The Train is a movie starring Burt Lancaster at the end of WW II with the Germans retreating from France, the Colonel loves art much of it taken from Jewish homes or is “degenerate” art in the eyes of the Germans. In the eyes of the rest of the world, it was some of the best paintings in the world from French artists such as Degas, Picasso, Matisse and others. The art is worth millions of dollars if transported from France to Germany. The Colonel wants the train filled with art to have the highest priority, the French want the art to remain in France. There is a wonderful circle the French resistance plays with delaying and changing the trip and visuals from the train for the train to remain in France. At the end of the movie, the Colonel says to the Burt Lancaster character who never has gone to a museum or gallery to see the paintings, you have foiled me but this is art is for people like me, you will never be appreciate it. I have won, you have been lucky or something along those lines.

Linking to dividend paying stocks, these stocks can and are appreciated by everyone not only for their potential of capital gains but the income received while holding the shares. The prices go up and down with the market, but profitable companies over the long run will out perform the market because of the higher premiums given to profitable firms.

While at a beach on the lake occasionally looking at the small boats go by,  the book Smuggling – a history 1700-1970 by David Phillipson published David & Charles, London UK, 1973 was read. Smuggling has gone on for centuries and anyone who reads about drugs – they come from somewhere knows smuggling is not likely to stop anytime soon. The book focused on the UK, but one can go to any country in the world and have similar conditions. In the early days of the UK, if a ship was beached or ran aground during a storm, the contents were taken by those who wanted it. There was no agency or company to pick up the belongings for hopefully the vessel was insured properly. If prices or taxes were too high on a given item (the government needing money increases taxes on liquor) then there was an incentive of a alehouse or pub to pay taxes on the government side but to buy non government rum to pay no taxes and keep the profits. If you think about the US and Boston Tea Party – that started as people thought the taxes on tea were too high. Back in England – the coastlines were patrolled by the excise and revenue department. For many years they were chronically understated and few ships, but people joined the department for the other choice was the British Naval Service. Similar to the myth of civil servants – they captured a few ships or loads but the smugglers had the upper hand. For in many parts of the countryside, everyone knew the smugglers and the government was afar. As technology and attitudes change, the smugglers learn to be creative and so the story goes.

Linking to dividend paying stocks, we expect the companies to pay their fair share of taxes as well as to take advantage of loopholes in the system which legislators have passed. Smuggling is a problem for all companies and likely most people have bought something which they did not fully declare to the government. The question is to what degree it happens in the business and do the margins which are obtained offset the smuggling. There exists wide scale networks to move goods to places where there is demand which are beyond the government’s ability to stop and the key is demand. If taxes are too high, the average person hears or finds alternatives. If prices are considered too high, goods are copied and sold as orginals; the smuggling industry is worth billions and it is worthwhile to see how creative they are.

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

There are many different methods to try to make money on the stock markets, this blog believes investing in the best companies that are profitable and pay a dividend particularly when they are lower in value and holding them as their rise back to normal and beyond EPS multiple is one of the easiest and best methods. However, the most profitable stocks means a concentration on a narrow minority of the stocks traded on the exchange. There are a wide range of ideas and theories how to capture those capital gains which are offered. One example is book written by Edgar Perez called The Speed Traders published by McGraw Hill, NY, 2011. The Speed Traders help add volume to the total number of shares traded and if they computer programs are near correct – they will have bought and sold the shares on the same day and tried to make a penny or two or three on each trade. The idea is to start each day fresh or with a clean slate – if they make a little money and have very low commission rates then doing thousands of trades on a daily basis adds up to profitable days. The High Speed Traders constantly influence the market but are no means the biggest players or the most influential, however the operators of the exchanges which make money based on the number of shares traded, need to constantly upgrade for the needs of high speed traders. The belief is the faster the trade reaches the market, there is a slightly pause where money can be made and is made, which is why their operations tend to be near the data centers of the exchanges. If you are an average person, you do not compete with the high speed traders because your connection to the market is slightly slower and for only a few cents on low volume it does not make any material difference. If you have thousands of trades the connection does make a difference. All of the players of the firms interviewed noted whatever advantage you think you have, you better believe the competition has the same advantage. This means while it is possible to build programs which are successful, there are more variables in the market to take into consideration which means the program needs to be constantly tweaked to stay  successful. That said, there is money to be made but it is not as simple as noting the statistical inefficiencies in the market, it is finding methods to make money from them.

