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.

If you are buying real estate, you know the expression – location, location and location. If you are investing in a small business, some locations are better than others for the operations of the business. In most industries, an infrastructure grows around the large businesses for example in software world, Silicon Valley has people engaged in all the levels of software companies. If you owned a software business, you would want people with a connection into the Valley ecosystem. Once in the valley’s ecosystem, it becomes easier to recruit and find talent for your company. It does not necessary mean you have to be there, but it means you have to connection into the ecosystem.

Every year 850,000 new businesses are established, only 80% will make it to the 1st anniversary. Most of those businesses will be one person based trying to make their dream come true.

In the app world, across the 5 biggest app stores, there are over 5 million apps available for download. In 2018 those apps produced nearly 200 billion individual downloads and $365 billion in revenue. In 2019, more than 1,000 apps were added every day to the iOS app store.

The above data shows great opportunity, however the top 5 apps account for 85% of all the in-app time spent by users on their mobile devices. The other apps vie for the remaining 15% of users’ in app time.

The difference between the top and bottom app is often the ability to get attention or ability to create buzz and to engineer word of the mouth. How to do get buzz is more art than science. It is always possible to generate buzz with money, but the product has to be very good and aimed at customers and potential customers.

Building buzz is about leveraging specific relationships (trend setters, media contacts) and resources (OPM, expertise) to your name out there in front as many people as possible. If the name is out there, people including your core customers will try and retry your products and services. The buzz is one source telling another – you need to try this. If they try and love the product, it is likely they will tell others. The company’s job is to ensure the product and service is done very well all the time. When the signal breaks from the normal noise of the marketplace, the company can reach farther than they could have been imagined.

Linking to dividend paying stocks, for large companies, they are what all the smaller competition desires, the ability to generate profits to pay dividends. In many industries, the competition is difficult to achieve that end which means the large company has to have consistency that consumers demand. As an investor, if you use the product you can determine does the product want you to use it again and again?

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 result 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.

At every AGM, you are asked to vote on the directors of the company and compensation for senior executives. As a shareholder you are looking at the people which run the company and you are looking at the leadership of the company to allow the company to celebrate an anniversary of their founding for years to come. In most companies there is the founder, but who is the co-founder or the people that helped the founder realize the dream of the company?

In every company, they will need to rely on OPM or Other People’s Money – from bank loans, government grants or loan guarantees to people investing in the founders. Eventually that company went public and as a shareholder, you are investing with others. How did the company move from small startup to medium sized to the size you are investing in?

Change is a constant in business, because what works when you started can and does change over the years. In every industry they are constantly trying to evolve and sometimes what was not available a few years ago, is now available for different and better uses in products. The easiest place to see that is the fashion industry and what is the trend for the summer season. Many men will wear shorts and a golf shirt, but will they be the same style of last year? something will have changed. Companies change and that is ok if they change for the correct reasons. As a small business, if change is not part of their DNA, you would not likely want to invest in it.

Everyone loves small businesses, until they become a certain size. Once they reach a certain size the competitors notice them and will challenge them both legally and by the unwritten rules in the industry. The big fish will allow the small fish to eat the scraps they do not want to service, but once the fish start nimbling on their customer base, things will be different.

Large companies use pricing discretion, toll bridge and different methods to erect barriers to entry to limit the competition. Some of the barriers are natural forces that rise and shift within a market as competitors enter and exit, grow and shrink, evolve and pivot. Some of the barriers are conscious strategies deployed by old guard blue-chippers.

The trick for new companies is find the side door or path the least travelled where the gate is wide open. For example, the protein bar RXBar did not want to go onto the shelf space in the supermarket, they went to gyms first where they had no competition. The company 5-hour Energy did not want to be place on the shelf beside Monster, they wanted to be near the cash register in a new market category. (in the grocery world, shelf space matters and the large players have the most shelf space).

Wal-mart is a mass merchandiser, a retail company such as GNC is always looking for new products because if a product is in Wal-mart, few people will buy it at GNC. In the retail world thanks to the chain stores, retailing is slightly different for all of them. You will need to do your homework to understand the differences and which companies are open to new businesses or where is the side door in your industry?

Linking to dividend paying stocks, as an investor you enjoy the benefits of moats and you like them and look for them to invest in. The issue of all companies are they paying attention to the side doors and ensuring the moats stay. If they are not paying attention to the side doors or what gates are open, the result will be the larger company losing market share, they will lose margins and you will need to find alternatives. At the AGM ask what are the side doors to entry in your industry?

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.

