Author Archives: Edward Brownlee

The Cockroach Theory

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At a restaurant, a cockroach suddenly flew from somewhere and sat on a lady.

She started screaming out of fear.

With a panic-stricken face and trembling voice, she started jumping, with both her hands desperately trying to get rid of the cockroach.

Her reaction was contagious, as everyone in her group also got panicky.

The lady finally managed to push the cockroach away but …it landed on another lady in the group.

Now, it was the turn of the other lady in the group to continue the drama.

The waiter rushed forward to their rescue.

In the relay of throwing, the cockroach next fell upon the waiter.

The waiter stood firm, composed himself and observed the behaviour of the cockroach on his shirt.

When he was confident enough, he grabbed it with his fingers and threw it out of the restaurant.

Sipping my coffee and watching the amusement, the antenna of my mind picked up a few thoughts and started wondering, was the cockroach responsible for their histrionic behaviour?

If so, then why was the waiter not disturbed?

He handled it near to perfection, without any chaos.

It is not the cockroach, but the inability of those people to handle the disturbance caused by the cockroach, that disturbed the ladies.

I realized that it is not the shouting of my father or my boss or my wife that disturbs me, but it’s my inability to handle the disturbances caused by their shouting that disturbs me.

It’s not the traffic jams on the road that disturbs me, but my inability to handle the disturbance caused by the traffic jam that disturbs me.

More than the problem, it’s my reaction to the problem that creates chaos in my life.

Lessons learnt from the story:

I understood I should not react in life.

I should always respond.

The women reacted, whereas the waiter responded.

Reactions are always instinctive whereas responses are always well thought of.

Always attempt to respond to situations and never just react !

Be HAPPY not because Everything is RIGHT in your Life.

Be HAPPY because your Attitude and Mindset towards Everything in your Life is Right!

September is National Suicide Prevention Awareness Month

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September is National Suicide Prevention Awareness Month.

  • Suicide is the 11th leading cause of death in the United States.
  • In 2021, there were 48,183 Americans that died by suicide.
  • In 2021, there were an estimated 1.70 Million suicide attempts.
  • On average there are 132 suicide per day.

Imagine if we could walk together toward a world without suicide. One in which we all have a greater understanding of mental health. One in which we all know how to be there for each other, including ourselves, when someone is struggling.

Artwork by Devon Blow

Together we can make a difference and break the stigmas around mental health, helping to prevent another person from taking their own life. Suicide prevention starts with all of us.

Morningstar’s 33 Undervalued Stocks

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33 Undervalued Stocks for Q3 2023, according to Morningstar

Here’s the list of Morningstar’s top underpriced stock picks for the third quarter of 2023.

  1. Albemarle ALB
  2. Berkshire Hathaway BRK.B
  3. Blackstone BX
  4. Citigroup C
  5. Cognizant Technology Solutions CTSH
  6. Conagra Brands CAG
  7. Corteva CTVA
  8. Curaleaf CURLF
  9. Dover DOV
  10. Dow DOW
  11. Duke Energy DUK
  12. Entergy ETR
  13. Federal Realty Investment Trust FRT
  14. Hanesbrands HBI
  15. HF Sinclair DINO
  16. Illumina ILMN
  17. Jacobs Solutions J
  18. Kraft Heinz KHC
  19. Moderna Therapeutics MRNA
  20. NiSource NI
  21. Park Hotels & Resorts PK
  22. Pinterest PINS
  23. Salesforce CRM
  24. SLB SLB
  25. Stericycle SRCL
  26. Teradyne TER
  27. TC Energy TRP
  28. Tyson Foods TSN
  29. VF VFC
  30. Ventas VTR
  31. Verizon Communications VZ
  32. Walt Disney DIS
  33. Zimmer Biomet ZBH

Source:  https://www.morningstar.com/stocks/33-undervalued-stocks-2

Stock picker factors:

  • Stock price is cheap relative to intrinsic value,
  • Company pays investor to wait
  • Company ability to repurchase stock at a reasonable price
  • Stock must be cheaply price (ROE, ROIC, P/E, P/Sales, P/FCF)
  • Buy something at three-time cash flow and five percent dividend yield.

Source:  https://www.morningstar.com/stocks/33-undervalued-stocks-2

The Passing Away of the WWII Generation

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Behind every living person lies a great story waiting to be told. One of life’s greatest tragedies is dying without telling your story. Regrettably, the stories and experiences of many African American WWII veterans are going untold.

The Passing Away of the WWII Generation
Every single day in the calendar year 2023, World War II veterans’ stories and personal experiences are disappearing forever. Yielding to the inevitable aging process and time, the men and women who served, fought, and won the great conflict are now in their mid-90s or older. The youngest veteran is estimated to be 95 years young.
According to US Department of Veterans Affairs statistics, 167,284 of the 16 million Americans who served in World War II were alive in 2022.
The book ‘African American Experience During World War II’ provides the stories and experiences of the 1.6 million African American soldiers, sailors, airmen, and Marines who served and fought during World War II.

China is No Longer Investable

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Investing capital in China is both risky and is wildly unpredictable given the country’s lack of transparency, weak accounting standards, absence of the rule of law, and poor regulatory oversight.

Worse, the fate of the Chinese economy and business environment is almost entirely dependent on the domestic and global aspirations of a single man, Chinese authoritarian President Xi Jinping.

China is not a democracy and does not abide by the rule of law. Chinese Communist government’s sweeping control over the economy puts businesses, especially American-based firms, in a delicate position in trying to avoid the ire of President Xi and the Chinese government.

Hedge fund manager Kyle Bass, founder of Hayman Capital Management and long time critic of Communist China, has long proclaimed, “You have to say, each country run by maybe a despotic authoritarian should be re-reviewed and maybe not invested in.”

