In every community, there is wealth and typically those that have the most tend to live in the same neighbourhoods. The homes are bigger or there is lots of space. It used to be families were larger, but now days families are smaller, still there is great desire for lots of space. In New York City, one of the best addresses is Park Avenue and recently the book 740 Park by Michael Gross, Broadway Books, NY, 2005 was read. If you were to  read such a book or see the video,  you will gain an understanding of those having a great deal of wealth.What areas of the economy did the wealth come from? What role does inheritance play and a host of other questions can be asked. Interestingly, relative to incomes and housing prices today, it did not always take multi millions to be in a great place, although it does now. If you go back far enough, Park Place was not the best location, until the street railway was moved, the Rockefeller’s moved in and equally important city grew and evolved over the years.

Linking to dividend producing stocks, buying dividend stocks means you may not make multi millions in order to live in the grandest penthouses on Park Avenue. Unless you or your family own the company or gain many options to purchase, maybe. If you are happy with a little less space, buying dividend producing stocks will help ensure you are nearby and comfortable. When you invest, there is a tendency to consider the richest people and their lifestyle, and that maybe a goal for you. If you are willing to drop a notch ot two, to ensure you have both the dividend income, plus the long term capital appreciation of the stocks behind the dividends. In the long run you may just be one of the wealthiest in your community.

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

In the book Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich, Simon & Schuster, NY, 1999, offers ideas in the Behavioral Economics format. The authors have some steps to take:

Raise your insurance deductible – to save on insurance costs, raise the deductible from $ 250 to $1,000. By raising the deductible your premium will decrease. If you are an average person, hopefully you never make a claim and the savings over the years will make up for it.

Pay off credit card debt with emergency funds. If you have a rainy day fund and you owe money on credit cards look at both rates. The rainy day fund is giving you a less than 3% interest, the credit cards is cost you plus 15%. (-15 % plus)  Use you rainy day fund to pay off the credit card and save interest costs. Your rainy day fund will be the credit on the card, only make sure the card remains a credit. After you have paid down, if you wish apply for a second card, with no fee, and do no use it, for it is your rainy day fund.

Switch to either dividend funds and/or index funds. Both these funds are good because in the case of dividend funds – the dividends ensure a cash flow and good companies paying dividends are worth more over the years. If you have mutual funds, they try to beat the index, with an index fund it mirrors the index and the fees are lower. If you want to have the others ensure the bulk of your funds stay in dividend and index funds.

Max out on Retirement Plans. Many people work for companies that either offer matching contributions to a retirement fund and/or share purchase plan. Within your budget, go to the maximum of the plan. For example, a company the author works at offers to contribute 25 cents per dollar up to 5% of your salary in a share purchase plan. Many in the company do not participate, but it is a 25% benefit.

Set up a payroll deduction plan There are two keys for this device. One many people consider whatever the money goes into savings, stocks, mutual funds,etc, not to be touched or sacred. The second aspect is then you live off your pay. At the end of the year, you will have greater assets.

Linking to dividend paying stocks, as long as dividend paying stock pay a dividend they are worth keeping. You do not have to consult the stock pages everyday (you can if you wish) for the value is the continuing dividend. If a company can continue its dividend and raise it over the years, then the company is still making money and the shares will be valued accordingly. When the markets go down, the stocks that are not paying dividends or valued on their growth go down the most. The dividends allow for a buffer zone and if the shares go below, then it is a tremendous buying opportunity.

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

In the book Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich, Simon & Schuster, NY, 1999, offers ideas in the Behavioral Economics format. The authors have a few principles to consider and lessons to be learnt.

You probably pay too much attention to things that matter too little.  We all have biases, which is okay, but they have to be recognized. We all have a tendency to deal  with certain facts, figures, events too heavily or we anchor it and make decisons based on the event. That is normal, the issue is whether the event was a one time event or does it happens regularly? For example in 1987 stock prices fell, but the rest of the 80s and 90s stocks were good investment choices.

Your confidence is often misplaced. We all believe we are smarter or over confident in whatever we do. Occassionally we need to be put to the test and determine if it is true or not. The classic case is a particular investment strategy, time has shown investing in the index or a portfolio of dividend producing stocks is the best strategy, but everyone has to try with the secret to beating the markets theory first, just try with a limited amount first.

