Steve Jobs as head of Apple helped changed the world as we know it – the computer, music, movie, and telecommunications industries all have changed because of Apple and visionary founder Steve Jobs. In the book Innovation Secrets of Steve Jobs by Carmine Gallo,  McGraw Hill, NY,2011, the author points out what Mr. Jobs did and the 7 principles to follow. The seven principles are Do What You Love; Put a Dent in the Universe; Kick-Start Your Brain; Sell Dreams, not Products; Say No to 1,000 Things; Create Insanely Great Experiences; and Master the Message. The 7 principles will not bring you to the billionaire status, but it may bring you a better life. A better life for you, your company and your customers and in the end that is what we all try to do.

In Mr. Gallo’s there is a number of examples of how innovation can work and some of them are:

Every industry has and needs innovation in it – one of the basics which every household needs is a vacuum. James Dyson saw a major problem, in his eyes, the performance of the vacuum cleaner lost suction as they picked up dirt. After 5 years and 5,126 failures, Mr. Dyson solved the problem which was great. The next step was to take it to the big vacuum companies such as Hoover. The folks at Hoover as the biggest company had a couple of choices of what to do – nothing or something. Hoover could have bought the company and folded it into a division to raise its head in another 20 years (which is often done), instead they were thinking they had a good profitable business of selling vacuum bags and decided to do nothing. Dyson had to do it the long way or independent distribution and has great results – the best selling vacuum in Japan, UK and and can be easily be found in North America.

Innovation is often seeing what others do not see – people see a higher usage for a program, for example early on in Apple, Steve Jobs and his programming team were touring Xerox PARC – a research facility owned by Xerox. The folks at PARC had developed a graphical user interface (GUI) which allowed people to interact with computer via icons on the screen instead of text based commands. In the hour long demonstration the Apple team understood and knew where this technology could go. The numerous Xerox executives who had years of demonstrations never could get past their copying perspective. Microsoft and IBM have a similar story. Passion with vision leads to innovation.

A great story from Hurricane Katrina of 2005 is the company Entergy – the power company. The CEO told employees to deal with their own personal crisis – take as much time as you need, their jobs would be guaranteed. An astonishing thing happened, recognizing the importance of electricity in people’s lives – just about every employee returned to work the next day until the lights were on. – working for a noble purpose.

To improve the school in the neighbourhood of Chicago’s East Lakeview – with the full encouragement of the principal, the mothers found innovative solutions. They partnered with artists to paint the classrooms which resulted in murals, sculptures and vibrant colours. They asked the ballet, karate, music teachers to hold classes after hours, and they asked local chefs to teach culinary classes, as well as host of other things. The school went from an undesirable one to a model for other schools including most important better grades.

Linking to dividend paying stocks, innovation has risks attached to it, to change something often is to reallocate resources. If it is a new product or category – it is easier, if it is change an existing structure besides a great idea you need people willing to say yes to try. In many organizations finding those people is a challenge, find them and things can happen.

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

Steve Jobs as head of Apple helped changed the world as we know it – the computer, music, movie, and telecommunications industries all have changed because of Apple and visionary founder Steve Jobs. In the book Innovation Secrets of Steve Jobs by Carmine Gallo,  McGraw Hill, NY,2011, the author points out what Mr. Jobs did and the 7 principles to follow. The seven principles are Do What You Love; Put a Dent in the Universe; Kick-Start Your Brain; Sell Dreams, not Products; Say No to 1,000 Things; Create Insanely Great Experiences; and Master the Message. The 7 principles will not bring you to the billionaire status, but it may bring you a better life. A better life for you, your company and your customers and in the end that is what we all try to do.

The first thing to know about innovation is it is extremely rare to get it correct the first time. In Innovation the key is failure and learning from it. If you are not failing you are not trying. One of the reasons there is failure is because you are trying to change something that may have been put in for what was a good reason. It may mean changing different partners; it may seem simple, but if you can see the positive changes that results from the change, you are on the right path.

