The book The Disney Touch by Ron Grover published by Richard D Irwin, Homewood, Illnois, 1991 provides the material for this column. The characters of Disney of Mickey Mouse, Goofy, and Pluto and the early movies of Snow White, Cinderella and Pinocchio are known around the world and loved by many people. The stories are universal to people and Walt Disney did an excellent job in creating them. As a business person, Walt needed help, similar to many founders of companies he made most of the decisions by himself. There were many reasons why this developed including during the early years the company almost did not survive. It is not surprising when founders risk all of their assets and credit lines before the company experiences regional or international growth, the founders have a certain management style. As the company grew, Walt Disney envisioned theme parks although the one in Florida was larger because Disney did not like all the land uses around the California site. He was trying to have a particular image of the park and surrounding land uses. Eventually, Walt Disney passed away and his successors ran the company like Walt would have wanted. That type of management works for a couple of years, but will quickly go down, because very few new projects will come forth. In the case of Disney, shares traded on the stock exchange and it was not long before various people recognized Disney had great assets but were not using them.

Eventually new ownership and new executives were put in to add value to the brand. What does that mean? The first example is the theme parks that were located in Orlando, Florida and Anaheim, California, the cost of a day pass was $18 in 1984. Attendance had declined because little was done to add to the rides since it opened, although people still went to the parks. Previous management were almost afraid to raise prices because Walt had set them, the new management looked at the prices and saw for every dollar the price was raised an addition $30 million would come to Disney in profit – some of which could be used to upgrade the parks. Over the next three years the prices were raised $5. People came to the parks and with increasing investments in the park, there are very good reasons to return.

At the present time, it is hard not to find a Disney commercial, but in Walt’s day they did very little advertising. Most of the advertising was inviting travel writers to the park to be written about. However the new executive team found that for every $1 million spent on TV ads brought in 154,000 guests The average person buying the ticket would spend a similar amount on food and souvenirs, thus a $10 million campaign would yield upwards of $55 million in revenues. Disney is now a big advertiser.

In the early 1980’s most of the hotel rooms around the Orlando site did not belong to Disney, many other companies had built hotels. The new executive team looked at hotels and saw they can be very profitable, if the vacancy rates are low. The rooms inside the park had very low vacancy rates and under those terms profit margins of 60% for rooms and meals were the norm. It took Disney a number of years to built the hotels within the park, but it took new management to see how the assets could be used better.

Now days Disney had some wonderful movies – some under the Disney label, some under the Touchstone label, but in the old management the Board of Directors insisted on only very wholesome entertainment, the Board often watched all the movies. The movies the Board approved appealed to a very limited market and the Disney market share was 4%. It took the new management a number of years and always emphasising the story, not the stars, to bring the movie share upwards to 40% in a great year. In the movie business, people talk about tent poles, need some in case the next movie does not do as well. In the early 90’s the number was a movie grossing $ 100 million. As Disney turned itself around it went on to have many $100 million plus movies. The early ones included Pretty Woman, Three Men and a Baby, Ruthless People, Good Morning Vietnam.

Linking to dividend paying stocks, every company which pays dividends has great assets, they provide the profitability of the company, it is up to the shareholders to ask are they being used or getting the most value out of the assets and what could be? Some of the answers will come to the shareholders just from owning the stock and observing; some will be is the management the correct one? and other questions will be asking where is the competition and what are they doing?

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

The Innovator’s Tool Kit by Dr. Ralph Katz is published by Harvard Business Press, Boston, 2009 and includes 10 practical strategies to help you develop and implement innovation. Whatever you do in life, you are doing some sort of innovation. If you find a better way or one that is more suited to you, you have innovated. If you have thought is there a better method? is there a solution to my problem? then you have innovated. Whether you have taken the idea to the market, the market has embraced it and you and your company made money, that is a different story. However we are all innovators because we want to do something easier, better, less expensive, needed to create better efficiencies, we innovate to solve a problem. The book also includes charts and questions to help you, if you rather look on line try http://www.elearning.hbsp.org/businesstools. The important thing a book such as this one does for you is help you focus and bring ideas to market.

As the idea moves from great idea to something that can work, one of the critical aspects after time and resources have been allocated to working the idea is getting a handle on risk. The risk is between two aspects – getting it right and making money from the idea or getting it wrong and needing a quick exit. The easiest method to gain a handle is to do a risk matrix with the headings new to the company, adjacent to current offerings, and similar to current offerings on one side reflecting the product/technology. The other side is same as present, adjacent to present and new to the company reflecting the intended market. As the dots are marked you have a better understanding of the probability of failure is. For information about the matrix is found in an article in the Harvard Business Review, Dec 2007 in the article written by George S Day “is it Real? can we Win? and is it worth doing?

