The East India Men is the story of the multinational firm from the 1600’s to 1857, published by Time-Life, NY, 1980; the company operated out of England and started with involvement in the spice trade, evolved to trade with China and India. For many years the company controlled the state of India and the tea production from China for those in England love to drink tea; also the company was involved in the opium trade with China. The Chinese traded their silver and gold and not surprisingly the end came with wars – the opium wars in China and the India Mutiny in India. Along the way, the East India Company helped make England a great global power and its ships ruled the seas.

The start of the East India Company was a Portuguese ship returning from the Orient was captured in 1592. The ship was large, larger than anyone in Elizabethan England has seen and was filled with merchandise and spices. The value of the cargo was nearly 50% of the existing British treasury and as the wares from the ship made their journey to London, the merchants and politicians were envious of the Portuguese and wanted on the trade routes. The ship had been carrying pearls, diamonds, gold, and spices – pepper, cloves, cinnamon, nutmeg and others. Now days we can walk into any supermarket and have the spices, but in 1600’s only the wealthy had access to spices, which made the price of the spices high. It was shortly afterwards the East India Company was founded to gain the riches of the Orient and break the Portuguese monopoly. In addition to the English, the Dutch and the French established trading companies. After a number of wars, the countries split up the countries in South East Asia so peace could develop. Peace is more profitable than war, even if the Navy of your country is involved in fighting your battles.

The East India Company took control over India and began to import the tea leaves from China. At the time, England drank ale or coffee, but converted to drinking tea. While in India, the East India Company tried to begin trading with China, however the Emperor’s decided not to trade with outside forces until 1868 and Canton, now called Guangdong was opened up seeking Western technology and information. The Chinese for generations had a problem with opium, there were many dens where it could be smoked and the East India Companies saw an opportunity for it needed the money. The way the deal was structured, the company tolerated side deals by its employees. The investors would buy the Benegal opium, it would be smuggled in holds designed for it, and unloaded in Macao and Batavia (Jakarta, Indonesia) and the gold and silver would be used to buy the tea to be sent back to England. The company gave its protection to the smugglers. To outsiders the company was involved in the tea trade.

The East India Company for many years was the company for innovation of the design and construction of sailing ships. If you have hardwood floors and ever thought how the wood is put together, the same idea was used to make ships. The ships looked like it was one piece of wood and the barnacles were not as much a problem as other designs.

Linking to dividend paying companies, the East India Company was formed when people saw the riches from the monopoly the Portuguese had in trading with South Asia. The Portuguese were the first to sail around Africa to India then to South Asia and come back with large loads of spice and jewels. The other method was up the other side of Africa much of it on land on routes that had existed for thousands of years. The trading companies had the backing of their countries’ navy and soon broke the monopoly. Later the company had to diversify, change management styles and reach to other markets (China) and try to establish its own monopoly to stay in business and pay the dividend.

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

Most of us will not be responsible for investing billions of dollars, however Mohamed El-Erian is and has been through the Havard University Endowment Fund, Pimco and now Microsoft. Mr. El-Erian wrote the book When Markets Collide, McGraw-Hill, NY, 2008 and you can follow him on LinkedIn for he is a good writer with interesting insights. As your portfolio grows, you move into diversification for somewhere in the world there is always an opportunity, if your natural home declines in value. If you review mutual funds or your own holdings, you will quickly be able to see the natural home of the people operating the funds. As your funds grow, you should think and begin to act in accordance with the global economy. Insights provided by Mr. El-Erian will help you along in the process as you wish to maintain a strong performance and reduce the risk of sudden and large losses.

The first consideration is noise. Everyone comes to the table with some preconceived ideas that have been around for a long time as measured in years. The ideas are taken for granted for example lower interest rates, low inflation should stimulate the economy. They make sense, they should work and what happens when it does not as well as in the past? Is this an anomalies or will it work in the near future? Noise can matter in so far as it contains signals of fundamental changes that are not captured in conventional monitoring tools. Governments capture data and report them, then people try to interpret the numbers; asking what is not being captured is a good thing, asking what signals are in the noise is another. Then you will be in a position to begin to do something. Mr. El-Erian believed one of the root problems is the tendency of structural transformations to enable activities that initially outrun the ability of the system to accommodate and sustain them. The mismatch will continue to play out both at the individual firm and national economies. In other words, regulators and government information are one or more steps behind than the private companies ability to generate fees, particularly when leverage is involved.

