In the world of investing, similar to any other industry, there are many players. All of them fundamentally are looking to make money from what they see as errors by the other person. The errors can be lack of knowledge on one side or another, not tilting the odds in your favour, inside information, specialized information, old trading habits in an information age, speed, and many others. In the book Dark Pools – High Speed Traders, AI Bandits, and the Threat to the Global Financial System by Scott Patterson, Crown Publishing, NY, 2012, Mr. Patterson discusses the rise of high speed traders. The stock exchanges have existed for many years, but for many years it never changed because those who ran it, ensured they could use insider information to continually make money. While the theory was a fair and transparent matching a buy and a sell, there was a flaw – a person in the middle and the person would buy and sell for their person accounts and it was deemed okay. The market maker were providing a service and it was consider good what they were doing. As the internet came along, people saw alternatives or there should be alternatives. With most systems, the change started with the second tier companies because to make money, they had to see which loophole they could jump through and be technically legal. Eventually, given the amounts of money to be made, the first tier companies were doing the same thing, then the rules were changed to allow for it to happen. What changed was – the old system of stock prices quoted in 1/8 of a dollar or .125 was used, the the market makers had enough volumes and traded ahead on the 1/8s,  there was plenty of margin to be made. When the change was made to .01 or pennies, increasing volume became more important as the margins decreased. To increase volumes meant all firms had to run computer programs to have an ability to compete. If everyone has a great computer program, similar to race car driving, speed becomes a competitive advantage. Mr. Patterson discusses the major players and some of the strategies of them in order to make money.

Linking to dividend producing stocks, for most of the time, although dividend paying stocks are very valuable, the programs use them as a hedging tool because the volume of price changes per share is lower than growth stocks. Growth stocks need to have reasonable price changes or volatility, either up or down, in order to make money from them. The reason is the cost of the hedging of the risk to an option price. If you are a owner of shares and hold them for the long term, while collecting the dividends, whether you bought at 45 or 45.10 does not really matter. If you were a high speed trader, your perspective would be drastically different, then it matters at 45 or 45.01. Understand in any market where billions of dollars are made and lost, there is a role for many different types of players.

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

Recently read the book the Top 10 Distinctions between Millionaires and the Middle Class by Keith Cameron Smith, Random House 2007. Besides millionaires have more money, Mr. Smith outlines some philosophies that may or may not be end you millionaire he does have some good points.

5. Millionaires work for profits, the middle class works for wages. Wages are the pay you receive for the work you do. Profits are the result of buying something for one price and selling it at a higher price. Millionaires are in the sales business.

4. Millionaires believe they must be generous, the middle class believes it can not afford to give.

3. Millionaires have multiple sources of income, the middle class has only one or two. The trick to developing multiple sources of income is to focus on making them passive income. The idea is not for you to do everything, let you team work for you and to practice intentional congruence – doing things on purpose and connected to each other.

2 Millionaires focus on increasing their net worth, the middle class focuses on increasing its paychecks. Run a profitable small business to take advantage of the tax system and invest in assets

1. Millionaires ask themselves empowering questions, the middle class ask themselves disempowering questions. Which is more empowering How can I double my income this year? How can I get enough money to pay the bills this month? Empowering questions ask what you can do and disempowering questions ask what you can not do?

Linking to dividend paying stocks, some of the examples of passive income (dividends), taking advantage of the tax system, and the company makes profits all fit into dividend producing stocks.

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

Recently read the book the Top 10 Distinctions between Millionaires and the Middle Class by Keith Cameron Smith, Random House 2007. Besides millionaires have more money, Mr. Smith outlines some philosophies that may or may not end you up as a millionaire he does have some good points.

10 Millionaires think long-term, the middle class thinks short-term. The theory is millionaires consider what will have in decades, similarly you may know people who go either day by day or year by year. The reality is years go by fast, if you set a long term goal, it will require patience to gain it, but it also sets up thinking about what will or could happen in a decade or more and you can act on it.

9. Millionaires talk about ideas, the middle class talks about things and people. If you discuss ideas, at some point in time you will act on those ideas. How will we communicate? How will our products and services change? When you have a reasonable answer, the movement from should have to I will happens.

8. Millionaires embrace change, the middle class is threatened by change. This is similar to is the glass half full or half empty? Change means opportunity, look for it.

7. Millionaires take calculated risks, the middle class is afraid to take risks. To take a risk is a calculated risk and to arrive at the calculation, ask you yourself 3 questions – what is the best thing that could happen? what is the worst thing that could happen? and what is the most likely thing to happen? If you can live with the worst thing happening, and if the most likely thing to happen will get you closer to your goals – go for it.

6. Millionaires continually learn and grow, the middle class thinks learning ended with school. If you read, you may see something to spark your ideas, see a concept which you can apply to your business or life.

the other five will be in tomorrow’s post.

