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

Listening to a radio station, one of the historians made a general comment that most of history can be construed as accidents gone right. Her point was in every project or looking at how people governed themselves in the past, there was accidents that could have changed the dynamics or accidents gone right. The radio station was about the Italian province of Sicily, Italy during the reign of Frederick the 2nd. The northern people of the Europe, typically did not get along with the Mediterranean people for various reasons including food production. In the case of Frederick the 2nd, he managed a very multicultural state and many areas of arts and science proposed and grew. Laws were codified, many traditions we do today started in this era. Under a different ruler, who knows what would have happened.

Linking to dividend paying stocks, accidental history in this context means management matters. Who runs the company and how they run it, can be important as what it does. Few expect their companies to change the world, but the daily execution of business plans to consistently generating profits to pay dividends is something to pay attention to.

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

Most homes have some sort of carpet in them, and carpets run from dollar store items to those worth hundreds of thousands of dollars. If you are interested in the upper end, the book The Carpet Wars by Christopher Kremmer, published by Harper Canada, Toronto, 2002 is an interesting read. The famed Silk Road from China to Europe leads through the area of Afghanistan and for the past 2500 years, carpet making has been going on, it was the work of women. The skills being passed from mother to daughter and part of the reason for doing the trade was a good weaver is a good marriage prospect. The other part was for income and clothing for the family.

There are many stories in the book and an early one is Mr. Kremmer early days in Kabul – he ended up buying carpets and the dealer gave him two receipts – one for the government which lower the price of the carpet; the other for the next person who may buy or value the rug – the value was higher. Although the prices were within what could be determined as reasonable; one can easily imagine what would happen if the original agreed price was in the thousands.

Using the Silk Road as his guide and carpet making as his entrance point to conversations, Mr. Kremmer discusses the history of the region. To look at carpets is not to look at a floor covering it is a piece of art. The religion of the area does not welcome paintings, so the next best thing is the art and beauty of the carpet – brimming with human, animal and vegetable life forms. The ruling was because carpets and pillows are stepped on, sat on or leaned on these are deprecatory acts, the images of life forms is ok to be on a carpet. As such they can be priced for two things – as pieces of art and pieces for the home.

Linking to dividend paying stocks, for century’s people and been making and selling carpets, some have gone up in value, depending on the knots per sq in, the homemade dyes, the quality and picture. It takes a good eye and expertise to know what is good and what is not likely to go up in value. Similarly, with investing by keeping it simple – what is good – companies making profits to pay dividends. These companies will pay you two ways – the dividend and the capital gain as well as enabling you to look to the future with hope.

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

Yesterday’s column was about the cream of the crop of the movies – The Academy Awards. In a different category is the movies which did not quite make it or they were not well received by the movie going public. In a book by Roger Ebert titled Your Movie Sucks, published by Andrews McMeel Publishing LLC, Kansas City, 2007, famed movie reviewer Roger Ebert lists movie that were not good. In the movie business, there are some excellent movies but lots of them are not good. Many of the movies in Mr. Ebert’s book started with the right producers and directors, screen writers and noted actors and actresses to have success. Unfortunately somewhere along the line, the end result was not good. The plot seemed out of place, the characters were not believable and a host of other concerns. However the movies were released and lessons can be learned from them.

Linking to dividend paying stocks, companies that cater to the retail market have a wide range of success and failures in terms of product offering. In the movie industry it is easier to see and remember which movies did not quite make it because bad movies are not discounted, they just have short time in the theatres before the DVD is released. in the retail business the retailer changes location of products or discounts items to have a lower profit margin. It is harder to remember which items or products did not sell well because they are no longer on the shelf. Our perception is different, but talented people everywhere have successes and failures. Ideally, the company who shares you own has more successes or there main profit drivers are very profitable.

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

On Sunday evening, the Academy Awards was viewed by millions of people around the world. It is designed to enhanced the movie industry and for the average movie viewer the show remains the most important event of the awards presentation. There are many other awards, but none seems to have the glitz and glamour of the Academy Awards. When this perception happens, the movies that have winners of the Awards will receive greater paying movie customers. One may wonder, is the event fair? how much arm twisting is there in the background? who actually votes? It turns out there is lots of arm twisting; the movie companies have spent as much money to encourage members of the Academy to vote for their movie as it cost to make it. For once a movie receives an award, the Academy Award translates into higher sales.

Linking to dividend paying stocks, if you have chosen companies who have made profits over a number of years, as long as they are reasonably well run you do not have to worry about whether there will be profits or not. If the company is reasonably well run, it looks after its costs, maintains its profit margins and regularly pays its dividend. With many organizations there are awards; only the public will determine the extra value of the award. In all types of industry there are awards, for most people the bulk of the awards are for people in the industry which means they are important to insiders but not necessary to general public. It takes a great deal of effort to translate to the general public and the corresponding higher sales. As an owner of the shares, you want your company to win those industry awards.

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

One of the US well known personal finance advisor is Suze Orman and if you have not seen her on TV you can check out her website for the tools and resources and other material. One of  her book is called The Money Class – Learn to Create Your New American Dream published by Spiegel & Grau, New York, 2011. In it Suze asks people to live within your means not your credit. We all have hopes and dreams which is the reason why you want to wake up in the morning; being financially independent or not in debt makes life easier. Often Suze will talk about your grandparents, she means the people who lived through the depression when credit was very hard to get, cash was hard to come by and living was frugal. The ending of the war changed and houses were affordable, partly due to government assistance. It seemed money went further. Now days, houses and cars and everyday life seems more expensive; credit is relatively easy to have and use. Suze recommends live below your means but within your needs. Part of that is to understand the difference between a want and a need. On Valentine’s Day in the part of the northeast where this is written it is cold, a want is warmer weather, is it a need?

In the book Suze offers very good advice concerning your family, home, and moving towards retirement. It is the last section which this blog will focus on – what to do with the money you are putting away for retirement. There are a great number of choices in the marketplace – the easiest thing to do is stick to dividend paying ETFs. The fees are lower than a full service; many full-service funds perform very similar to an index fund, but you pay a higher fee. You earn money through the dividends and through long term capital appreciation (higher stock prices) the companies are easy to found through Standard & Poor Aristocrats index of firms – over companies have similar indexes. Some range from increasing dividends from 10 years to 25 years. This means one of the best methods to gain wealth is not to lose it.

Linking to dividend paying stocks, whether you choose the index or go with individuals stocks that make up the index, it is up to you. The important aspect with index funds is every year they or 6 months they rebalance the holdings which means the laggards are let go and winners are kept to continue winning.  One of the hardest things to do is sell when you believe there is more upside to come. Invest in the long term but make your money grow through dividends and capital appreciation.

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