Linking to dividend paying stocks, when you look at the owners of the stock many have different reasons for owning it which is why there is a the market. Someone will buy and hold; someone is looking for a quick buck; someone will buy because they like the name; or it is recommended; or it is part of the hot part of the market; or it is not part of the hot part of the market; it is being hedged; it is not being hedged. The only common thread is the idea the stock may or should go higher. The multiple reasons for holding means it is possible for statistical inefficiencies to result. If you pick a profitable company which is trading less than its peers, the stock should trade similar to its peers, of course there are likely reasons why it is not. One method to get around it is see if there is a dividend being paid, at least you will receive income as the stock slowly or quickly moves to where it should or is expected to be trading at.

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

One of the largest companies which is privately held is Koch Industries and the book Sons of Wichita written by Daniel Shculman published by Grand Central Publishing, Hachette Book Group, NY, 2014. The Koch Industries was founded by Fred Koch who was a petroleum engineer. His company helped build refineries which were slightly different than the major oil companies to give independents greater control of their companies. Eventually Koch owned the refineries and went into pipelines. In the west, if you look around you desire land and ranches for cattle grazing. Some of the land would have oil on it to supply the refineries. Fred made a great start and son Charles made the families multi billionaires. The company believes its expertise is in the gathering, transportation, processing and trading of goods. Whether the good be oil, timber or something related. On the business side, there is an introduction of Charles management system called Market Based Management which besides offers the expectation of doing good, it offers a decentralized management system which expects everyone to continuing find better ways to do their job and then share the information to the company.

One of the reasons the company is known is two or three of the brothers are involved with organizations that leave individuals with the greatest control and the government doing less, the philosophy is called libertarian. The brothers back organizations which help fund the Tea Party and with super PACs dominating the political fundraising environment, the Koch have been and continue to be major contributors. The book goes into some of the reasons why the Koch’s offer large dollars. Outside of the less government issue they are major contributors to hospitals, universities, art institutions in New York and Wichita. In addition, for a company which does not the government, its method of earning money is government regulated – pipelines and it is not surprising that lawsuits have been filed and fines paid (the law firms are always on retainer).

Linking to dividend paying stocks, early on the company bought a refinery in Minnesota which turned out to be a cash cow or because of its monopoly position – the biggest refineries are in Texas, which allowed the company to expand and grow. It took good management to do this, which is a credit to Charles Koch and the people who work(ed) for him.

A week ago, one of the stocks which has been owned was partially sold.

In order to be a good investor, you first need to have idea of where the market might go. Then you do your homework or test the ideas, and if the idea comes forth you can act on it. One idea is eventually interest rates need to go up. They may have to but with the slowing of the Chinese economy which lead to higher commodity prices, perhaps even with more people working the economy has a long way to go before rates are raised. We do not know what the federal reserve will do, but it is worth asking what if rates went up – which stocks would likely benefit? One sector that should benefit is the banking group. In that vein, Charles Martin from Thomson Reuters looked at what banks could benefit.

He started with companies with market capitalization greater than $ 2 billion.

The banks made money on the difference between interest income (money they lend) to the money they pay to depositors – the term is called NIM or Net Interest Margin. Mr. Martin was looking for positive NIM.

He wanted a price earnings ratio of less than 20.

The law requires banks to have 6% of Tier 1 capital. Mr. Martin wanted a higher degree of safety or 12%.