There is no easy answer about innovation except it eventually is a decision made by people. A great number of variables must be in place – your boss or your organization has to be willing to want to do it; you need to find a champion to move the idea through the company; resources need to be found to try; the solution has to solve a problem or maybe just use the assets of the company better. Years ago the author worked for a family owned company which was sitting on wonderful assets but really did not want to change anything more than at the margins. Only the highest senior level people were allowed to make a decision and they quickly learnt making too many meant a short career. The author had to go around the leadership team find a champion and when they were successful, others would take the credit. When they were not, the blame went downwards fast. Google has a policy where people spend 20% of their time working on their own projects and this had lead to many different ways for the company to grow and expand its reach. The difference between the two companies above is night and day, but both need innovation.

Linking to dividend paying stocks, companies which own a almost guaranteed part of the market, unless they lose money from other ventures, they tend to be conservative in their operations. In is important as a shareholder to determine even if they have a monopoly position how innovation is handled and what is different than a few years ago. There are some very good companies that rest on the work of the founders, what would the founder do and after a couple of years are afraid of making simple but effective decisions to make use of the assets they have.

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

The Innovator’s Tool Kit by Dr. Ralph Katz is published by Harvard Business Press, Boston, 2009 and includes 10 practical strategies to help you develop and implement innovation. Whatever you do in life, you are doing some sort of innovation. If you find a better way or one that is more suited to you, you have innovated. If you have thought is there a better method? is there a solution to my problem? then you have innovated. Whether you have taken the idea to the market, the market has embraced it and you and your company made money, that is a different story. However we are all innovators because we want to do something easier, better, less expensive, needed to create better efficiencies, we innovate to solve a problem. The book also includes charts and questions to help you, if you rather look on line try http://www.elearning.hbsp.org/businesstools. The important thing a book such as this one does for you is help you focus and bring ideas to market.

The idea generation is the easiest one, if you challenged everyone in your group or company to bring one idea a week or two weeks for the rest of the year you would have generated hundreds of ideas. Some are just ideas whose time has not come yet, some of ideas which could lead to something, some will be ideas that lead to something and some will go on the way to implementation. What you should see is the funnel approach – many ideas in, a few come out for lots of reasons.

Assuming you have a company that wants the ideas, which is an excellent start, then you have to find resources to determine how much money they cost to implement and if some look like they are winners, you need champions in the company to bring them up to getting approved in the company’s budget to be implement. There is a wonderful museum in upstate New York which collects retail products that made the shelf space in stores and fail to deliver sales. The reason the museum is wonderful, is it shows there is not a lack of ideas in the marketplace. After coming up with an idea or ideas, the next step is who is the idea for? what can we do with this? are great questions to ask. One method is see the buyer utility chart developed by W. Chan Kim and Renee Mauborgne in the Harvard article “Knowing a Winning Idea When You See One” the six stages of the buyer experience cycle of purchase, delivery, use, supplements, maintenance, and disposal are one side of the graph. The other side is the six utility servers of collective productivity, simplicity, convenience, risk, fun and image, and environmental friendliness. The mapping helps you provide the business case for the idea. Eventually an idea only works if you sell more things.

After you have determined the case for the idea, then you have to fit into the company’s plans. What are the company’s strategies and long-term objectives? do you have the people to implement it? who wants to champion or sponsor the idea. Champions have the ability to give resources to the idea and have a good sense of timing in the company. If you do not have champions you may have the best idea in the world, it is just not going anywhere in the company. Champions spend their time on the RWW Method – Is it real? Can We Win? Is it Worth Doing? Questions such as in the market real? is the product real? can the product be competitive? can out company be competitive? will the product be profitable at an acceptable risk/ does the launching of the product make strategic sense? If you answers to those questions and more, the next step is trying it out.

Linking to dividend paying stocks, companies which are making money like it if they do the same thing year and year and continue to make money. That may work in a few industry groups but for most industry groups there is a great amount of change in the marketplace. It is reasonable to ask the senior management how much of their revenues is coming from products or services more than 5 years old and how much is coming from new ones? what were the latest products that were introduced and with all the resources behind the products how did the market like them or buy them? In hindsight and with a bias of being a shareholder you can see if the latest ideas are good.

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

The title refers to the book written about Nortel called The Bubble and the Bear by Douglas Hunter, Doubleday, Toronto, 2002. Nortel was a high flying stock in the 1990s to 2001 when it crash and burned. In 2014 it is still being dismantled.