Leverage enhances returns and losses, but if you are right the profits roll in. If you are right, you are bound to do more and other firms will follow the example until returns fall to what is considered normal levels. It will take weeks before regulators catch up to the firms and the amount of leverage they are taking. Thus what is an investor to do? Mr. El-Erain has some steps:

1. Identify the source of the noise that creates an unusual market dislocation.

2. Be disciplined in treating each episode of such noise as potentially containing important signals.

3. Assess the signal content through an evaluation based on the prioi modeling of the economic or market phenomenon.

4. Differentiate between factors that influence the destination and those that influence the journey when assessing the content.

5. After you have gone through the process, and not until then, you should pursue the views of the talking heads and experts.

6. Be open to finding not only cyclical influences but secular ones.

What to do is the big question and one step to take is following a simple management framework – four boxes – urgent and not important, important and urgent, important and not urgent and not important and not urgent. the axis are urgency and importance. Mr. El-Eraim’s coach at the IMF David Coleman noted most people were pretty good at recognizing what is important and urgent and they acted accordingly. They also tended to be able to identify and avoid the not important and not urgent. It is the other two boxes that separates success from average or mediocre performance.

The successful mangers never lost sight of the important and not urgent. Those tasks are highly deterministic when it comes to positioning oneself for sustained future excellence. The others got diverted by the urgent and not important tasks. Most of these end up claiming an enormous amount of time and effort but have little material impact on the longer term success of an endeavor.

Linking to dividend paying stocks, the beauty of these form of stocks is the markets will go up and down, which is a given, but if the company is profitable and pays a consistent dividend, you will continue to receive a cash flow from the holdings. If you are not leveraged, then if markets go down, but the company is still profitable, you do not have to do anything but to continue to collect your dividends and maybe add to your holdings. The price of the stocks will vary but due the dividends there will be a solid floor and will bounce back faster than non dividend paying stocks. Unless you own a tens of millions of dollars in assets, let the companies you own worry about global diversification while you earn your dividends.

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

For the average person, a road trip somewhere is part of the summer events. Many of us have relatives across the country – brothers, sisters, aunts and uncles, grandparents and the long days of summer are a great time to visit. That coupled with the end of school, many companies encourage summer holidays (in the old days some shut down for a couple of weeks in the summer) and with warm weather, the summer trip is forecasted. Did you ever wonder about the road or highway you will be driving on? Most of are more concerned with the destination and the people and places we will see and as long as the road is smooth and the trip is safe, we tend not to worry about the road. Peter Unwin concerned himself with the road and wrote the book Hard Surface, Key Porter, Toronto, 2009. The book tells the story from a time when there were over 14 million horses to a time of horsepower in the engine. Transportation in North America was shaped first by the waterways, then by horses, next by the train and finally by the car. Each time, society had to change and each time there were naysayers because that is what people were use to. For the most part society did change and Mr. Unwin’s book is about how we changed, in some ways it is better, in other ways not so. One method it has changed was at the turn of the century, many people had a month or two of vacation time, now it takes a number of years of working for an employer to have close to a month of vacations. People would escape the hot dirty city to the cooler cleaner country and come back in last August. Now we escape for a weekend or long weekend.

Linking to dividend paying stocks, as society changed with the use of car and our desire for the government to pay for good roads, companies had to change. Many of uses of the roads were advantageous to the companies or it was easy to change. Similarly communications has changed in the last 15 years, for your company to continue to pay their dividends is a strength of the people and how they have adapted to changes. On your road trip enjoy the road and the people you will meet along the way.