At its most basics, an entrepreneur has an idea of a problem that needs to be solved. The entrepreneur then tells the world and the world or some part of it pays for the solution. In everyday life, you will encounter some problems and often times be able to fix them. The overwhelming majority of times, you will move on, but once in a while you could say is the problem only affecting me or does it affect others? If the answer is others, will people pay to fix it? Do I want to be the one offering the product or service? Will people pay for the service and can I earn income from it?

The first step is relatively simple but complex. you will need to be open to ideas. The easiest process is to begin with what you are making a living doing. The more time you work there, the more time you can see how the industry is structured and what opportunities are available. Ask yourself, if you were to improve the existing, what would you do? if you were to reinvest the existing what would you do? Try to come up with one idea per month on what changes you would make. The first month and second month should be relatively easy. The third month will be harder, because you have removed the low hanging fruit, now you have to think about the process and alternatives.

If you believe you have a very good idea, the next step is to explore it. Now days, if it is a product, you can use Amazon or Shopify’s websites to help sell the product or let the world now you have a product to sell. The terrific part of using the above companies’ website is you do not have to give up your day job right away. You can wait and continually adjust the content till it pays you money that you make in your day job. If you watch a show like Shark’s Den, the Sharks or investors will ask are you all in? or what is your time commitment? Once you have achieved a level of success, then you can jump off the cliff into making your idea a thriving business. Part of starting a business means there will be costs involved, until you have sales to cover the costs, some of the costs will be borne by you, sometimes it is good to keep a safety net or the day job for insurance.

Mr. Raz says one of the things which makes him go wow is the amount of research the founders did or have done in order to launch their business. You will likely have heard people say this new industry will be worth billions, if you can receive 1%, you will be successful. You need to ask, why you? Why does your idea work? why does your product work better than everyone else? what customers will buy and be repeated customers? Why can you deliver it better or how would it work? In the past few years, new ideas came in with apparel, ice cream, footwear and luggage. There is nothing special about these industries that made them uniquely suited for new entrants or for disruption, but it is possible. Before jumping into your industry, do your homework.

Linking to dividend paying stocks, when you invest in companies, the same principles of starting a business apply, just to a different level. You are investing in a going concern, you need to see or hear or understand the passion the company has for its products and services. Why this company other its alternative? does it deliver great products and services? how does it do it and continually make a profit to pay dividends?

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

In every country, there is always a potential scapegoat and sometimes the rhetoric gets bigger and sometimes the other country has to do something. It is often the same in business, all the small companies need to compete against the larger companies and sometimes it is motivating and the pie can be made larger which is the best solution. Back to the country scapegoat. For decades, China has been the manufacturing center of the world and it has grown economically. If you go back to watching Shark’s Den, you will hear one of the sharks say to the effect, your costs are expensive being made in the US, I have connections to Chinese companies to lower the costs and improve margins. The Sharks were reflecting economic reality, manufacturing had moved from the US to China and it was and still is less expensive to manufacturer in China than the US.

In an article by Joe McDonald of the Associated Press, the US and China are having a technology feud. You will recall and still hear, Chinese websites send the information back to China and the government does something with it. The large communication providers such as AT&T, Verizon and others have been told not to use Huawei parts in their communication systems. There are other users and it was and is relatively easy to use other companies.

In the latest volley, China has told its computer equipment companies to stop buying Micron Technology chips. The instructions of the Chinese were for operators of critical information infrastructure in China to stop purchasing products from Micron.

The official review of Micro under China’s increasing stringent information security laws was announced after Japan joined Washington in imposing restrictions on Chinese access to technology to make processor chips on security grounds.

Beijing has been slow to retaliate, possibly to avoid Chinese industries that assemble most of the world’s smartphones, tablet computers, and other consumer electronics. China imports $300 billion worth of foreign chips a year.

Chinse foundries can supply low-end chips used in autos and home electronics, but cannot support smartphones, AI, and other advanced applications.

Linking to dividend paying stocks, China is the second largest economy after the US and it makes sense for many companies to have operations in the country. Micon supplies Apple smartphones with $2.5 billion in chips. One can imagine, China needs the chips but has to show the world it is make decisions which affects a US company. No one is prepared when a country imposes sanctions on another company because the world is very interconnected and it is seen and expected to be short term in nature. Many of us thought the sanctions against Russia were going to be short term in nature, but sometimes things happen. For your investments, it is good to be diversified so if one market has issues, other markets will allow the company to meet the needs of its customers to make a profit and pay dividends.

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

If you are investor, eventually you will hear or read that some of your assets should be in gold. If the economy is collapsing and it some countries it does, then having gold will allow you to take some of your assets and help you get out of the country into another one with money to start again. Every time something bad happens, people look to gold as safety and generally people always will. However is it a good investment?

