When the sun shines in the morning, we often feel good about the prospects for the day. When the sun shines on solar panels, electricity is generated for the grid and now many utility companies are doing net metering which means the electricity from the solar panels mean smaller bills for consumers. All this has taken time to become a normal circumstance, for 20 years ago, utilities had to set up the system and at first they were not really interested. As times change, new realities come into place.

In an article by Noah Browning of Reuters, the International Energy Agency from Paris, France says investment in clean energy will extend its lead over spending on fossil fuels in 2023. Most of the new spending for solar is coming from advanced countries led by China.

For every dollar invested in fossil fuels, about $1.7 is going into clean energy. 5 years ago, the ratio was one to one. In dollar terms, $2.8 trillion is set to be invested in energy worldwide, with $1.7 trillion to renewables meaning nuclear power, electric vehicles, efficiency improvements. The rest or $1 trillion with go to fossil fuels – oil, gas and coal.

In 2023, solar spending is about $1 billion a day or $380 billion on a yearly basis. The irony is the places in the world with the most sunlight, have the fewest dollars being spent on solar.

Linking to dividend paying stocks, as we move forward, there will be a combination of both, as the world will continue to use oil and gas, the issue is always about price and supply. The higher the price, the more innovative are the oil and gas companies; the opposite is true of solar, the lower the price of solar panels, the more adoption of the solar. As an investor, it is easier to make money in oil and gas companies or utility companies rather than solar panel companies.

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

After a product becomes the standard, eventually everyone believes that it was the standard all the time. The assumption is wrong, even though all products have some sort of industry lobbying group, but the process to make something standard makes and losses money for many investors. The classic case is VHS and Beta cassettes were introduced and each of them had their positive aspects, but a consumer needed to buy a machine for each. Then the machines evolved to play both and consumers did not pay attention to whether the video was VHS or Beta. Behind the scenes, each of the companies had spent millions of dollars on both the videos and the machines and the companies were JVC and Sony, both Japanese companies. One was a leader then came compact dics and now streaming, which means fewer people use either VHS or Beta.

In an article from Reuters, Ford CEO Jim Farley announced Ford had reached an agreement to use Tesla’s supercharger system. Tesla has built up superchargers in malls, hotels and office buildings but they only charge on Tesla. In the agreement, Telsa will allow Ford electric vehicle owners to book an appointment at their charges and use them. Ford will supply the users an adaptor and all will be good to the consumer. It was announced in early June, GM would follow Ford with Tesla charging adaptors.

In every new industry, there are multiple methods to do what the task is required and companies have to choose one of them. US Transportation Secretary Pete Buttigieg said the Biden administration would not dictate an EV charging standard. The two largest systems at the moment are Tesla’s EV charges and the Combined Charging System (CCS). Access to charging systems is considered one of the hurdles to broad acceptance of electric vehicles.

Linking to dividend paying stocks, one of the reasons you like them is they tend to be industries where the standard is set and the companies are profitable and can pay dividends. The company can work on enhancements, but not changing the standards. All new industries face what will be the standard? waiting till the standard is set tends to be less risky for investors.

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

Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

Risks are around everyone, the important issue is how do you manage it?

Rules to Live By

The 1st rule of preventing and coping with accidents is understanding the risks that you face.

An example of this is – a fire department responses to a fire. Prior to the fire at an industrial facility it knows what chemicals are keep at the plant. If the data is given the fire department before, on the way to the fire they can prepare for what they expect to deal with.

The second rule is avoid being in denial. There is often a gap between our intellectual understanding of a risk and our emotional acceptance of its danger. An example of this we all know there are accidents on the highway, but we drive for a living.

The 3rd rule is pay attention to weak signals and early warnings.

Contrary to intuition, accidents do not just happen and often not accidental at all. Many complex machines and system exhibit hints that they are about to fail, and many poorly designed systems experience near misses before the big one hits.