Linking to dividend paying stocks, long term thinking, profitable companies embracing change are attributes of dividend paying stocks.

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

One of the most popular superheroes is Superman. The the comic strip hero whom many people relate to his change in appearance over his many years however the values remain the same. In the book, Superman – the Unauthorized Biography by Glen Weldon, John Wiley & Sons, 2013, Mr. Weldon believes that even as Superman has evolved his values of putting the needs of others over those of himself and never giving up or persistence are his most essential attributes. For as long as those values continue to shine Superman will be seen as a hero. Superman was the imagination of two people Jerry Siegel and Joe Shuster and is owned by DC Comics. When the character was invented, the multi lines of usage was envisioned, and there are many different areas you can find the Superman symbol including the comics, movies, games, clothing, and everything in between. Superman has done that and continues to be popular with many different age groups and a new movie opening this month. As with all characters, what was envisioned and what became reality is slightly different, however with a character as popular as Superman, the owners must continue to reflect the values of the character to ensure it remains popular.

Linking to dividend paying stocks, there are many stocks which started with a great idea and that evolved. The issue is the values of the company have they remained over the years? There was a reason why the company developed and became market leaders, people change both in outlook and in personnel but the values of the company can  remain. Dividend paying stocks tend to favour better with values of the organization, partly because the company consistently makes money it is easier not to have ruined the great values. In downturns, the values tend to be tested. As you search for companies to invest, buying great character values as well as value for your money is a good starting point.

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

According to the Federal Reserve Board’s Statistical Report released on June 6th one of the highlights was household net worth increased. In the first quarter those who owned stocks and mutual funds saw a rise of $1.5 trillion and those who owned real estate saw a rise of $784 billion. This was good news as investments are rising and household debt is decreasing. After 4 years, US housing prices are rising but stocks did better. Understanding there is wide disparity and some stocks did not do as well as the real estate. Similarly  some neighbourhoods did better than others, ideally if you own real estate and live there, there first concern should be living and being good neighbours. In the neighbourhood the author lives in the annual get together was held on the weekend, which is another method to ensuring a good neighbourhood.

Linking to dividend paying stocks, because stocks which pay dividends are profitable ones, the share price tends to go up more when the market in general increases. When the prices go down, because investors paid for the dividends first and growth second the prices tend to go down less. If you paid for growth or expecting the price of the shares to up and the growth does not happen, the stock price will fall. For now higher expectations can be seen.

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

Stocks go up and go down, over the long term, the record shows profitable companies that continue to pay dividends go up, which means if you have a reasonable time line, you will be wealthier than when you started. Sometimes stocks go down in general, why is that? The most common reasons are growth and alternatives, if growth is going to be slower than you expect, you want to pay a lower price for the stock. If the alternative to stocks is receiving a similar or higher return with less risk for example a Treasury note rates go higher, why not move your money to the least risky investment? When you listen to the news, you will hear yields are shifting. There is never a great answer, but in his book. Dean Baker author of Plunder and Blunder – the rise of the bubble economy, Polipoint Press, Sausalito, CA, 2009 outlines How to Recognize a Stock Bubble. Historically the price-to-earnings ratio or PE Ratio of the stock market is 15 to 1, and there has been a dividend payout ratio of 50 – 60% of profits, meaning shareholders receive dividend yields of 3.3 to 4%. If you add the growth of the economy of 3 to 3.5%, this gives an expected total return of 6.3 to 7.5% return  (3.3 +3 or 4+3.5%).

When the PE Ratio goes up to 30 to 1, the dividend ratio falls to 1.6 to 2%. With the growth of the economy at 2%, this means the expect real return on stocks is 3.6 to 4%. Where is the other 3% to come from? The dividends can not be increased or the company would be reinvesting any money into itself? higher stock prices? which means a higher PE Ratio? On an individual basis there can be a reason why the stock may go higher, but more it is more likely at some point stocks in general will be considered expensive and and prices will fall as the expected return on investment is too low. People are always looking at the alternatives.

Linking to dividend paying stocks, in his book Mr. Baker says we should all be all to see when a bubble economy happens, both in the stock market and real estate market, but it is hard to do action, even if you see it. Professionals use shorts, most individuals for very good reasons do not use them. If you do not use them, stick to quality dividend producing companies, even though the price will go down in a market decline, the quality dividend producing stocks bounce back before the other companies. In the end, similar to buying something at the store, quality matters.