It is hard to admit mistakes. Part of the answer is pride, but given the emphasis on success and not necessarily learning from failure, in general, we rarely admit we were wrong. It is good to have a sounding board and a variety of sources of information.

You can know too much. Knowledge is power, but what knowledge is important? If you bought investments that did not need to be checked up on every day or every month, would you be better off? Likely the answer is yes.

Linking to dividend producing stocks, some of the answers are with dividend producing stocks as this is a proven method to having consistent gains over the long term. The wonderful thing about the markets is there are many strategies out there. Focusing on profitable companies or good cash flow, reasonably stable markets, high barrier to entry, increasing dividends in the long run you will be better off.

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

In the book Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich, Simon & Schuster, NY, 1999, offers ideas in the Behavioral Economics format. The authors have a few principles to consider and lessons to be learnt.

Money that’s spent is money that does not matter or the sunk cost fallacy. We all buy things which is good, when do you spend money to improve on the purchase? A great example is the computer. You have owned it for a few years (have sunk money into it) and it needs upgrades. how much do you spend or when do you consider buying new? If a comparable computer was offered to you needing the same repairs, would you want it? Once in a while the answer is yes, but realistically many times the answer is no, are there alternatives?

It is all in the way you look at it or how do you frame decisions? The same set of options to buy or sell might lead to a different decision if you view it as protecting a gain or avoiding a loss. For example if you are considering buy a stock, after going through the pros and cons, ask yourself would anything change if I already owned it? Sometimes that helps figure out what variables you either want or do not want.

All numbers count, even it you do not like to count them. The classic case is buying a vehicle. You have figured out that you can afford the payments which is great, the open road and freedom is waiting for you. The second part of the equation is the operating or running the car. Fuel, check ups, maintenance, repairs, parking and insurance are some of costs to be factored in. Many purchases have fees somewhere along the line that need to be considered.

Linking to dividend producing stocks, how you make your decisions can help you make  better decisions. With dividend stocks you can focus on the dividend first – is it the yield you are looking for? is the dividend growing? how many years has the company paid? then ask about the stock price and given it is to be a long term holding, is it a good entry point?

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

Every year more and more people graduate from post secondary institutions, the overall population should be very well informed about their finances. It seems they are less and there are many theories on the why? Perhaps money does not go as far, perhaps the companies where money is spent are brilliant or perhaps there are other reasons. In an book written a few years ago, but still very valid today, Why Smart People Make Big Money Mistakes, by Gary Belsky and Thomas Gilovich, Simon & Schuster, NY, 1999, offers ideas in the Behavioral Economics format. The authors have a few principles to consider and lessons to be learnt.

Every dollar spends the same – money comes from a variety of sources – salary, wages, gifts, lottery winnings, bonuses, tax refunds. Most of us treat money differently,  an example is a gift. If we receive money we were not expecting, we will likely spend it. The better attitude is to treat the gift money the same as your regular source of income. Perhaps the best solution is to park in an account for a week and then decide what to do with it. The time helps change your attitude towards the money and it will be  seen similar to salary or wage income.

Losses hurt you more than gains please you. One of the central points of the Prospect Theory is people are loss averse. People feel greater pain losing money than the pleasure of winning money. Feeling greater pain means people try to avoid risks or losing and the theory help explain the sell low, buy high rather than sell high, buy low.

Learning what holds people back, means there are counter measures to mitigate in order to come out ahead. Linking to dividend producing stocks, the income plus the potential capital gain is a tried and true measure to come ahead in the long run. More in tomorrow’s column.

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

From the title of the book Big Coal – The Dirty Secret Behind America’s Energy Future, by Jeff Goodell, Houghton Mifflin Company, New York, 2006; it might seem to be an unfavourable book about the coal industry. The book focuses more on the human side of the coal industry and there are a vast amount of stories to be told. Within the book are some very interesting facts for dividend producing investments. The US has a vast amount of coal resources and it is concentrated around  the states of Wyoming, West Virgina and a few others. Most of the easy to mine coal has been mined. This leads to areas where there is plenty of coal but it expensive to reach or the barrier to gain access to the coal is high. The field of companies is concentrated in a number of larger companies such as Arch Energy, Peabody Energy, Rio Tinto, Consol, Kiewit, Foundation and BHP.