The 4th rule is it essential not to subordinate the chance to avoid catastrophe to other considerations.

The final rule do not delay by waiting for absolute proof or permission to act.

There never is perfect information.

Avoiding the Bigger Mistake

We all have to make judgements regarding risks. Figuring out the right thing to do is usually not that difficult. The problem is we must go against our intuition, expend money or time we would rather use elsewhere or go against the grain of the organization in which we work. None of these choices are easy, since the costs in money and trouble are guaranteed, the benefits are not.

Disasters can be partitioned into before, during and after. The bulk of the damage will be in the after, but a tremendous amount of harm can be reduced in the before.

When the event happens, the key which fire departments around the world have perfected, the key to effective real time response is preparation. If you go by your local fire station, whenever there is a shift change they check out the trucks, they spend time doing what could happen. The important aspect is to think through what is possible and what is most likely, aw well as you can and what you should do in each instance, including the worst-case scenario.

Each type of risk requires a different response. Everyone has heard Willie Sutton’s famous answer to why does he rob banks. That is where the money is. If you want to save lives and prevent injuries, look first at those activities that kill and harm people. One example of rating risks is the John Paulos’ Danger Index from his book Innumeracy: Mathematical Illiteracy and Its Consequences.

The most important lesson to learn is that constant vigilance is required in all high-hazard categories. If there is a loose carpet, fix it; if the driveway is icy – sand or salt it before someone slips on it or prevention works.

Professionals and managers in many large organizations face many of the same dilemmas as do ordinary employees. They do not set policy and often have an arm’s length relationships with high-level decision-makers. What can they do? As much as you like information to flow one way, the correct method is to find a method which allows for some dissent. To do this all for dissent when things are going well, if they are not going well, very few will do. One method is to informally appoint a person to challenge the assumptions in a meeting. The person can be rotating but the idea is for people to understand what the risks are. Silence and agreement are nice, but what you are looking for is good feedback to make the decision-making better.

There is sage advice for every organization, what gets measured, gets managed.

Pay close attention to the design of the system. The likelihood that things will go wrong is closely connected to the design of the organization’s equipment, software, training programs, maintenance procedures, and hazard defense systems. When the design is faculty, accidents happen. In addition, how are bonuses given?

Leaders need to know the near misses, the weak signals, we missed biting the bullet. Relabeling problems as opportunities has become a cliche, but there is wisdom in the saying if they turn out to be learning opportunities.

Linking to dividend paying stocks, in the book there is greater detail and you are encouraged to read it, but as an investor you want your company to operate above the saftety requirements to generate profits and pay dividends. Asking what is the company’s safety requirements, some companies advertise x many days without an accident. The better the safety record, the less corner cutting and the better the end product which are all good things. Everyone is involved with risk management and every year it becomes more important to ensure companies are profitable.

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

Every company in the world deals in risk management and in every company accidents happen. We all say we are going to learn from accidents, but realistically do we? That question is asked by Marc Gerstein, published the book Flirting with Disaster – Why Accidents are Rarely Accidental published by Union Square Press, NY, 2008. Mr. Gerstein taught at Columbia and MIT and lead a management consulting firm.

When an incident is labelled an accident, then the issue is could it be prevented? In a perfect world it would be, but the issue is in many instances, the alarms were ignored by those with the power to disregard them? Why? How do smart, high-powered people get it so wrong?

Mr. Gerstein examines accidents such as Chernobyl, Hurricane Katrina, space shuttles, an Asian tsunami and the monetary crises of East Asia. All these accidents had long buildups and numerous warning signs. They also had many common elements and misguided intuition analysis. The book focuses on how to reduce the chances that anything similar will happen again.

The outlines in the book include the Columbia space shuttle is a story of how organizational pressures, public relations concerns and wishful thinking contributed to a phenomenon known as bystander behavior – the tendency of people to stand on the sidelines and watch things go from bad to worse.