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

If you wish to read a roller coaster of a book, On the Brink by Henry Paulson, Business Plus, New York 2010 is an excellent read. The are many books about the financial crisis, the most common view is from the people at companies that were at the top of the hill and never thought their firm would lose money or never thought they would not be very well paid. There are a few books about people who were able to profit from the collapse of the global financial systems. An equalling important book is about the regulators. Henry Paulson was the Secretary of the Treasury in the United States, he brought a wealth of experience from Wall Street to the government and was the best person to be in the job at the time. At any time of crisis, you want experienced people whose aims are for the good of everyone. In Mr. Paulson’s case he was a former CEO of a financial services firm which means he knew the other CEOs in the industry and had a reasonable analysis of their values and their companies. The Treasury Secretary by its nature is usually a low key but important position for it has few powers outside of the ones the President gives. At the time of the crisis, Mr. Paulson had to answer to many different people including the President, the House, Congress, other regulators, the industry, the general public as well as to try to solve the problems all in a very short period of time. Most of the industry players believed government should help, but only have a small role at best. The consequences of the credit crisis lead to an expansion of the government’s role (else there would be fewer financial institutions) and it has taken 4 years for the housing market to make a comeback. The book reads as a very stress fill time with Mr. Paulson managing 95% plus of the time to keep all informed and finding ways to bring credit back in the economy and through TARP and other features.

Linking to dividend paying stocks, credit runs the economy. When you have credit you can make choices on how to spend or not spend, when the financial institutions run out of credit no one gets credit. The book On the Brink demonstrates how close it was and how some politicians do not really understand the economy, but they understand votes and that is why they get elected. The book also demonstrates when in crisis, the first call the government regulators is the company CEOs. In dividend producing companies, the CEO has gone through the experiences of running the divisions or has experiences which helps decision making. In the credit crisis of 2008, all companies were affected, what was good suddenly was no good. Hopefully, the next crisis will be much less dramatic than the last one, but experience at the top certainly helped find solutions.

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

If you wish to read a roller coaster of a book, On the Brink by Henry Paulson, Business Plus, New York 2010 is an excellent read. The are many books about the financial crisis, the most common view is from the people at companies that were at the top of the hill and never thought their firm would lose money or never thought they would not be very well paid. There are a few books about people who were able to profit from the collapse of the global financial systems. An equalling important book is about the regulators. Henry Paulson was the Secretary of the Treasury in the United States, he brought a wealth of experience from Wall Street to the government and was the best person to be in the job at the time. At any time of crisis, you want experienced people whose aims are for the good of everyone. In Mr. Paulson’s case he was a former CEO of a financial services firm which means he knew the other CEOs in the industry and had a reasonable analysis of their values and their companies. The Treasury Secretary by its nature is usually a low key but important position for it has few powers outside of the ones the President gives. At the time of the crisis, Mr. Paulson had to answer to many different people including the President, the House, Congress, other regulators, the industry, the general public as well as to try to solve the problems all in a very short period of time. Most of the industry players believed government should help, but only have a small role at best. The consequences of the credit crisis lead to an expansion of the government’s role (else there would be fewer financial institutions) and it has taken 4 years for the housing market to make a comeback. The book reads as a very stress fill time with Mr. Paulson managing 95% plus of the time to keep all informed and finding ways to bring credit back in the economy and through TARP and other features.

Linking to dividend paying stocks, credit runs the economy. When you have credit you can make choices on how to spend or not spend, when the financial institutions run out of credit no one gets credit. The book On the Brink demonstrates how close it was and how some politicians do not really understand the economy, but they understand votes and that is why they get elected. The book also demonstrates when in crisis, the first call the government regulators is the company CEOs. In dividend producing companies, the CEO has gone through the experiences of running the divisions or has experiences which helps decision making. In the credit crisis of 2008, all companies were affected, what was good suddenly was no good. Hopefully, the next crisis will be much less dramatic than the last one, but experience at the top certainly helped find solutions.

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

Similar to many people, the author belongs to organizations that typically meet from September to June with the summer months off. In over 15 years of working, the chance to take all summer off has never occurred but the organizations do not meet during the summer. Last year one of the groups did a poll to see how many other people had the opportunity to take the summer off, only a couple did. The rest of the people might take a couple of weeks but after that it was still work as usual, it was just warmer outside. This was not always the case, in the TV shows or movies where you see people riding in carriages or horses, the reason people left the city was horse manure. There were lots of horses in one concentrated area, the city must have smelt like the stables. Not surprisingly, people wanted to leave the city for fresh air. As time went on to when many people worked in the manufacturing business, there was a summer shutdown because of retooling and likely little air conditioning. Looking at the office towers were many in the service sector work, there is little reason to shut down for the summer, although the concept of taking summer off is inviting.

Linking to dividend producing stocks, while every business tends to have seasons where greater income flows should be made, the companies to invest in make money in all quarters. There is all likelihood be some retooling in the summer, but time lines change although institutional perceptions change slower. When you look at dividend producing companies, consistency profitable over the years is a wonderful thing, including profitability in the summer.

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