On Friday, the NY Times ran an article about the electricity grid in the US, focusing on New York. The article written by reporters Julie Creswell and Robert Gebeloff titled Traders Profit by Placing Bets on an Overworked Power Grid was in the Friday August 15 newspaper. The story is when power is moved from where it is produced to the consumer, there are various reasons why more power is needed than is normally provided. The electric companies are very good at projecting normal demand, but with climate change and normal maintenance spikes happen. To protect the companies from price changes, hedging or congestion contacts are sold. As in every commodity that offers hedge contracts, the majority of buyers wish to protect themselves and hedge, other buyers see the potential spikes means potential profits or speculate on when the spikes will occur. It would appear, just following the regular maintenance schedule will make you money, but when the weather is too hot, consumer demand jumps and healthy profits are made. Hopefully, the electrical company is not speculating in the congestion contracts, for one could see adding the hot weather would automatically mean more maintenance shut downs to achieve higher prices.

Linking to dividend paying stocks, some of the best performing stocks over the generations are investor owned utilities, as a shareholder you may want to know their policy on congestion contracts and the percentage of resources they allocate to them. Is the goal hedging or speculating? This is another area where governments try to protect the industry, but may or may not be achieving the desire result of lower electricity prices. From an investor point of view, the millions of customers who need electricity to live their lives is the reason why utilities are such a good investment; the bulk of the customers pay their bills and the utility pays a steady dividend.

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

If you are a devout Christian or know some people who are, one of their traditions is to eat fish on Friday as a symbol of abstinence of eating meat – sheep, goat or beef. The author though about the eat fish on Friday and asked himself where did the fish come from and what fish were they eating and how did European society develop? The book Fish on Friday by Brain Fagan, Basic Books, NY, 2006 helps answers those questions. One of the many areas where Mr. Fagan’s book goes into are recipes for fish, which lead to part about the army. Over the generations, generals have often remarked a good army moves on its stomach or the men have to eat. An army on the move needs rations to supply the men. What does the army serve? What are the good square meals the officers and men are eating. After Cabot made the official discovery of the Grand Banks. the armies were eating cod from the Grand Banks. This means someone must control the distribution because armies buy food, they do not grow or process food. Using clues gain from the army can tell you which companies have a monopoly on supplying them and what types of foods the army is being supplied with. An interesting note in the book is the income from the fishing grounds off Newfoundland and New England provided more wealth to Europe than the gold from Mexico, which had made Spain the richest country in the world. Fish provided for the English empire.

Linking to dividend paying stocks, there are clues all around you to determine what is a good investment. Often times, the non sexy ones pay a similar return and perhaps better than the sexy ideas. Try to ground your ideas into long term profitable ones, rather than short term ones where you are always looking for the big gain to get you back into the game. If you are normal person and had to choose between fish or gold to invest, you will have a high tendency to favor gold, but reality is you would have made more money on the fish. What is in your portfolio?

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

If you are a devout Christian or know some people who are, one of their traditions is to eat fish on Friday as a symbol of abstinence of eating meat – sheep, goat or beef. The author though about the eat fish on Friday and asked himself where did the fish come from and what fish were they eating and how did European society develop? The book Fish on Friday by Brain Fagan, Basic Books, NY, 2006 helps answers those questions. At the present time, for most of North America if we want something, we go to the supermarket or go to many markets and we can find a fish store and buy it off the shelf to cook the food, but if you cast you mind back to the early centuries, supermarkets did not exist, so where did the fish come from. Citizens would traditionally go to markets, at first the average person would have bought fish for holy days and their choice was eels. As Christianity increased in numbers the choice switched to herring, partly because people learned how to keep it using salt. The next step was the cod and many people have eaten salted cod, now it is whatever fish you like.

The fishing industry had to change to meet the demands of the public. This means some communities benefited from the change, some did not. The control of the market was to ensure the customer was getting a quality product each time they went to market at a price that paid dividends to the owners. Mr. Fagan’s books delves into the changes in technology or changes in preserving and shipbuilding.

Linking to dividend paying stocks, at each of the stages of fishing, there evolved a group of companies which seized the market or had a monopoly until the type of fish or alternative changed. The monopoly could last 50 years or more, as we have seen in today’s economy things do change sometimes faster than what we would like, but they do change. As a shareholder in the dividend paying stock, you have to constantly look at what financial moat does the company have to continually pay its dividend. You may want to do this after the dividend has been paid, but it this economy people are always looking for alternatives and no matter the market, having a monopoly or monopoly like conditions helps in making money but people move to what is the best alternative for them.