Chapter 2 explores the human biases and distortions in thinking that affect each of us in a way that contributes to risk. Many accidents are natural outgrowths of human characteristics, but that does not mean they are inevitable.

Chapter 3 is about Hurricane Katrina, arguably the best predicted accident in American history. The central question is why more was not done before, during and after a storm that so many saw coming. The chapter is also the irrationality in financial decision making, since it was clear preventing the flooding of New Orleans was less expensive than rebuilding the city.

The nuclear meltdown in Ukraine is an example of faulty design as the source of many disasters.

The chapter on Vioxx, a drug from Merck is how the lure of profits and compromised regulation inhibited the company and the US Department of Food and Drug Administration from need action, despite considerable evidence Vioxx caused death.

Chapter 6 is about the BP Texas City refinery explosion that killed 15 and injured 180 in 2005. There were many warning signs and financial – BP management believed that investing in better and safer equipment and practices was unjustified.

Chapter 7 is about friendly fire caused a F15 shot down 2 Black Hawk helicopters carrying peacekeeping troops.

Chapter 8, the Texas legislators inadvertently destroyed a vast amount of their citizens’ wealth by applying naive commonsense logic to a complex dynamic system.

Chapter 9 and 10 are about Enron and the collapse of Arthur Andersen. The result of the corrosive effects of envy, greed and divided loyalties. It shows the possible consequences when watchdogs become consultants.

The other chapters offer suggestions to do better, because when ignored, most risks do not somehow take care of themselves or cease to be an issue.

The lesson from the book is while not all disasters are preventable, a surprising number of them are.

Linking to dividend paying stocks, in an ideal world, we are thinking prevention and very few accidents happen. In reality, accidents do happen and then the issue could it be prevented and what is the reaction to accident. If the company is involved in manufacturing, as an investor you want to know the safety record, are accidents prevented. When something happens what does the company do or not do? If budgets are cut what items are on the chopping block? How does the company handle risk?

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

If you think about Disney, you think of the wonderful method they interconnect the successful movie franchises to multiple other money-making entertainment ideas. If you like Star Wars the movie, you can go to Star Wars rides, you can cruise with Star Wars characters and the list is endless, but it is something Disney does very well. As an investor, when you look at other entertainment companies, you will tend to ask how do they interconnect their successful entertainment ideas?

In an article by Nicolas Van Praet of the Globe and Mail, Cirque du Soleil is pushing out from the big top into the digital world with its first video. Since 1984, over 180 million tickets have been sold and millions of people have watched some of the shows on TV.

Cirque did a market survey and the results told them to use its enviable reputation and significant intellectual property to engage with its fans more frequently and draw in new followers. Nickole Tara, a New York City based sports and entertainment executive who is leading the brand monetization strategy, noted what people told us, we want more.

Catalyst managing director and partner, Gabriel de Alba noted there were a lot of options that were never explored outside the live event business, as well as they could have been.

Ms. Tara leads a team of 50 is tasked with developing Cirque’s partnerships, branded content, consumer products, social channels, music catalogue, film and TV, and immersive entertainment.

Cirque is betting the video game with help kids and parents bond, for some of the most fervent fans often have one or more children in their household.

Linking to dividend paying stocks, in our era if a company is not developing partnerships to enhance its brand(s) then it is worth seeking alternatives. After a company has built a reputation and is profitable, it has to build on that reputation to service its existing customers and potential new ones. When you examine the reputation of the companies you invest in, how do they enhance that reputation to generate even more profits?

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

In every industry, there are investors and users of the product and services, most of the time both believe or tend to believe the price is set by what the market can bear, but once in a while people think something is off. If they invest millions of dollars, they send in their lawyers to investigate.

In an article by Jonathan Stempel of Reuters, US District Court Valerie Caproni in Manhattan, dismissed a long running litigation by investors who accused HSBC and Bank of Nova Scotia of conspiring to fix silver prices.