In an article by Ken Fisher of Fisher Investments, gold is more volatile than stocks with lower long-term returns than bonds.

Since 1974, when the gold standard’s vanished, it has an annualized 5% gain. The S&P is up 11.9% and US 10 year government bond is up 6.7%.

Low returns with high volatility display a stark truth: to glitter with gold, market timing is the key. Gold’s gains can run big but are sporadic, with long periods of stagnation and whopping declines in between. Gold was at $2,067 in August 2020, since then it has been flat, meanwhile the S&P 500 is up 28.6%.

In Jan 21, 1980 gold peaked at $850, then went down and reached that peak again in Jan3, 2008 or 28 years later. Gold dropped in price 65% over 2 years, gained it back in 8 months, fell 44% in 2 years, rose 76% over 2 years, before falling 49% over the next 12 years. Could you time the market? or would gold become a long term hold?

Gold is a coin flip. Its fluctuations stem mostly from sentiment swings, which defy timing. Once the sentiment changes gold falls in price and then you have to wait till the next sentiment swing.

Linking to dividend paying stocks, there are choices involving gold which include buying gold stocks which pay dividends however the history is they are more volatile than the broader markets and typical rise in early equity bull markets and typically act as smaller value stocks. Mr. Fisher understands why you will consider buying gold, but if you own too much in your portfolio you will not do as well as owning the stocks and bonds index portfolio. There are many alternatives in investing, and only in hindsight do you know if you made the best solution, however if you ensure you own profitable companies which can pay a dividend, over the long term you will likely do better with less risk and volatility.

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

Much of the time we are involved trying to connect or make sense of the world we live in. An example of the connecting the dots was made in a movie called Working Girl. The movie was made in 1988 directed by Mike Nichols and starred Harrison Ford and Melanie Griffith. It is an enjoyable movie to watch.

In the movie the Melanie Griffith character worked in a large brokerage firm and wanted to be involved with mergers and acquisitions. She was a secretary to a lady who was in the field and she had an idea. The idea was for a large conglomerate who wanted to fend off a possible takeover by buying a company which the other company had a conflict of interest with. In this case it was for the company which owned radio stations because the takeover company could not hold radio companies because of government regulations.

Much later in the movie, the head of the large conglomerate asked the Melanie Griffith character how did you get your idea? The answer was reading Forbes, she saw the article that you wanted to expand in broadcasting. Reading an article in the New York Post about a radio station announcer who was hosting a fundraiser with the daughter of the large company, the idea came to buy radio instead of TV. Eventually, the Harrison Ford character who knew about Mergers and Acquisitions ran the numbers and came up with a target company and they made a pitch to the large conglomerate and they said yes. Later on in the movie, while they were coming up with a number, she saw the radio announcer was thinking of leaving, and they made their price based on him staying.

The movie is fiction but in the world of mergers and acquisitions, people read about what companies say their future plans are and then offer alternatives. Recently read a book about someone who read the financial press about a conglomerate wanted to shed its holdings to focus on one industry. The person set up a meeting with the CFO and it took a considerable amount of work to determine the best way to sell the divisions, to whom the divisions could be sold to paying as little taxes as possible and rewarding shareholders, but the impetus was the article in the financial press. The article led to large fees for the firm and a healthy bonus for him.

One of the reasons why it is good to focus on owning less than 20 stocks is because you can focus on their industries and what the press releases are in the financial press. As you read them, you use your background and information to try to connect the dots to whether you want to continue to hold or look for alternatives. Reading the financial press is a good thing to do as well as trade journals and regular newspapers and magazines.

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

For 30 years, the economy of China has been leading the world and if you look where China was to where it is now, you can see why. Besides being the manufacturing center of the world, China’s cities and trains and roads have all been upgraded. The people live in vast apartment complexes and China was expecting even more people to live in cities they built cities where few live or are called ghost cities. China has a very strong government which sets 5 year plans and all agencies fall into line or the heads of the agencies are replaced quickly. For the past decades, people outside China were used to see high growth rates from the country. Then COVID happened and the machine was shut down, everyone expected the economy had changed or when restrictions were removed, the economy would bounce back to where it had been and continue to grow.

In an article by Ellen Zhang and Joe Cash of Reuters, China’s April industrial output and retail sales growth undershot forecasts, suggesting the economy is on a whobbly post COVID recovery.

Industrial output grew 5.6% which was better than the 3.9% from a year earlier, but analysts were expecting a 10.9% rate. Retail sales were up 18.9% up from 10.6% a year earlier, but analysts were expecting 21%.

Normura economists said year over year growth was elevated, thanks to a low base, but it looks like there will be material decline in growth.

China’s central bank kept the interest rate unchanged as markets expected, but markets are expecting more monetary easing in the months to come.