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

Last week while walking in the downtown area of the urban area where I live, there was an opportunity to view all types of clothing people wear in the summer. On one particular clothing was the slogan “Stray Off the Path” it should not be hard to figure out which athletic company it was designed for. Similar to every good slogan it has more than one meaning – it could mean by wearing the shoes, you can move to set your path to achieve your destination. It could mean the regular paths are too crowded and by straying off the path, you can pass the crowds to get to your destination faster. Of course, there are valid reasons why people go on the same paths – if you walk on the sidewalk, the vehicles are not likely to be on them or it is safer. If you travel on the trade paths that were built over generations of use, there likely will be supports on them – hotels, rest stops, policing, people that will look out for you or it should be safer. In investing, there are many paths to travel, some will do better than others. At some point in time, going on alternative paths may lead you to great profits.

Linking to dividend paying stocks, the alternative paths may lead to wonderful gains, but often after wonderful gains, there comes a big drop which if you had not sold (and most people will have not) the average gains over the years comes near the rest of the pack. If you bought and sold on inside information then you should have a larger than normal gain. If you are not privy to insider information, the best path to take is follow those companies which are already successful and remain successful. One method to determine them is do they pay a dividend? If yes, then you know the company is generating enough income to both invest in the business and to pay the shareholders and you can eliminate the other companies. If the company is not generating enough to invest in the business, then it will slide or its financial books will begin to show myth rather than reality. There are no guarantees in investing, and we do have a culture of individualism, however one of the tried and true methods to continue generate good returns year after year is buying into successful companies which also pay dividends.

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

The movie The Treasure of the Sierra Madre directed by John Huston and stared Humphrey Bogart is considered to be a very good movie to watch and learn something. The essence of the movie is Bogart’s character is working in Mexico but is not doing well, with income here and there. He makes a little money, hears about looking for gold and with 2 other people (one a prospector) goes looking for gold. After a long search, they find a vein in the hills and then gold fever begins. What will you do with your share? do you trust the others to ensure your share is safe? how much is enough? All these questions are age old questions and there is no correct answers – it depends on the individual. In the movie – one wanted a little to retire on; one want some to buy some land and be a farmer; and one want to live the leisure life in style. The movie has the characters react to gold fever on the way from the mine in the mountains to where they would exchange the gold for cash. Also along the way, bandits steal from the miners and this is the learning – the miners thinks the bandits are after his gold dust, the bandits are actually after more tangible items such as shoes, guns and animal pelts. The bandits do not realize the gold is more worth more than all the other things or they do not know the value of the dust and dismiss it. Where is the value you are looking for?

Linking to dividend paying stocks, once you have accumulated a little capital, then you have choices – you can spend it, save it or invest it. If you invest the capital in to a form which pays you a dividend, then you can have the best of all worlds. Over time the capital increases and the dividends can be spent, saved or reinvested, until you have what is enough for you. With dividend stocks, there is value that many will not see for they only see the short term, while dividend stock holders are looking at the long term.

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

The Inferno is another one of Dan Brown’s books which makes an interesting read and is published by Doubleday, NY, 2013. The main character is asked to solve problems left in clues in which a billionaire drug owner believes the world is overpopulated and needs to have fewer people to start fresh. Will he bring impending doom to the world using the back ground of Dante’s book Divine Comedy?. Dante was born into the ruling class of Florence and was exiled for supporting the losing side of a power struggle. Dante wrote the book while in exile about what it was like to descend to hell and back. The levels of hell influenced the Renaissance period and many clues are to found in the art, architecture and locations around Florence. Besides being great piece to look at, some of the paintings have hidden messages in them which lead to clues and since the billionaire is  a fan of Dante seeing the world go to hell, although individually he fell in love and changed his idea that love was the real reason why he was doing what he was doing. He loves the world and wants to ensure overpopulation will not be an issue.

Linking to dividend paying stocks, there are clues to be a successful investor, and similarly to the great art of the Renaissance, if you stick to the great profitable companies which pay dividends, you will be successful. Profitable companies hold their value over time and dividends ensure the company does not stray far from whatever made them the money to be profitable. Sometimes in investing, the trick is picking companies which lose less and gain more. Over the passage of time the profitable company will go higher and the dividend you have received allows for a consistent return on your investment.

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

The book Going for the Green by Robert Thompson, Key Porter Books, Toronto, 2008 is a wonderful book about golfing and the relationships people build. In some professions it seems, golfing is the sport of choice. This means if you are in them, you might want to learn in order to move up in the organization. It is August and that means there are many charity golf tournaments being played every week, unless you have unlimited time and money, you may want to either pick the cause or the people you are expecting to play with. The premise of the book is for when 2 to 4 people go golfing, not only do they golf but they spend time together to either build relationships or learn something from each other. If you could spend 4 hours or so with a senior level person of an organization who would it be? what would you want to learn about them and yourself? how does every handle mistakes when the golf ball goes right or left? do you feel extra pressure on the putt?