After being mined, coal is shipped on the railways. The two biggest names are Burlington Northern Santa Fe (BNSF) and the Union Pacific (UP) and they receive about 20% of their revenues from this resource. Coal is a high volume, low hassle business with guaranteed payments by the regulated utilities. The coal goes very efficiently between the mines and the power plants (utilities) which burn the coal to turn the turbines to make electricity. The railways have 3 important things going for them: they more or less determine the price and availability of the coal. Two, large organizations tend to deal with large organizations which makes it harder for small mines and power plants. Third, problems with the railways have a serious effect on shipments or there are few alternatives to the major routes. A great example is the Rodemacher power plant in Louisiana. The coal comes from either of the two railways, except the last 19 miles the spur has only one railway UP. UP’s prices according to the utility are not as competitive as they could be.

Coal companies have a host of problems with black lung disease, clean air, clean water, labour relations to ensure the lobbyists in Washington are well funded. However as a business providing regular dividends, there are a number of companies to look at in the area of coal, railways and utilities.

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

In the urban landscape one of the reasons people like a neighbourhood is the trees. The trees have grown over the years and make the neighbourhood seem smaller. In a previous house the writer could sit in the back porch surrounded by a canopy of older trees and not hear the sounds of the city. Not surprising the house prices in the area continue to go up. Another thing trees represent is plus 50 years of growth, in many cases more which means planting a tree to remember someone is a wonderful idea. Trees change carbon dioxide to oxygen which is good for all of us; act as moderating influence on the weather by keeping the house a little cooler in the summer and warmer in the winter (by blocking the winds) meaning there are great reasons to plant trees.

Linking to dividend producing stocks, similar to trees which continually provide growth and new growth (leaves come back) dividend producing stocks provide continued revenue sources, along with opportunities of growth. While the stock price will go up and down, as long as the dividend is being paid (and hopefully increased) you can enjoy your portfolio for a long period of time.

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

It is important to read stories about things you only have limited interest in for sometimes it will help you connect the dots of the things you are really interested in. Recently the book Flushed – How the Plumber Saved Civilization by W. Hodding Carter, Atria Books, Ny, 2006 was read. The book stems from a home repair job and Mr. Carter asking questions about what happens after you flush the toilet? what pipes are used and why? How did the process evolve to where it is today? As more and more people live in cities, the plumbing of the city is an increasing concern due to the volume of waste products. Mr. Carter goes back to Roman times, moves to the London before and after the plagues, touches on Boston and ends up with low flush toilets.

Linking to dividend paying stocks, every urban environment has an utility to look after the waste waters, some are private (investor owned, some are public owned) but each has a steady stream of income for the owners. Reading books similar to Flushed which is not something you might pick (most of us are not that concerned as long as everything works the way it should) allows you to think about the urban environment and see the opportunities as well what type of solutions have been proposed. For example, when the plagues were happening in Europe, people did not know or realize it was the waste products in the non sewers which was spreading the disease. Everything else but ensuring clean drinking water was being offered as a solution. In the case of the plaques a great deal of focus was on the air, for it was thought the diseases travelled through the air. Some of the proposed solutions to us now seem strange, but how the problem was being framed brings forth the solutions.

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

When the month changed to April, the season known as spring is in the air. The notion of spring brings forth many ideas for nature shows signs of life after being dormat for the winter. The buds on the trees will soon be out, plants come up, the birds chirp, the sun shines more and temperatures increase. Soon windows will be opened to let the air in and homes will need to be cleaned. After that task is over you can enjoy the outdoors as much as possible till winter comes. Recently the writer heard one person’s idea of spring cleaning, she puts stuff in a box and every other day she moves the boxes towards the door. By the time it reaches the door if she has forgotten what is in the box, then it will go somewhere – garbage, recycling, donate it.

Linking to dividend producing stocks, if you own dividend producing stocks, you do not have to make any decisions about them, as long as the company pays the dividends you can keep it. Many people also have some stocks that do not pay dividends, they were the ones that might have, could have, should have made you rich but did not quite do it. Over the years you learnt, the dividend stocks provided a better long run return, but being human other stocks were acquired. Perhaps spring time it is good time to review your non dividend producing stocks.

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