When Nortel stock was rapidly rising, similar to many other companies that have rapidly rising stocks, very few people care for the long term. There is a great many advantages to a rapidly rising stock price, the only disadvantage is at some point and nobody knows when, but at some point stocks will fall in price. Eventually the market determines what should be the price, but with a company such as Nortel the overwhelming market sentiment was on the rising price side. Nortel had many plus factors on its side – its heritage was AT&T and the Bell system. That was a terrific customer base – the phone companies had provide very stable, regulated profits every year. Along comes the internet, which Nortel has an distinct advantage in with optical technology and a long history of research and development. In addition as we switched from land lines to cell phone, Nortel had an advantage in their abilities to build the architecture of the system. An even bigger advantage was as a long established company – it had wonderful banking relations to do all the things which needed to be done. All the investment houses knocked on their doors for business and many were well rewarded. There was no reason not to doubt that when buying Nortel stock it was a good one to own.

The twin aspects of the internet and deregulation of AT&T changed the landscape. What in the past took decades for business to change, took an estimated 5 years before the mantra if you did not have internet and high speed, your economy is toast. There was a great deal of pressure and demand on companies to connect its customers to the internet – those that choose the right system won, those that choose the wrong one had to buy their way in to stay in the game. For a time, Nortel perhaps due to its roots in the telephone system was backing the wrong systems until it bought Bay Networks, then it had the reach of the correct system used in the internet. Nortel stock continue to rise, there was no reason to doubt it should not rise.

As the internet changed business, it changed Nortel’s customers who went from the very solid Bell systems to those that wanted to compete against the bell systems such as MCI and WorldCom. The Bell systems had monopolized the phone systems and MCI, Sprint and WorldCom all wanted to lower the costs of long distance phone calls. To their credit, long distance rates fell rapidly, which was good. What was bad was so did the profit margins. With the rise of the internet, data transmission was more important than voice. In many cities if you build new roads, soon they will be filled with cars. In the middle of the US, if you build a new road, there will be no extra cars than which already exists. In order to have a infrastructure for the internet, new roads across the US were built. It was later that people asked about usage capacity.

When usage capacity began to be asked, and the answer was below 10%, the next question to be raised was how does the company make money? It would take 6 months before anyone would listen to those could not figure out how the company was making money. As the company stock was doing very well and continually rising, it was assumed the users were paying the bills. It turned out, that would happen, it was just not happening right away.

Linking to dividend paying stocks, all industries changed and have gone through great changes, those that make a profit and pay dividends are to be congratulate as an investor, every once in a while, you should ask how does the company that you own make money? What sort of margins does it make and how stable on the bulk of profitable sales and services is it? Sometimes you should be the devil’s advocate and pay attention to those who have a completely different opinion of the company. When you are reasonable certain on the answers, then you can let the company do its thing and continue to pay you dividends.

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

The title refers to the book written about Nortel called The Bubble and the Bear by Douglas Hunter, Doubleday, Toronto, 2002. Nortel was a high flying stock in the 1990s to 2001 when it crash and burned. In 2014 it is still being dismantled.

One of the interesting things the author Douglas Hunter did was to examine at the time the new era of the chat room. In times gone by, most of the information from Wall Street was centred on Wall Street it terms of reports, people who spent time meeting with the company executives, people who through their jobs the gossip or worked on various accounts. To be on Wall Street was connected to all sorts of groups but it was a more leisurely pace. With the internet, information was opened up, the SEC gave access to information to anyone who had a computer so an individual could read the same reports as the analysts. Soon the President and CFO were giving reports which you did not physically have to be in the room to listen to, you can not either watch them or listen to them. The other aspect which changed was the rise of the discount broker or people could open up an account and do as much trading as desired. With the rise of the discount broker, there came the TV news channels and more people could invest. These items are a great thing to have happened. They changed the method investing is done.

One would think, with the greater access, more people of different points of view having access, the level of playing field closer to the pros, not at the same level but at least closer, better markets would be the result. In the case of Nortel, as Nortel share was increasing which in general everyone like, they were problems with accounting. Not that Nortel broke the rules, but they certainly bent them. However, with a rising share price the non pros or day or week traders, acted as the company’s position was 100% accurate and only wanted higher prices. The chat rooms were filled with stories, with every good announcement the price should go higher.

It is warning to shareholders if the company never seems to have bad information – everything is rosy, all the cylinders are burning at the right time. When the market is hot and prices seemingly go up, why prices go up is not to be questioned, the correct strategy at that time is to go with the flow. At some point down the road, all companies have to sell what the make or service and rules of financial statements need to followed. In the case of Nortel, its accounts receivable started to rise or the number of days it took to get paid from its customers. The company had announced who some of its customers were (WorldCom); investment in other companies was rising, because they were taking stock rather than getting paid; the sales of the companies it was buying was not contributing more to the revenue side (they were buying research) which can be a good thing but research means no sales at the moment. The market was fixated on the stock price, not the results of the company, and when the price of the shares went down the price went down, they went down with a thud.