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

The Bible is the most published book in the world and billions of people have one in easy reach of them. Millions of people attend church or a religious institution to hear the word of God. It is an important book and the book Who Wrote the Bible? by Richard Elliott Friedman, Summit Books, NY, 1987 offers an opinion about who wrote the old testament of the bible. For hundreds of years, the  bible was considered written by Mosses. In turns out while Mosses is the most important person in the old testament, the words were likely not written down by him. The actual writing was likely scribes and priests, but someone had to edit the books or put them into a fashion for the world to read. It appears at least 4 primary authors were involved. When Mosses lead the tribes out of Egypt to Israel, they were each allocated a piece of the land. For a while all was good, but similar to most countries over the years there was addition and subtraction to the lands both internally and from outside forces. Eventually there was two countries Israel and Judah. One scribe was likely from Israel who was an advocate of the priestly family or ways of Israel (Shiloh) and possibly a descendant of Mosses. The other from Judah likely for the Davidic royal house. Then an editor skillfully put the two books together as the kingdom was reunited.

Next there is a book written from the perspective of Aaronid priesthood of Jerusalem which many chapters are written about the duties of the priests, in similar fashion many professional organizations have their rules within the government. This perspective tries to enhance the role of Aaron and has a different view of history that those connected to Mosses.

The priests not connected to Aaron wrote their version and the two competing versions were intertwined in the books of the bible.

The final piece was to edit all the above books into what is known as the bible and Mr. Friedman believes the terrific editor was Ezra.

From a layman’s perspective, the bible can be whatever view of the world you have, because the bible has elements of victory and defeat, love of God and destruction, it is a story of life and compromise to live. What is meant by a passage can be seen in a variety of perspectives – one method is to figure out who wrote it? why they wrote it? and what does it mean? or you can just read it for what it is.

Linking to dividend paying stocks, the book reads like a detective story pointing to clues if you understand what the clues mean. As a layman, the narrative behind the clues help support the argument one way or another. Similar when you are investing you are looking for clues. One easy way to look for clues looking at the past history or does a company pay dividends? if yes, the stock can be on your radar; if not, move on to the next company. There will always be opportunities, but losing less money and having the possibility of making more has always been a good strategy with dividend paying stocks.

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

If you ever read the Dan Brown books, you may have wondered about Mary Magdalene – who was she? A wonderful resource is the book Mary Magdalen – Myth and Metaphor by Susan Haskings, Random House NY , 2011. From the bible you will find Mary played an important role in the life of Jesus. Mary and Joseph lived in Nazareth where Joseph employment was a carpenter, and similar to most people in the world he had relatives – one of the them was Mary Magdalene. Jesus met her when he was young, before he entered the Ministry. The bible talks his birth, a episode when we was a teenager, and his Ministry when he was in his late 20’s and the end of his life on the cross in his early 30’s. He died to so others could live by forgiving their sins. Each of those segments were very important for the Christian church, but what was he doing the other times in his life. Study? living as a carpenter (his family taught him the skills)? married? no one really knows which is where Mary Magdalene comes into the story. At the very end of Jesus’ life at the cross Mary his mother and Mary Magdalene were there. If you look to yourself as an example when a family member has died, who was there at the end of their days – the answer is usually family members. There are many sides to who Mary Magdalen was and who she is portrayed to be, how her role was changed to fit into the image of Christ the formal church wanted to give although Mary’s most important role that everyone agreed was she loved Jesus the man and his message.

Linking to dividend paying stocks, the start of every company has some myth attached to it. Why did the company become a success with a similar company did not? What propelled into it into the next generation? What stories are embellished? Which ones are not told very often? Invariably all companies have them because all people have similar stories. Sometimes we are interested in all the stories, sometimes we are interested in only part of the stories for those ones enhance the finest aspects of the company. As long as the existing company is not breaking the rules of the government, and is consistently profitable to pay a dividend, things will be overlooked.