Investors had accused HSBC, Bank of Nova Scotia and Deutsche Bank of manipulating silver prices from 2007 to 2013. The litigation began in 2014, Deutsche Bank settled for $38 million in 2016, the others kept the law suit moving on.

In a 24 page ruling, the judge found the investors unable to trace their losses to bank’s alleged effort to depress the fix, which set the prices for silver bars and trade derivatives based on advance knowledge of the price fix.

The Justice said the investors did not show it was plausible, as opposed to merely possible.

Linking to dividend paying stocks, all profitable companies are sued and they all have a legal department. Just because they are sued does not make them guilty, it has to be proven in court. For investors, if the company is sued, money is set aside in case they are found guilty, but generally it takes years for lawsuits to go to court and the court make a decision. Investments should not be made on what the Judge will decide, often you will be wrong. If the lawsuit is material, it is best to look at alternative investments and wait till the settlement is handed down.

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

If you invest in industries where there are monopolies or two major competitors, eventually all the roads lead to Rome. That saying is from the Roman Empire when Rome was the center of dominant empire of the Mediterranean Sea and the Roman Empire used infrastructure or building of roads to keep the people busy. (in China they built a wall which used thousands of people to work on, to keep the Mongols out). In the case of Rome, roads were built across Italy to foster faster communications at the end of the roads was Rome, over time the expression all roads lead to Rome came into being. In the passenger airline business, there are 2 companies competing against each other Boeing and Airbus. While there are other planes, the dominant players are Boeing and Airbus.

In an article by Valerie Insinna, Padraic Halphin and Tim Hepher of Reuters, the largest low-cost carrier in Europe is Ireland’s Ryanair and they signed a deal to buy 300 Boeing jets. For the past 18 months, Ryanair and Boeing have been having a public feud.

As a low cost provider of flights, some flights are less expensive than driving, Ryanair’s CEO Michael O’Leary has a very sharp pencil when buying planes. Ryanair flew 168 million passengers and expects to fly 300 million by 2034.

Ryanair uses Boeing 737s for its mainline fleet and is one of Boeing’s largest customers with more than 600 planes in its fleet or on order. The new order is for 737 Max 10 which seats 230 people.

In the early 1990’s and 2000’s, the country with the biggest increase in planes was China, in the 2020’s it is India. Air India recently put in a order for 500 Boeings.

Linking to dividend paying stocks, in all industries there tends to be a market leader and others fill in the gaps. If you can invest in an industry which has a long standing 2 or 3 companies dominating the market, eventually the biggest customers must come to them. In an ideal world, the manufacturers and buyers have a very good relationship as the manufacturer continually tries to accommodate the needs of the major buyers, but reality is reality and sometimes buyers and manufacturers have public spats. In the end, they are brought together to find solutions and the public is served which allows for investors to hold onto the stock for the long term as profits turn into dividends.

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

If you think about inflation, you think how is inflation measured? There is a mythical average consumer who needs housing, food, vehicle costs, and often it is not very hard to see the average mythical person because it is someone on the street where you live. We all need food, we all need someone to live and move around, but all of us are now buying a new car every year, however vehicles do not last forever. If you own a vehicle and it begins to cost more to repair than to buy a newer version, you know it is time to upgrade.

In an article by Lydia Depillis and Jeanna Smialek of the New York Times News Service, they examined why car prices have remain high both new and used. During the pandemic, it was easy to see because a global shipping problem happened, at the big 3 – the cars are put together but the parts are shipped in from a variety of sources. The new vehicles have more semi-conductors in them and there was a shortage as well as given the age of the average vehicle there was strong demand to upgrade. Those supply and demand lines you learned in economics helped explain higher prices.

The pandemic is over, global shipping is approaching normal, domestic automakers are producing more vehicles, particularly the popular ones, prices should fall, correct?

Inflation is not going to be a smooth path downward: there are going to be bumps along the road, noted Blerina Uruci, chief economist at T Rowe Price. There are many idiosyncratic factors at play right now.

