Occidental Pete, Schlumberger, and Kinder Morgan Energy Partners.

The idea of looking for the big megatrends is for you to see how the better companies are managing and you can hitch a ride. Mr. Cramer recommends you pick them up on the downturn of the cycle and ensure the reasons you bought them remain.

Linking to dividend paying stocks, for Mr. Cramer growth is the key but whether you invest for growth or dividends it is always best to invest in the best of the companies. They tend to have less risk and are easier to monitor.

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

As an investor, it is hard not to like Jim Cramer and if you read his books you will gain plenty of ideas on not losing money and more importantly making money. He wrote a book called Get Rich Carefully published by Penguin Books, New York, 2013. One of the wonderful things Mr. Cramer does is tries to ensure you do your homework before investing. You have money and what to invest in – if you are not sure try a low fee S&P 500 Index which is the bench mark all the money managers are trying to beat and if they do not you have done better. If you want to invest in individual stocks, then you will need to do your homework.

You done the macro level and decided to pick a sector or two to invest in, what do you do?

You ask more questions and Mr. Cramer has 10 tests of high grade stocks:

First Test – is there potential for multiyear growth that we can put a value on? A clear growth path that provides long-term visibility with multiple revenue streams?

Wall Street loves growth, does the company you are looking at – know how to get it? What trends support it?

Second Test – Is the total addressable market big enough for the companies to sustain their growth?

Third Test – Does the company have the ability to stay competitive?

Fourth Test – Is there a possibility for the company to return the capital over time, through either dividends or well-timed buybacks?  Or does the company have such a well-defined growth path that it can just continue to pile the money into the business to get consistent growth?

Fifth Test – Can the company expand internationally?

Sixth Test – Can the balance sheet support strong growth?

Seventh Test – Is the stock expensive on the out years?

Eighth Test – Does the company have the right management?

Ninth Test – Does the company need macro growth to meet the numbers?

Tenth Test – Can the company maintain or grow its margins?

Linking to dividend paying stocks, when the growth stock is also a dividend payer that is a bonus. One of the reasons why you want to start with dividend paying stocks is to get the discipline to eliminate the ones who do not pay a dividend. There are much more of them than dividend payers. The idea behind doing your homework is to narrow the list of companies for you.

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

As an investor, it is hard not to like Jim Cramer and if you read his books you will gain plenty of ideas on not losing money and more importantly how to make money. He wrote a book called Get Rich Carefully published by Penguin Books, New York, 2013. One of the wonderful things Mr. Cramer does is tries to ensure you do your homework before investing. You have money and what to invest in is the question – if you are not sure try a low fee S&P 500 Index which is the bench mark all the money managers are trying to beat and if they do not you have done better. If you want to invest in individual stocks, then you will need to do your homework.

The first stage of homework is using the great amount of information which exists on the internet. Mr. Cramer believes first you should with a macro or wide view and then narrow it down. Ask yourself where do see the economy going in two years time? How about one year? In the area where you gain your income – what about that area?

After determining where the world is going – you can listen to some conference calls from company’s whose skill is in making that judgment will determine their success. For example – if you been by a construction site – you likely have seen the yellow CAT signs; it turns out that company is called Caterpillar and they are very good at selling heavy equipment and truck engines around the world. Why is this important? Caterpillar’s conference calls will tell you how they are doing around the world – are they selling more in China? (one of the world’s biggest economy) or is slowing down? What are the big miners of the world doing? Selling more truck engines – the domestic economy?  There are other companies which give you a great indication of what their customers are doing with their money. Are margins being squeezed or they are making less money? In the book Mr. Cramer lists Alcoa for insights into the aircraft business; GE for energy savings, health care and aerospace; United Technologies for its elevator service – are high rises being built? 3M has a global glass division which many laptops use.

Each sector of the market has a core metric at its heart:

Aerospace  – what is the backlog?

Agriculture – what does future contracts for the individual crops

Airlines –  fares, fees, seat miles and fuel costs

Apparel – raw costs and inventories

Asset Managers – assets under administration

Autos – their percentage of seasonally adjust annual rate of cars sold

Banks – net interest margins – how much can they make off their deposits

Brokers – employee compensation – how much is the firm sharing with their employees

Casinos – the handle or total amount bet and the drop which is total amount exchanged for chips

Chemicals – raw costs and volume growth

Coal – inventory, if increases stock goes down

Consumer Packaged Goods – margins and organic growth

Cruises – net yield

Defense – backlogs

Diagnostics and Devices – approvals from the FDA

Drinks – sales volumes

Drugs – what is in the pipeline?