The price to book ratio was to be less than 1.6, analysts concern anything less than 2 to be undervalued.

To measure how the company is managing their costs there is an Efficiency Ratio and Mr. Martin was looking for less than 60%. This is overhead costs divided by total revenues.

Company

Often times in investing there are two competing stories,  the glass is half full, the other is the glass is half empty. Until the glass either gets to 3/4s full or 1/4 full, many people do not really know what to do. A week ago the shares of Tesla Motors fell from $270 to $242 because of worries about production cutbacks of its biggest selling electric car. The Tesla is an electric car which besides being more expensive than the average car needs a great deal of infrastructure for people to drive more than 300 miles. After 350 miles it needs to be charged, having never been in one but seen them, the cars look good and drive with little interior noise.Part of the company’s growth is tied to a new electric battery plant being built in Nevada.

In a column in the Globe written by Chris Umiastowski called “Don’t slam the brakes on Tesla just yet”, the article offers the half full idea for the company. Chris expects the price of the shares to fall but over the longer term to go higher after each fall. He particularly pays attention to the management team, if it doing what they say they are doing then you can continue to back them, but if they begin to depart then situations change. The issues for the growth investor are why did you buy the shares? are the reasons still valid?

Linking to dividend paying companies, the process is easier than trying to figure out the potential market, the big question is the company still profitable to pay the dividend? if the answer is no then you know when to find alternatives. If the answer is yes, then you can either do nothing or determine at what point would they not be able to be profitable. As dividend buyers the issue is the company’s profits almost similar to a monopoly or very few competitors and the ability to affect prices?  If that is still the case, whether the company grows or stays similar size is not important, staying profitable is.

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

Martin Chuzzlewit is a novel by Charles Dickens also available in mini series produced by the BBC which was recently viewed. Mr. Chuzzlewit is getting older, but not dead yet however he is part of the upper class or wealthy in England. The premise of the book is to examine how the relatives – immediate family, cousins, and the list goes on behaves when he appears to be on his last legs. Do they care for him or do they see the money they will inherit? It is an age old question and we know that in general, baby boomers did well and as they begin to retire many will inherit or will give money to family and whoever else they wish to. In the book, Mr. Chuzzlewit is not without fault and he finds himself selfish in his decision making process, he is after all human, but at least he finds out who the worst cases are.

Linking to dividend paying stocks, one of the good things about them is the wealth tends to increase over time, as the wealth increases it allows for financial freedom however you define it. Wealth also brings other concerns among them long lost relatives who wish a piece of the pie. There is no perfect answer, but it is better to have the problem than not to have it. Warren Buffett has said his children will be millionaires but not necessarily billionaires from his inheritance.

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

It was reported by Reuters on August 7th, Blackrock expects big data to jumpstart stock-picking business. Blackrock is a large financial company with about $4 trillion assets under administration including its popular index shares. It is very large player and recently offer some alternative financing to oil services companies. The article in Reuters written by Jessica Toonkel is how to use big data. The CEO believes this data can revive his firm’s ailing stock picking business. Big data is the ability to gather great amounts of data to find the key to determining what the possible future will be. For example, a classic example is on Black Friday and leading up to Christmas are the shopping mall parking lots full – satellites can tell you (the Christmas season is the most profitable time for retailers). Big data allows to garner as much information as needed to determine what the buyers will tend to do or should be doing.

Linking to dividend paying stocks, there never is a guarantee the more data you know the big the decision making process. If you are a retail investor, one that has less than trillions or billions or millions, sometimes too much data means it is hard to make a decision. The simple question is the company profitable and can it stay that way for a long time should lead you to your investment choices. Profitable companies can and do pay dividends, unprofitable ones do not. Profitable companies stock price will move up to and above the average EPS or earnings per share. Start with the simple and you will lose less money and with a dividend you will make money over the long term.

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