Linking to dividend paying stocks, whatever company you own it still has to make money on its operations, when the company reports its earning it is important to ensure that how it makes its money is sustainable and when you verify it is, then you enjoy the dividends and long term capital appreciation of the stocks.

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

The title refers to the book written about Nortel called The Bubble and the Bear by Douglas Hunter, Doubleday, Toronto, 2002. Nortel for those who do not remember was once one of the high flying companies that was linking the world as the internet became common to everyone. In an earlier time, it was similar to linking all the countries by the railroad. Similar to the railroads, millions of dollars of raised to build the railroads, and many were built. The difference between building and operating profitably is the reason why you can count the number of railroads that exist of two hands. In the railroad age, the railroads were given the understanding by the government they would back them up, for without a railroad, your economy went downhill. In addition to this understanding of a guarantee, the rates of interest were higher than other investments and millions of dollars went to buy railroad stocks and bonds.

In Nortel’s case since the invention of the telephone, there was a very specific method to deliver the voice over the wires. The system had not changed in over 100 years and the companies that delivered the service were large and profitable. The shareholders who owned included the term orphans and widows which meant at least in your financial life there was stability. With the advent of the internet, a new method had to be invented, invested to deliver data. At the same time, communication was changing from land lines to cell phones. Whatever company set the standard and the world or major service providers accepted, the company has a major advantage over its competitors. When there is a major advantage, the growth will be great. At some point it will level out and consolidation among the competitors happen. Those that relied on cash flow – have clients that pay on time will in the end survive. All of this is easy to see while looking back on the sector, what is remarkably harder is predicting the right choices. For a long time, the right choice was Nortel which had evolved to build an optical system which could move significant amounts of data and voice. It seemingly had the right customers – most of the world’s best telephone companies who were transforming to internet companies and growth rates which allowed the ability to make money on the stock wonderfully easy.

Then something happened when downturns happen, Nortel which was seen as a growth company instead of growing at 40% a year only grew at 5% which meant the stock was overvalued. If you are investing for capital gains, growth is great and you are willing to pay higher multiples for the growth. If you are investing for dividends, then growth is desirable, but sustainable in order to protect your profitability and be able to pay the dividends. You are willing to pay considerably lower multiples for dividend paying stocks. As the stock was seen less as a growth stock the price fell. However when the price was high, Nortel was using its stock to buy other companies in order to grow. As the price went down, this strategy was no longer a good one. In addition, what was thought as a wonderful customer base turned out not to be so for WorldCom and others did not survive and Nortel’s accounts receivable went upwards. In addition, prior to the decline in tech stocks in general, companies such as Nortel when customers could not pay, the companies took stock instead. When the stock markets were desiring as many tech stocks as possible and bidding prices up, this was a wise decision. When the markets were down, the stock prices went down and soon not only receivable rising, but values of holdings were rapidly decreasing. Many things happened seemingly all at once and Nortel was a stock not worth owning.

Linking to dividend paying stocks, Nortel was a dividend paying stock until in went bust, in all likelihood it should have stopped paying dividends as the company was losing money but the sector was hot. One lesson to learn is if you own a dividend paying stock and the sector becomes hot and starts to operate like a growth sector, take some profits and move your money to a non hot sector. With the remaining stock let it ride till you see the signs the hot market is over and get out with more profits. Move those profits to a sector which is profitable but not seen as a growth area.

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

Recently while looking in the library a book about city buildings was seen. The book focused on a large city in North America and surrounding area projects that were proposed but not built. When cities expand land becomes more expensive and people see opportunity. Companies which are growing need to consolidate their work forces, developers want to make money and buildings are proposed. Not all get built, first the buildings are proposed and then people have to commit to the space, once there is enough commitment to satisfy the bankers, buildings can get built. The time between the proposal and commitment can be lengthy which is why there are more buildings proposed than get built. As time goes by economic cycles change, economic models change, business changes and of course people change. There are many variables before a building is built. Which is why the development industry tends to be a copycat industry, if single family housing is selling then that is what is built.

While looking through the book, if the projects had been built they would have changed the landscape of the city. Some of the buildings were proposed for the what now is the core of the city, some were proposed for outside the core because that is where someone either owned land or could accumulate a large parcel of land. Near where the author lives, 40 years ago someone tried to accumulate land and failed to get a bigger piece and the project died. Now a midrise condo is on of the site of a former bread factory and former parking lot and fits well into the neighbourhood.