Engineering and Construction – backlog

Food Stocks – cost of the package; new successful launches

Footwear – future orders which underlines growth and product orders

Gold – finding and developing costs

HMOs – the medical loss ratio: the ratio of total losses versus total premiums paid

Hospitals – the reimbursement fates from the federal government

Hotels – the revenue from available room or hotel’s average daily room rate x occupancy rate

Housing – backlog numbers, sales and how much they make per home

Insurance – the combined ratio (payout ratio) and the quality of assets the company owns.

Internet – traffic acquisition costs

Media – advertising and subscription dollars

Minerals – cost of extraction and cost to send to the market

Oils – oil cost replacement

Oil Service – the Baker Hughes rig count

Paper – the price of contertainboard

Pipelines – can it raise its dividend?

Telecommunications – focus on the churn rate – winning and losing customers

Utilities – the yield

Linking to dividend paying stocks, Mr. Cramer strongly suggests you stay with the best companies if you want to get rich carefully. Always choose the best companies and in the long run they will make money for you through the cycles.

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

The Crash of October 1929 has been written about extensively from US sources because Wall Street dominates the world, as the song says if you can make it in New York you can make it anywhere. It the hinterland, are places like Canada. What happened in Canada is of concern for the ripple effects. In a book called Gold Diggers of 1929 – Canada and The Stock Market Crash by George Fetherling published by James Wiley and Sons, Toronto, 2004, the book asks what did happen? The reality is even without the crash on the stock market, the depression would likely have occurred, the crash just meant the easy party was over. Credit tightened in which the bankers’ response for a loan was no, no and no.

In Canada, Toronto was always had a concentration of mining companies listed on stock exchanges. Most of them never produced a mine, but had claims that likely some mineral content existed. For years the exchange was corrupt. The brokerages sold stock to primarily American and European individuals and stock prices were manipulated. It was helped that mining was seen and generally was an individual grub staking enterprise – people would go into the bush and hunt for minerals. In that regards, the myth built up but in order to dig and bring the minerals to market it took money. Most people who go into the bush are not skilled at mining finance, although a few were. It was during the 1920’s when some of the richest mines in the world were found; the others were not so rich.

In the 1920s, there were articles in the newspapers, most people read newspapers about how to could make money on the stock market and as a result the number of offices expanded. In addition, the rules of margin meant only a small amount had to be put down and the investor was buying stock. People forgot that profits are only realized when you sell, not while holding the stock as the price rises and falls. There is still an age old question of when do you sell?

The crash of 1929 happened and prices decreased, partly because of margin calls – if you only put a little down, when the price went up the profit was greater, and when the price fell more cash was called for. Do you sell or put more money in? In turns out the best strategy was to wait a few days or months and buy in the future. The last crash in 2008 took 3 years before it was a great time to buy, if there was cash. As a result of selling, there was great consolidation in the brokerage sales system or offices closed. There was work for the company – eventually governments of all levels borrowed money for infrastructure works and to help the unemployed.

Linking to dividend paying stocks, when there is a crash all securities will come down in price – it is a given. If you have patient capital, you can ride out the storm. If you have access to cash, it can be a great time to buy quality stocks at a bargain. The quality stocks will tend to move back to normal in the shortest time frame. The payment of the dividends allows you to have patience capital as well as buying more or reinvesting the dividends. There is no perfect answer.

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

If you remember the movie the Untouchables or the TV series, you will know the main character was Al Capone. He was untouchable, because he had bribed the police and courts, but he was touchable in terms of paying taxes. In the 1930’s there was someone who was charged with a greater amount of unpaid taxes than Al Capone – Arthur Cutten. He rose from the Chicago Grain pits to become one of the biggest speculators in stocks on Wall Street.  He was the George Soros of the 1920s and 1930s. Mr. Cutten did not like government interference, what entrepreneur does? And moved to Wall Street. At that era there was fewer regulations, more monopolies which ensured those that controlled the stocks made money. Every once in a while the trusts would push up prices which given the low margin requirements of the day, allowed for thousands to invest and have paper profits from their investments. Those that sold actually made money, those that did not had long term investments or had to wait till the next push from the trusts. Mr. Cutten according to the book Gold Diggers of 1929 by George Fetherling published by John Wiley and Sons, Toronto, 2004 – for his stock holdings had a core of favourite stocks and bought and sold others looking for a 10 to 15 price movement. The greater he did this action, he would mark down the cost of his original holdings. In this fashion, for his accounting the original holding cost him nothing. With a large holding, buying and selling on margin was not a concern.  Hopefully his brokerage costs were low, but he had moved from the bulk of his holdings to be bought and sold to a core holding or being an investor.  If you are interested in Mr. Cutten’s remarks about grain trading, one of his papers is published on the internet under www.tradingpitblog.com under Story of a Speculator.