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

Play to Win is a book about strategy from A. G Lafley and Roger Martin, Harvard Business Review Press, 2013. Mr. Lafley was the President of P & G for 10 years and Mr. Martin is a business educator and consultant. They believe strategy while complex, it is also simple and the important aspect is to answer 5 questions:

1. What is our winning aspiration?

2. Where will we play?

3. How will we win?

4. What capabilities must we have to do 1 to 3?

5. What management systems are required to do the above?

All the questions tie back and forth to one another which is the complex part, but they have to interlink in order to answer the questions. The reason to answer the questions is to lose less money, than the alternative.

The how and why of the questions are the reason to read the book or watch the video clips on You Tube. The answers to the questions are choices every company makes and it is important they link. For example if you define yourself as a market leader, are you? In what location are you the market leader? If you define yourself as better, better than who? better than the market leader? What distribution channels do you use and need? and the questions will keep coming based on the original choices of winning aspiration.

A wonderful example was GM had spent a couple of billion dollars are a new midsized car the Malibu, Mr. Martin asked what is a success? GM responded to better sales towards doubling it. At the time, the sales were 5% of the market with Toyota Camry as the market leader. Mr. Martin said better sales was good, but how does the new car compare to the Camry? It turned out Camry was better in 9 categories. GM went back to the drawing table spent $700 million to equal Camry. Sales were more than double. The issue is what aspiration were they trying for – to be better or be the best? Better than what? within the competitive landscape is that good enough or aim higher?

Linking to dividend paying stocks, all companies have strategies, the questions is how well they are defined and do most people in the organization understand and live them? By reading the President’s letter to the shareholders you should have an understanding of what the strategy is, if you do not then start by asking the 5 above questions.

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

At some point in the future, even though there are many reasons not to raise interest rates, they will begin to rise to what is considered more normal. At the present time, no one knows when that is because the conditions the politicians and central bankers have not been met. The politicians would like to keep rates until after they have been elected, the bankers would like to begin to raise rates, but the world economy has not stabilized yet in any of the countries. There has been improvement, not good growth. At some point in the future it is worthy of asking which dividend stocks have been raising their dividends to higher than 2.1 % (US inflation). And one person that did was Tim Shufelt (tshufelt@gobeandmail.com). The first part of any analysis is determining which tools to use and which companies do not get selected. 17 companies made the final cut, to arrive at the picks, the Dividend 5-year average growth – the cut was 20%; the 5 year average ROE (return on equity) looking at profitability in economic cycles and the cut was 15%; and the gross margin 5 year average growth which gives an indication of ability to raise prices with a minimum of 5% was used. The results were

Company                Symbol          Dividend 5-Yr  5 Year Ave     Gross Margin 5 Yr

–                                   –                Growth (%)          ROE (%)          Average Growth

Agrium Inc               AGU-T               87.2                   17.5                      5.5

Constellation Software  CSU-T          73.2                   36.2                      6.4

Potash Corp                   POT-T          57.2                   20.2                      6.3

CF Industries                     CF-N         53.4                   32.2                     10.4

Brunswick Corp                BC-N          51.6                  79.8                       17.1

Seagate Tech                  STX-Q         44.0                  57.0                      31.7

Celanese                           CE-N          37.6                  28.9                        6.4

Westlake Chemical           WLK-N        35.4                  25.1                     46.7

Magna International              MG-T       29.5                 16.3                      39.2

Cummins Inc                       CMI-T         29.0                  21.9                       6.8

Broadridge Fin Solutions        BR-N        24.6                 27.3                       5.1

KLA-Tencor                          KLAC-Q      24.6                16.7                       12.6

Ingredion                              INGR-N        23.4                16.8                      10.5

Texas Instruments                  TXN-Q        23.4                18.5                      6.9

Exco Tech                                XTC-T       22.1                15.7                      21.0

Lindsay Corp                            LNN-N       21.1                19.0                        6.5

Hees Corp                                HES-N        20.1                17.1                    15.0

The above are from Canada and the United States and show a variety of industries and many that are not included. In all analysis, the idea with dividend stocks is to lose less money and make more. Looking at your portfolio and these type of companies will give you an indication of how you are prepared for interest rate hikes.