Linking to dividend paying stocks, in the stock market and in every market some will see opportunity to make money and some of the ventures will be successful and some will not. As long as people are seeing opportunity then you have a healthy market which is a good thing. Within the markets some companies consistently make profits, some will be considered less than cool, but consistent money making is always very good. Within the consistent money making companies those that pay dividends have been through the economic cycles and continue to pay a dividend which is great. The stocks may not be the highest performers on a year to year basis but looking at on a 5 to 10 year basis the stock price plus the dividends will have enrich the shareholders will less risk than the highest performers.

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

What a wonderful title for a book and an interesting book it is – Millionaire by Janet Gleeson, Simon and Schuster, NY, 1999 is the story of John Law. The story of John Law is the story of modern finance structure beginning in France in 1700’s. It was a similar story that can be found in many countries, France was running a terrible deficit and needed help, the country eventually turned to John Law to move from payment by gold and silver to paper money. In addition, Mr. Law founded a company which took over the operations of the Mississippi from the government, the lands were all the lands which are drained by the Mississippi River or most of the Midwest of the United States. England had the east coast and Spain had the west coast. Mr. Law was a excellent gambler as he could calculate the odds for success in his mind, and then follow the rule to bet big when the odds favoured him. At the time of the Mississippi Company, England had the successful East India Company which started with trade with India and China and evolved to a large profitable drug company primarily opium. The drugs gave the East India Company much of the silver production of China and a very healthy return for shareholders in London. Eventually all countries wanted the same returns and other companies would be formed by the Netherlands, England and France. Early on the promise of great wealth – minerals, trade etc. lead to ever increasing share prices on the exchanges. In France, so many people were making money from Mississippi Company shares the term millionaire was first used. In addition as the price of the shares increased, it was easier and easier to get a bank loan or buy on margin with less than 10% down. The Mississippi Company was ahead of its time – in a couple of hundred years great wealth would come from the lands, however at the share price the Mississippi was at over $10,000, it was a short term investment. The shares of the Mississippi Company went towards 0 and in the 1800’s France sold the lands to the United States and it would be known as the Louisiana Purchase.

When times were good on the stock market, Mr. Law pushed France into a paper currency country when he passed a law all bills greater than 500 francs must be paid in paper currency. Mr. Law had the country invest in infrastructure and generally pulled the country out of the recession. Unfortunately when the markets declined as the shares of the Mississippi Company were vastly overvalued, the country reverted back to silver and gold for payments. It would be another couple of hundred years before all countries adopted the paper currency that we know today.

Linking to dividend paying stocks, in Mr. Law’s day and in the very recent past bubbles have developed and will develop when great amount of people look for increasing large returns from the stock markets which is why the quotes of valuation – what price is the stock trading relevant to its earnings are heard. However the other side is how much money did people make and can I make the same return or more? If there is a valid reason for a stock to keep climbing, just be aware what comes up typically comes down. In the case of dividend paying stocks, the question besides the valuation is the income or dividend sustainable? if it is then whether the stock continues to go up or the market corrects itself does not matter as much as can the stock pay the dividend if the market goes down.

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

There are a great many theories on how to invest and the best method – one such method is called liability driven investing. The aspect starts with the question what do you want to do with the money you are investing in. Besides having more, which is a nice and good answer, you invested your savings, what kind of return do you want or need to meet the obligations that you are investing for? The liabilities driven investing method is linked to pension plans or life insurance companies who have obligations in the future and try to match the obligations with investment returns. In the pension world, at some point people retire and expect to receive a pension on a regular basis, with the baby boom starting to retire, the numbers can not be matched with new entrants to the work force. The pension funds have to match liability driven investing. On a personal level you do not have to, but liability driven investing would reduce the risk of selling when the market occasionally takes a downward part of the cycle. Ideally we all sell in the upward portion of the economic cycle.

Linking to dividend paying stocks, from a liability driven investing method, the dividends which you earn provide a consistent revenue stream which can be tailored to match your needs. If you pick companies which have consistently increased their dividends, then you can note the dates they are paid and match some of your needs and wants with those payments. The other wonderful piece of news is whatever the economic cycle, dividend paying companies tend to go down less and bounce back faster ehrn there is a move by the market to buy quality stocks. When the market catches up to the dividend paying stocks, there is switch to stocks that offer greater growth, but your dividends are continued to be paid. You can have the best of both world’s as the size of your dividends increase you can reinvest some of it and some of it can be put towards other investments.

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