Linking to dividend paying stocks, similar to Mr. Cutten if you own the dividend paying stocks for 10 years, the dividend continues to lower the cost you paid for them or if you reinvest in them the cost per share will go down and if you ever sell the capital gain will be greater. If you hold them, you margin of safety if the markets go down is greater, as long as the company pays its dividend.

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

A new movie starring Will Smith has been released and it was the number one movie for people who paid for movies viewed. The movie has lots of action, good looking people and is centered around a con job. Trying to steal someone else’s money or hand it over in the expectations of a great investment. The great investment is for the con artist not the investor. If you are going to watch the movie, the first time watch the movie for its entertainment value; if you like it the movie the next time pay attention to the set up. What steps did the Will Smith character do prior to the con? In every con, the set up is the important aspect for the artist wishes to gain trust; ensure you like them which will you to be  willing to part with your money and not tell the police when you realized you have been conned. With investing, the set up to the con is similar to investing without the con. The difference is what happens to your money after you have given it over. The money is still yours, minus the regular fees.

Linking to dividend paying stocks, after owning the stocks you receive income or money from owning them or a dividend. This implies a profit making company which has the resources to continue to reinvest in its business as well as give money to shareholders. The dual purpose means that many companies do not qualify, because they are selling you on potential capital gains, sometimes they come sometimes they do not. With a con, you can buy but it is very hard or next to impossible to sell. With an investment you can sell anytime.

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

Each of us in our way are wonderful and whatever organization we join is enhanced by the very fact. In many organizations, the leaders do a great job and from an outsider point of view, you may wonder about the people who will lead the organization in the future. What you are concerned about is Succession Planning or Bench Strength? In an article by Harvey Schachter titled 7 Sins of Succession Planning published by the Globe and Mail, he reviews the book Succession by Noel Tichy. Mr. Tichy believes while succession planning is a major influence in an organization behaviour, the reality is 80% of companies and organizations do not have a plan. They have ideas but not really concrete processes, thus many new managements are going to fail. The reasons are the 7 sins:

1. Great in Theory – have a plan but poorly conceived or inoperable.

2. Lack of Preparedness – we all expect to live a long life, but what happens if we do not? This is something the company was going to do but did not get to it.

3. A domineering CEO – the CEO may deliver the results, however his/her treatment of people under them, may see possible quality candidates leave the organization.

4. Blinded by the Stars – the board is inclined to look outside the company rather than build internal talent. It can be both good and bad.

5. The Halo Effect – the board chooses a candidate who is benefiting from where the company is in natural economic cycle ie rising prices, rising profits.

6. Traits over Experience – companies list the qualities they need and check the boxes, but has the person gone through both profits and losses and how did they do?

7. Fear of Internal Defections – some companies set up race among internal contenders, some of the losers invariably will move to another company.

Linking to dividend paying stocks, these companies have paid dividends for a number of years, as a shareholder you want them to continue no matter what happens at the executive level. Is there a plan? how did the last succession go? depending on how many shares you own – what is the turnover of executives? how is the company grooming its talented people?

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

you are an average fan of horse racing, you will likely know of the Kentucky Derby. It is a horse race in April and it is sign of spring is in the air. The Derby is the big name but horse racing can be found on many tracks through the spring till the fall. If you never been, it can be a nice relaxing day at the track. Similar to the stock market, all the horses and their genealogy, the jockeys and the owners are listed. There are wide number of methods to bet and understanding the process will lead you to losing less money or even making money. Every once in a while, a horse will change the rules and a horse which did that was Northern Dancer and one book about the horse is Northern Dancer written by Muriel Lennox published by Beach House Books, Toronto, 1995. While racing, it was easy to make money betting on the horse and it won the Kentucky Derby along with other high profile stakes races. After the horse retired, it went to stud or to make babies or foals. One does not know the perfect horse, but it has to have character or heart to make it a champion. Over the years, many of Northern Dancer’s children and grandchildren won races which makes the genealogy even more valuable. This lead to wealthier people bidding higher prices for what should be quality horses. Many times the strategy worked, sometimes it does not.

Linking to dividend paying stocks, in the case of Northern Dancer, the greatest amount of money to be made from the horse is after the career is over. The qualities of the horse is passed to the next generation and future winners. For a number of years how many successes the horses would have was an unknown, but it turns out there was plenty for the stud fees to rise in value. With dividend paying stocks this is where the companies operate – there is much risk in picking the best horse; but when it goes to stud with lots of potential, there is a great amount of money to be made.

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