For non golf fans, intertwined in the book are the best golf places or some of the most exclusive places to play and who are the designers. What does it take to run a successful golf course? What does the golfing business look like? In the book the focus  is on Canadian golf courses, but many of the golfers golf at the best gold courses around the world.

Linking to dividend paying stocks, when you buy a stock and expect to hold it for a considerable amount of time, you are entering into a relationship with that company for soon you will be noticing it as you make your travels through your life. For example, you may notice if the company gave money to your local hospital or what charities does the company support? it is great if you also support them, then you get two for one. When the company is in the news as an owner you have a different opinion of them than if you did not own shares. Within this relationship, you have determined the senior management of the company, besides paying you a dividend and keeping the company profitable, you can do business with.

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

The book Electric Rivers the story of the James Bay Project by Sean McCutcheon, Black Rose Books, Montreal and NY, 1991 was set in the 1970’s. The time was one where everyone thought we could do anything for in 1969 man had stepped on the moon. When the James River Project was proposed in was big and sexy and it fit into the political world of the government. There was very little not to like about it. It turned out to be very costly costing billions of dollars, it hurt the credit rating of Quebec, but then oil prices went up (the end of cheap oil) and the hydro plants turned into a cash cow for the province. Not only did the people benefit from lower rates, most of the hydro could be exported to New England and New York areas where the hydro companies could close their oil hydro plants and use Quebec’s hydro thus saving money. Not sure if the lower rates were passed on to the users, but the companies were saving money and it was clean energy. As Quebec built the first phase and it went into operations, they looked around and saw more rivers to be tapped and continue to  tap as many rivers as possible. If you look at their construction cycle the expectations are construction for 2 -10 years and operate for 100 years, with a minor renovations along the way. In terms of the investor – generate income for 90 plus years with each project.

As a company, Hydro Quebec generates income into the provincial coffers and this is where investors have to watch out. In Quebec’s case, their politicians need or want to fund all sorts of programs and services, the first place they look is to Hydro Quebec for money. If not continually pushed back, the politicians want to spend the money and as long as hydro rates remain low, voters tend to allow them to do what they wish to do. In an investor owned utility, the free flow cash gives ideas to many in the firm who wish to be involved with vertically or horizontally integrated companies. It takes strong shareholders to curb ambition, for big companies like to do big projects.

Linking to dividend paying stocks, as an investor often you wish the company would do the minimum as long as the income continues to flow – the company is profitable and can pay a dividend. All managements have dreams and pressures place on them to do something, to create more, to do more. As an investor you occasionally need to temper the ambition of management to do and your desire to maintain the dividend.

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

If you like dividend stocks, you love utilities because they are highly regulated, which means high barriers to entry and once they own a hydro plant, it is like printing money. The capital of the building of the plant is soon paid off, the cost of operating relative to the cash flow is low and the water from the river flows for generations past and into the future. Prior to the 1970’s and Watergate, it was relatively easy for any company to tap the potential of the raging rivers across North America. After the 1970’s the public became more cynical and less trusting of government (for some very good reasons). Prior to the 1970’s if a hydro project was proposed, although there would be people that talked about the consequences, the overwhelming general population said this would be good for jobs, the economy, and the future. The book Electric Rivers the story of the James Bay Project by Sean McCutcheon, Black Rose Books, Montreal and NY, 1991 was set in the 1970’s. The setting is a drive 16 hours north of Montreal, which means very few people live there and the politicians and the engineers saw taming the natural landscape and sending electric power south as their salvation. It has worked, hydro continues to be less expensive that the alternative of oil and gas, as long as the ability to send the hydro down the wires exist, the hydro dream of tapping the rivers of the north is a reality.

On the other side of the coin, to ensure the hydro stations work, large lakes were formed, which flooded the land; the habit, which is slow to adapt in the north, decreased and may have stabilized and whatever the normal patterns of the people were changed, some parts for the better. What is important is now that the hydro stations are in and have been operating for a period of time, all the data used to promote new developments can be used to suggest what if it does not go through. What parts of the nature habitant must be looked at first instead of last.

Linking to dividend paying stocks, while they are fewer and fewer untapped rivers to produce hydro; there still are pipelines to be laid for the utility sector. As an investor you are drawn to this sector because it is capital intensive which keeps competition low; there are thousands of people paying for the service on a monthly basis with very few alternatives not to use them (someone may switch from electricity to oil or gas, but it could all be the same company). In the last century it was much easier to build the hydro dam or put down the pipeline, now there will be more challenges because both sides should know the pros and cons better in order to make an informed decision.

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