In terms of the auto industry. it is useful to examine how did they make their money?

Automakers produced more cars than the marketplace demanded, offering incentives to clear inventory and compete with low cost imports. Dealers made their profits on volume and financing. After the pandemic, semi-conductors were allocated to trucks and SUVs which offered lower volume of sales but higher profits per sale. About 5 million cars that normally would be produced never were. Dealers increased their margins and vehicles became more expensive.

Typically there would have been a generation of cars that would have come off their 3-year lease and put either bought out the lease or traded in for a new model. The number is less than normal, which means at auctions, prices are higher than normal for used car dealers.

Higher interest rates mean car payments have increased according to TransUnion, the average monthly payment rose to $736 from $585 two years ago. Used cars are averaging $523 up from $413 two years ago.

At the high end of prices, demand remains strong. At the low end, because fewer vehicles were made, demand remains strong. The only good news for car buyers is according to Kelley Blue Book data shows that average prices has fallen below list for 2 months.

Linking to dividend paying stocks, in economics 101 you learn about supply and demand. It still means a great deal to most industries. While there are alternatives for everything, supply and demand does provide reasonable explanations for what is happening. The issue for you as an investor is what are the alternatives? will they affect the profitability of the company?

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

Often times after a radio show or podcast has become popular there is a desire to release a book and How I Built This fits into the pattern. There is a podcast called How I Built This by Guy Raz which resulted in a book published by Houghton Mifflin Harcourt, NY, 2020. The podcast is Guy Raz interviewing entrepreneurs about their journey to become successful. In the book, Mr. Raz groups the answers into categories and as a journalist adds stories around the theme of the chapter.

In all cities, everyone is drawn to the office towers with the names of corporate clients and that is a good thing. It is good for the city for tax revenues, it is good for the office developer to collect rents on a consistent basis, and it is good that companies can grow and become part of many consumers lives. As investors we are often attracted to the big names, and it is a good place to start.

In the book, there is the example of San Francisco and the California gold rush. Hundreds of thousands of people travelled to California by ships and wagon trains. After California became a state, the railroads were built. Gold fever brought in many people and most did not find gold to change their lives, although some did. However, there were other opportunities.

Levi Strauss did not find gold, but he did open a store selling dry goods. One of his customers, a tailor figured out a way to fashion metal rivets on the pocket and zipper of the denim. Levi fronted the tailor money to file patents on the new design and both became millionaires. Many of us buy Mr. Stauss’s jeans to this day.

There is an old book, but well worth the read called the Millionaire Next Door, if you go to the industrial part of your city, you can look in the parking lot of a HVAC company and count the trucks, consider the inventory in the truck, the inventory in the plant and you will soon see the owner has over a million in assets. There is money to be made that may or may not be in the shiny office towers of downtown.

Another example is Chet Pipkin of Belkin International which is a consumer electronics maker. Mr. Pipkin first thought about being a PC maker but there was too much competition. Instead, he found his niche by immersing himself in the scene and hanging out at computer store. What he watched was people buying the PC and then asking how do I make this work? it was a very good question because at the time, there were many different manufacturers with different connectors on them, it was difficult task to do until you had done it enough times. There was a niche market.

Why did not IBM fill in? because they had their hands full making enough PCs. For years they did not concern themselves with how the printer was connected and by who? Belkin was small enough to take advantage of this niche and was not a threat to IBM because it was small. Belkin help make the standards because their goal was to make more PCs work with more peripheral devices for more consumers. Eventually the business was sold for $800 million.

Linking to dividend paying stocks, it is important to start with the big shiny company that is in the media that you read, however it is almost important to remember money is money. Sometimes you can find a relatively smaller company what is profitable and can pay dividends and has a healthy market share in its niche. There is always competition but niche markets can be similar to near monopoly aspects of ability to raise prices to maintain margins. This is why you need to do your homework and trying to discover the diamonds in the rough.

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