Bass cautioned against investing in Chinese stocks. He highlighted the risk of accounting fraud due to a lack of financial audits in China, and the prospect of further regulatory crackdowns on Chinese companies in the U.S. and crackdowns on American companies in China.

References:

  1. https://www.fool.com/investing/2021/07/08/chinese-stocks-are-crashing-buy-the-dip-or-stay-aw/

U.S. Credit Card Debt

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  1. Total U.S. credit card debt reached an all-time high in the first quarter of calendar year 2023, reaching $1.03 trillion, according to data released Tuesday by the Federal Reserve Bank of New York.

Rising credit card debt and auto loan balances helped to drive overall household debt levels up 1%, to $17.06 trillion for the quarter, the report showed. Overall household debt has spiked by $2.9 trillion since the end of 2019, before the pandemic.

Key facts:

  • The average American credit card debt balance is $5,910, as of the third quarter of 2022, according to Experian.
  • Americans have an average credit utilization rate of 28%.
  • Credit card interest rates have reached an average of 20.92%.
  • White Americans have the highest average credit card debt of any racial group at $6,940.
  • Higher earned income corresponds to larger credit card balances, but consumers in the middle income brackets are the most likely to have credit card debt.

References:

  1. https://www.fool.com/the-ascent/research/credit-card-debt-statistics/
  2. https://www.cnn.com/2023/08/08/economy/us-household-credit-card-debt/index.html

Return on Invested Capital (ROIC)

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  • The ROIC is the operating profit divided by the invested capital. It tells us how much money the company can generate with new capital by investing in profitable projects.
  • The ROIC basically explains how much shareholder wealth could be generated in the future and is oftentimes highly correlated with a high P/E.

Return on invested capital, or ROIC, is a valuable financial ratio  A high ROIC rewards companies that are able to produce the most net operating profit with the least amount of invested capital.

The basics of ROIC are very simple: it basically tells us how much profits are generated (financials statement) compared to how much capital is invested in the company (balance sheet), provided as a percentage. If the ROIC is 10%, it tells us that the company is generating $10 of profits with each $100 that it invested in the company.

ROIC is net operating profit minus taxes minus dividends divided by invested capital:

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ROIC is net operating profit minus taxes minus dividends divided by invested capital:

ROIC is a measure of how much cash a company gets back for each dollar it invests in its business.

ROIC is a much better predictor of company performance than either return on assets or return on equity. In ROA and ROE, the key metric is net income. Net income often has nothing to do with the profitability of a company. Significant expenses are not included in net income such as interest income, discontinued operations, minority interest, etc. which can make a company look profitable when it is not. Also, ROA measures how much net income a company generates for each dollar of assets on its balance sheet. The problem with using this metric is that companies can carry a lot of assets that have nothing to do with their operations, so ROA isn’t always an accurate measure of profitability.

ROE has similar limitations as ROA. ROE is a measure of company profit compared to shareholder equity. Although this might seem a reasonable metric, many companies use financial leverage to raise ROE. Companies often increase debt levels to repurchase shares, thereby increasing ROE. Using this financial leverage to affect ROE does not accurately reflect a company’s profitability, returns or long-term prospects.

Companies with higher-than-median ROIC (when viewed in conjunction with their overall capital-expenditure and operating-expenditure strategy) will deliver better returns.

Valuation biasedness is one of the most common investing errors.

Some investors prefer picking a stock which is “undervalued” rather than buying a more expensive stock with strong long-term fundamentals. As a consequence, they oftentimes end up with “value traps” which actually destroy shareholder value over time. One of the reasons for this is that they know how to “value” a company (via multiples etc.), but lack the ability to determine the quality of a company and its potential to drive long-term value for shareholders.

The most important metric will tell you whether you are buying a good company that is able to generate strong future shareholder wealth: the return on invested capital (“ROIC”).

Basically, investors should look for a high (+10%) and consistent ROIC. In the long run, the ROIC can be a leading indicator of what an investor may expect from longer term stock returns.

References:

  1. https://www.thestreet.com/opinion/10-stocks-with-high-return-on-invested-capital-and-why-you-should-care-13279076

September is Healthy Aging Month

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September is Healthy Aging Month

According to the Centers for Disease Control and Prevention (CDC), Adults aged 65 and older need:

  • At least 150 minutes of exercise a week (for example, 30 minutes a day, 5 days a week) of moderate-intensity activity such as brisk walking. Or they need 75 minutes a week of vigorous-intensity activity such as hiking, jogging, or running.
  • At least 2 days a week of activities that strengthen muscles.
  • Activities to improve balance, such as standing on one foot about 3 times a week.

If chronic conditions affect your ability to meet these recommendations, be as physically active as your abilities and conditions allow.

Examples of Aerobic Physical Activity
According to the CDC, aerobic physical activity or “cardio” gets you breathing harder and your heart beating faster. From pushing a lawn mower, taking a dance class, walking or biking to the store – these types of activities and more count. As long as you’re doing aerobic physical activities at a moderate- or vigorous intensity, they count towards meeting the aerobic guideline. Even something as simple as walking is a great way to get the aerobic activity you need, as long as it’s at a moderately intense pace.

Intensity is how hard your body is working during physical activity. Try a few of these aerobic activities:

  • Walking or hiking
  • Some forms of yoga
  • Some yard work, such as raking and pushing a lawn mower
  • Bicycle riding (stationary or outdoors)
  • Water aerobics

“Higher intensity exercise had greater improvements for depression and anxiety, while longer durations had smaller effects when compared to short and mid-duration bursts.

“We also found that all types of physical activity and exercise were beneficial, including aerobic exercise such as walking, resistance training, Pilates, and yoga

https://tinyurl.com/mt2j67jy