The 7 principles are:

Do What You Love – follow your heart, your passions, connect the dots along the way and you should be okay.

Put a Dent in the Universe – attract like-minded people to share the vision and turn the ideas into reality.

Kick-Start Your Brain – innovation does not exist without creativity and creativity is connecting the dots.  Expose yourself to a broad set of experiences and that will help connect the dots.

Sell Dreams, not Products – think about what people can do with your product?

Say No to 1,000 Things – simplicity is the ultimate sophistication – eliminate the unnecessary for the necessary to speak.

Create Insanely Great Experiences – if you go into an Apple store what makes it better than the other stores?

Master the Message – tell your story so people can get excited about your innovation.

Linking to dividend producing stocks, the above is why it is incredible that some companies can continue to produce dividends year after year. Steve Jobs and Apple affected 4 industries which all the other companies had to adapt to Apple or radically change. Innovation often does that to dividend paying companies because they often want less innovation – they make money by not innovating. However the public will vote with their wallets one way or another which makes asking the President how they handle innovation and what innovations the company embraced important questions to be asked.

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

The New York Stock Exchange ended higher in 2013 and that is a reason to celebrate the end of the year. Happy New Year’s!!!. With higher stock prices many pension funds are better funded and that helps millions of people. Higher stock prices means companies can go into the market to issue shares to grow their businesses. Next year, you never know, but most people will not predict the markets will not rise as much as the past two years when the S&P 500 was up 45%. For months, the Federal Reserve Bank has been inching towards less tapering of its stimulus program and with stronger evidence of the housing market stabilizing and even growing, there are more voices for  the tapering to begin. When that action happens, there should be a rise in interest rates which is great news for savers.

Linking to dividend paying stocks, it is highly likely the strongest capital gains have been made or there are fewer undervalued stocks – those stocks that are trading at multiples lower than peers. At the moment, the S&P 500 is trading at 17.4 times earnings, versus 14.2 times a year ago. If you own stocks, you always have a variety of choices – buy, sell and hold. It is an easier decision if the company pays a dividend, then you can ask how secure is the dividend? knowing if the stock price falls, the yield on the dividend goes up. Then your problem is do you have the dividend go into your account or reinvest it to buy more shares? If the buzz world of the 2014 is to be defensive, one of the best defensive (and offensive) moves is to always try to buy quality companies which pay a dividend and you will be ready to play on both sides of the field,

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

If you look at the formal robes of royal families, the colour purple often appears and John Schwinghamer has written a book called Purple Chips, John Wiley & Sons, 2012.

The author believes all stock prices go up and down, including the best ones – if you look at the past you will see a trading range for them, which means there is an opportunity to make money through concentrating on the purple chips or the best companies. To qualify as a purple chip the company must meet 3 criteria: 1) a minimum of 7 years of positive and growing EPS or earnings per share; 2) smooth and predictable growth in EPS; and 3) a minimum market capitalization of $ 1 billion.

One of the most popular method of analysis is called a ratio analysis which involves income and balance sheet numbers. For example Return on Equity is a net income divided by shareholders’ equity; Return on Assets is (net income + interest expense- interest tax savings) divide by average total assets. The idea is to calculate the ratios and compare them to other companies. Then you can make a decision which should be better to invest in. The advantage of the Purple Chips method is it is graphic or seeing how the EPS is doing relative to the stock price and making decisions. Both methods deliver the same results – a good company is a good company, to make comparison between good companies both methods should be used.

Using the Purple Chip method, you can determine when to buy and when to sell. If you believe in the normal or bell curve. The theory states that most of the time or 68.2% stocks trade near their fair market value. If the stock trade outside their fair value, it will  tend to go towards fair value. The how and why are the tricky parts but if the stock is trading at higher EPS valuation than it should be, eventually the stock will fall; if the stock is trading lower than it should be, eventually the price will increase.