Linking to dividend paying stocks, if China was a stock market, for decades a person could pick almost anything and would have likely done very well. With the slowdown, a person has to be selective to be successful. One of the methods to be selective is to focus on the profitable companies which pay dividends rather than the companies which should grow. Investing in profitable companies is never a bad thing, but as soon as there is slowdown, your wisdom speaks volumes.

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

In all types of investing, what you think you are getting is often not what you are really receiving. It is an adage because in most baskets of stocks, there are leaders and losers and what you are hoping for is the leaders outweigh the losers and you end up positive. This adage is the reason to invest in the S&P 500 – all are easily tradeable, easy to follow, you are hoping the top 100 will outweigh the rest and because in index funds the losers are changed every 6 months, over the long term the S&P 500 index will go up. This year there is confusion.

In an article by Jamie McGeever of Reuters, this year’s rally entirely driven by a handful of stocks and the rest have barely moved. The top 4 stocks by weight – Apple, Microsoft, Amazon and Nvidia account for 19% of the index’s entire $34.4 trillion market cap. They are up 45%, while the other 496 stocks are barely up 2%, while the index as a whole is up 8%.

According to Tajinder Dhillon, a Refinitiv analyst, the aggregate 12-month forward price/earnings (P/E) ratio of the top 4 stocks is 31.6 compared with 16.4 for the other 496 companies and 17.9 for the index as a whole.

Keith Lerner, co-chief investment officer at Truist in Atlanta, calculates the 4 stocks’ average 12-month forward P/E ratio as 42. This compares with a 10-year average of 49.6. The average 12-month forward P/E ratio for the other 496 is 20.8.

Whatever way you cut it; the mega stocks are extremely expensive relative to the other rest of the market.

Analysts at JPMorgan point out that as a share of total shares outstanding, tech has the lowest short interest across US equity sectors. Everyone wants a piece of the Big Techs, from central banks to mom & pop investors in their 401 accounts, for many reasons – safety, liquidity, an interest rate and valuation play, a bet on AI, a nod to ESG. There continues to be a multiple reasons why to own Big Tech stocks for the short and long term.

Linking to dividend paying stocks, while you own them for the dividend over the long term, part of the reason you buy them is potential growth. Profitable stocks which can pay dividends over the long term tend to go higher. The most widely used stock market indicator is the P/E Ratio and it is a ratio which allows you to compare what is relatively inexpensive today and what history tells you the P/E Ratio could be. Then you have to do your homework to determine which stock to buy as it moves to another multiple upward as well as paying a healthy dividend.

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

After WW II, the war was over and men came back to the US and the economy was good. It stayed good as Europe had to be rebuilt, the manufacturing base was humming, people could find work in offices across the land and it general it felt good to alive. When it feels good to be alive, people have children and with an average of 5 children per household, a baby boom started. The baby boom would last into the 1960’s, after these years of change in the US, the birthrate slowed down. Families were having 3 children and now they an average of 2 to 3. The affect on the US has been as the baby boom aged first there was a boom in school buildings and the teachers that needed to teach them. Then the baby boom moved into the work force and what people did for a living changed from what their parents did for a living. For generations, people tended to follow whatever their parents did, but with the baby boom new opportunities in the service area opened up. The baby boom is now above 60 years of age and soon about one third of the population will be retired. In another 30 years, most of the baby boom will have died or will be close to death which implies different aspects to the health system, but it also means wills will send money to the next generation.

In an article by Talmon Joseph Smith and Karl Russell of the New York Times News Service, an intergenerational transfer of wealth is in motion and in will dwarf anything of the past. 73 million baby boomers, the youngest is 60 and the oldest are 80, many will die and leave money to their heirs.

In 1989, total family wealth was about $38 trillion, adjusted for inflation. In 2022, the number had tripled to $140 trillion. Of the $84 trillion projected to passed down from older Americans to millennial and Generation X heirs through 2045, $16 trillion will be transferred within the next decade.

The wealthiest 10% will be giving and receiving a majority of riches, within that range the top 1% – which holds about as much wealth as the bottom 90% will dictate the broadest share of money flow.

Although the top 1% is overwhelming white, there are now over one million US high net worth investors are Black, Asian, Hispanic or Latin.

Linking to dividend paying stocks, 100 years ago people though about selling the family farm as a retirement, sometimes selling to the oldest child or the one that liked farming. In the urban environment, if you worked for someone else it is the family home, investments and insurance policies which account for wealth. Those services can be provided by the big banks which tends to mean the fees they earn can last a long time to come. As long as the financial institution is reasonably managed, it should be profitable and pay dividends for generations to come.

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