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

The bread men are the family who built an bakery empire for many years expanded North America, Europe and Australia. The company outlined by Bread Man by Charles Davies, Key Porter Books, Toronto, 1987 are the Weston family who started with bread, moved to biscuits and for a while anything added anything that was vertically integrated with the operation. Thus the move to buy mills to mill the flour, shops or supermarkets to sell the goods and al sorts of things in between. There are many stories about how it started and grew to become a global giant however one of them illustrates a point. When Garfield Weston went to England, he found a very well entrenched food distributions system and commissioned a consultant’s report to help him navigate the business. The report highly suggested not doing what he wanted to which was to build a plant to make biscuits. Garfield was not convinced – he had all the biscuit makers marked on a map – coloured coded to determine the size – small, medium and large. He then accounted for sales volume and noticed the big seven did not control more than 60% of the business. He figured that with his methods, modern equipment there was opportunity to be had. It turned out some manufacturers had not updated their machinery; some were getting old and their sons were not interested and would want a buy out; and all the other factors. Soon Garfield was making money and became one of the big seven.

Linking to the dividend paying stocks, all markets are in play but new players unless the moat is very high and barriers to entry are legislated, any other conditions means the company has to be aware of its competitors. If the company is resting on its laurels from the past, expect in today’s marketplace for market share to be eroded and the dividend to be suspended.

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

The story is about the end of World War II in Germany, the city is in chaos, troops from Russia are in Berlin and to the victors goes the spoils. $400 million dollars in bearer bonds go missing – maybe the Russians stole them, maybe somebody else did, however the bearer bonds are missing. The important aspect to bearer bonds is they are not registered to anyone’s name – whoever has them in their possession is entitled to the interest and principal payments. In the present time, bonds moved through the financial worlds in an non issued forum. In the old days, bonds were printed and moved from one institution to another – usually the trust company. Coupons were clipped by hand and gave rise to the saying after you buy the bond all you have to do is clip the coupon. Nowdays, the overwhelming majority is electronic clipping which saves money for the trustee and the owner’s money is deposited into the account on time.

In the book History’s Greatest Fraud by Scott Stockdale. self published 2002, he explains in a land deal, one of his clients wanted to put up some bonds as collateral for the loan. The bonds were German bonds issued in 1924 due October 15, 1959 payable at 7% interest rate and can be redeemed for gold. The issuer was J.P. Morgan and Co. Remembering gold was originally set at $ 35 an ounce and since the price has floated which made the bonds very valuable. In order to accept the bonds, Mr. Stockdale asked the Bank Manager who made inquiries to Head Office who made inquires to New York.

Much has taken place since the 1976 inquiry and Mr. Stockdale ran in many who decided not to pay or redeem the bonds. The bonds were issued as part of the reconstruction of Germany after WW I, since then the world had gone through a depression, a second WW, and reasonably peaceful and normal times after the war. No one was in a position to pay and the officials in Germany were very reluctant to release their lists of serial numbers of bonds that were still outstanding. When bonds are issued, there is a trust fund to pay for the redemption of the bonds, the trust fund had disappeared over the years. Many of the bonds were payable in US dollars, rather than German marks which lead to the question of in the depths of the recession when German inflation had run wild, where had the money come from to repay the bonds. When inflation had run wild, the German government had passed a law limiting the amount of money that could be paid in foreign currency which meant it could not have redeemed the bonds in US currency.

With the court case going on, the law enforcement agencies pressured Mr. Stockdale and his businesses by trying to shut down their livelihood because if the bonds are worthless he was trying to fraud the banks with the use of worthless collateral.

Linking to dividend paying stocks, in every company’s history there is a time it has been offered bad collateral, although on the surface it seemed to be good. Due diligence takes time and although it should be easier at the present time, due diligence still takes time. Often the possible frauds are aimed at smaller businesses because it is harder to tell what is good and what is bad. The lesson to be learnt is try to stay away from fraud because every once in a while the law enforcement will target a company and it will take a great deal of resources to recover even if you are proven in court to be innocent.

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