Due to the long term profitability of the companies, Purple Chip stocks are well covered by Wall Street analysts. This means the analysts will forecast the earnings of the shares before the official announcement. If the stock market is paying i.e. 15 times earnings, and the expectation is for earnings to increase, when the company announces their earnings, the stock price should go up because of the higher earnings. If earnings are decreasing, the stock should be sold as the price should go down.

There are many elements to the theory and as long as you have access to the charts, you can use it. The basic elements are every stock is not stable or there is movement both up and down. If you pay attention to the EPS multiple then you determine when to sell and when to buy, for the market is correct. You can take profits and move to another quality company which the market is valuing less than the one you own. When the market begins to value your old company higher, you can move back. Stick to quality, receive a dividend while you wait for the market to catch up to your thinking.

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

you look at the formal robes of royal families, the colour purple often appears and John Schwinghamer has written a book called Purple Chips, John Wiley & Sons, 2012.

The author believes all stock prices go up and down, including the best ones – if you look at the past you will see a trading range for them, which means there is an opportunity to make money through concentrating on the purple chips or the best companies. To qualify as a purple chip the company must meet 3 criteria: 1) a minimum of 7 years of positive and growing EPS or earnings per share; 2) smooth and predictable growth in EPS; and 3) a minimum market capitalization of $ 1 billion.

The reasons for the 7 years the idea is to invest for the long term and the best companies outperform the competition in the long term. The 7 year helps to ensure companies that are making up their numbers are found out before the 7 years, and the 7 years tends to reflect business cycles which go both up and down.

The smooth and predictable earnings history is needed because earnings are the primary driver of stock prices. When earnings go up, stocks prices go up; when they go down, stock prices go down. Stocks typically trade as a multiple of their earnings ie 10 times earnings or 15 times earnings. Questions then can be made what multiple are similar stocks are trading at and the one that you are looking at – is higher or lower and why?

The reason for the $ 1 billion in capitalization (stock price x number of shares outstanding) is size matters. The ride may not be as thrilling as being in a speedboat but they produce steady and predictable earnings that yield a predicable price from which you can profit from,

The trick is buy, hold, sell, and buy again and stay within the purple chips. Purple chips are often companies that pay dividends for the companies are the same ones that have predictable cash flow and superior track records. As you wait for the share price to increase, you get paid to wait.

The criteria showed 250 companies on the US exchange meeting, adding the criteria of smoothness of the EPS line brings the number to 25. Had you own an equal weighting in 2008 the group was up 15% while the S&P 500 index was negative 14%. The top 25 companies are Hewlett Packard, EMC, McCormick, SJ Smucker, Flower Foods, Fresenius, Express Scripts, Ecolab, Church & Dwight, Teva, McDonald’s. Oracle, Medco Health Solutions, Davita, Mednax, AFLAC, IBM, DST Systems, Medtronic, Becton Dickinson, CR Bard, Johnson & Johnson, Abbott Labs, Wal-mart, Factset

Note a number of the above companies are in healthcare which is expect to get even bigger now the first group of baby boomers is retiring.

More in the next column.

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

The western world runs on electricity and the companies that deliver it are a mixture of public and private companies or invest owned. For the public companies as ensuring the delivery of electricity is a very capital business, all utilities must go to bond market for financing. In terms of investor owned, the beauty of the business is thousands of people owing bills every month and if you do not pay, the company can turn off the lights. If things are reasonably normal, the investor owned utilities should provide a consistent dividend year after year. What which one is the good one to buy?

Michael Bowman from Wickham Investment Counsel helps you to start he first narrowed the field to companies larger than $ 1 billion in market capitalization (share price x number of shares outstanding). He can up with 23 companies.

Mr. Bowman’s article was in the Globe and Mail, December 18, 2013

Junkyard Planet refers to a book by Adam Mintor which is about the scrap business in the world. At the lowest level the scrap or junk business has the least cost or barrier to entry and provides income for millions of people, at the large scale it is very capital extensive. The scrap/recycling/junk business is all about the getting the highest value for the material which is collected. If the costs are low for example all over the world, people collect bottles for income. If someone is collecting bottles, the costs are a bag and either shoes or a bicycle. As the material increases in value, for example primary metals such as copper, the cost of machinery to separate the material increases as the barriers of entry. Mr. Mintor follows the world’s recycling world/junk yards to find the reuse and recycling. There is a great deal of money involved in going through someone else’s trash. When someone throws something out because they no longer want it, what happens to it? At the moment it turns out many things being recycled in the US is actually processed in China. There is a very good reason – during the Christmas shopping the made in China label was easily found, China sends thousands of containers to the US at a cost of $2,400 a container. Once unloaded, the empty container is useless, resulting in the container company discounting the cost to sending the container back to China to a cost of $300. At that cost is makes economic sense to send the recycling to China, in addition the Chinese companies can bid more the materials. Mr. Mintor followed the stuff and his book is a very interesting read.

Linking to dividend paying stocks, at the low end, you would want to avoid companies because the cost to entry is very low. At the high end, there are a number of companies that benefit from high cost of recovery of stuff including basic commodities. To gain access to the metals, there is a higher cost of entry into the business. If the company is successful over a period of years, it is a consideration due to the consistency of its business. No matter what the industry, when you see high cost to enter the business, you should start asking questions about long term profitability and possible investments. The less glamorous the industry, often the more consistent are the returns.

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

While listening to a radio show the topic was traditions for the holidays. If you have celebrated more than one Christmas, you have a Christmas tradition. Some are done because they carried over from somebody else; some were done because they were relatively inexpensive; some were done because in a low channel TV setting there were very few choices; and some are done because someone thinks someone else likes it. The ritual of Christmas has religious tones and it depends if you go to church or not, if you go then there are many opportunities to attend. If you do not go, then other traditions around the meal and opening the presents happen. When do you open the presents? where do you go for the meal? who prepares it? does everyone enjoy it or do you think someone else does?. Often times people watch movies, technically with DVDs and the internet they could be watched anytime, but they seem to come out during the holidays. On the radio, the person being interviewed suggested one topic to talk about during the holidays is your favourite parts of the holiday season. By combining everyone favourite parts, some things that are done could be dropped because no one really wants to do them, they just think others like to and it is a tradition. The things everyone likes to remain and the holidays are be better for everyone.

Linking to dividend paying stocks, often times the company has done some things very well, however the importance of them begin to change and they are stuck in the mud because they think it is important. It is a fine balance between change and not changing a successful profitable plan. Communication whether at the personal level or the corporate level is very important, good companies ensure communication happens up and down the levels. When those at the top think they have all the answers, when a downturn happens, they circle the wagons and try to protect a losing cause. Once in a while, they get lucky, but losing money either way results. Traditions are great, but traditions can change for the better when communication is on going.

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

This blog typically focuses on the stock market and dividend paying stocks because over the long term you will be better off with less risk. The stocks which pay dividends are market leaders have cash in the bank account to weather the competition, over times have built in competitive edges and as long as they are profitable the shares will tend to go up. At this time of the year, giving to other people, including family also pays great dividends. If you have a relative in the hospital, look around the next time you are in, as the average family size has decreased, when somebody is in the hospital there are fewer people to look after them. If you are close to your family during the holidays, it will pay dividends in the future. Everyone knows there are great inequities in the system – some have too much, some have too little, it is not hard to find those that have too little. Giving at this time of the year pays dividends to those who receive it, for they are also given the gift of hope.

Linking to dividend paying stocks, each company has different policies on contributing to the community they operate in. As a stock holder, you want to ensure the balance that everyone provides is weighted heavily on ensuring paying the dividend. Once they can do this basic financial requirement, how the other portion is invested in the community and the company is up to management. At this time of the year we hope the answer is do your share – match contributions and increase the goodwill of the company.

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