‘Tis The Season

It’s getting to be that time of the year and since I don’t think the grandkid reads this thing, I figured I’d share one of the presents she’ll be getting.  Just to review, each year since she came to live with us she has received shares in a company as a gift. This gift has been purchased in a company DRIP, established as a Custodial Account of which I’m the custodian. Generally, the company is one in which she can relate, i.e., Trix was her favorite cereal as a kid hence the General Mills stock.

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It’s Not Our Fault

There is a trend occurring that I find troubling to say the least. It is the inability of people in power – essentially those in control of a given situation – to take ownership of a failure. Gone are the days of Harry Truman who popularized the concept of accepting personal responsibility rather than assessing blame with his famous desktop sign stating, The Buck Stops Here. We accept the fact that in politics the notion of assigning fault to a predecessor is commonplace, although not necessarily right. It is what it is. To that end, I feel this is but one reason the majority of citizens have a significant disdain for politicians.

Recently I’ve noticed an increasing number of people in business who appear to subscribe to this political theory.  Forget about asking forgiveness of their customers and outlining remedial actions to remedy the problem. In my book, corporate officers who make the choice to deflect blame rather than accepting responsibility should be replaced as this easily could be a sign of more significant problems simmering beneath the surface.

The first resident of my Wall Of Shame is Reggie Fils-Aimé, president of Nintendo of America. In an interview discussing delays on the Switch, said, “We don’t want to have a consumer disappointed by not being able to get one for the holiday season. But managing that complex supply chain is a challenge.” and “… what I don’t know is what the demand is going to be. And there is a potential that demand is going to outstrip supply.”

Regarding the SNES Classic, he blamed problems “outside our control” at retailers. Looks like they could use a new forecasting methodology, less complex supply chain and greater control over the retail channel? Perhaps even communicate with buyers.  Maybe the answer is much simpler – as in reshuffling maybe the C-Suite?
The second entrant is Rick Smith of Equifax which fessed up to a massive data breach on September 7th. The hack was discovered July 29th (and began in May) and about August 2nd and 3rd, three executives (reportedly in a planned 10b5-1 sale) sold about a combined $1.8m. While the optics don’t look good on this event, it only gets better.

They then blamed a flaw in the open-source software created by the Apache Foundation (STRUTS) without disclosing whether the patches released by Apache since March were properly applied. In a response September 14th, Apache said they weren’t. Also September 14th, CNBC reports that ‘admin’ was used as the database password in Argentina.

The wisdom of using open-source versus proprietary software should be questioned as well as the sheer stupidity exhibited by their administrators.  Then in an attempt to limit liability, their “free” credit monitoring had a provision limiting the legal actions affected consumers could use.  This was subsequently updated with a statement saying, “enrolling in the free credit file monitoring and identity theft protection products that we are offering as part of this cybersecurity incident does not prohibit consumers from taking legal action.” At week’s end, two exeutives “retired” effective immediately.  But not the CEO.

The Fool highlights some other examples but none are nearly as brazen as these two.  I do not own Nintendo (NTDOY) but have them on my watch list.  Perhaps their actions are little more than a misguided marketing ploy to stimulate sales.

I do own a small slice of Equifax (EFX) which is now under water.  As this space is controlled by the tri-opoly of Equifax, Trans Union (TRU) and Experian (EXPGY) there is not significant competition.  In fact, most US mortgages are scored using a merged report of these three bureaus.  So my game plan is to ignore TRU (no dividend), wait to add to my EFX position (so as not to catch a falling knife) and look closely at initiating a position in Experian.  There are rumors that EFX may now be a takeover target as well.

Update 26 Sep 2017 – Rick Smith CEO of EFX has retired effective immediately

So any thoughts on the data breach or other blame games?

Week in Review

Blog Update

This week I finally decided to do a little housekeeping on the portfolio section of the site, getting rid of the XIRR column – which is probably meaningful only to me, and adding price (updated with roughly 20 minute delay), prior dividend, dividend frequency, ex-div date (which may or may not be retained) and cost basis.  The Div Wt column is updated when a dividend is credited and reflects the YTD weighting which is most accurate at the end of each quarter.  Basically I’m trying to reduce manual intervention.

Weather Updates

As Texas begins their recovery process from Harvey, Irma slams into Florida and Jose is lurking just behind.  One has to wonder as to the luck of Maersk (AMKBY) who diverted the Ohio from Houston (Harvey) to Freeport (Irma).   I’m also keeping an eye on Antigua and Barbuda where I’ve frequently vacationed and enjoyed their hospitality on my honeymoon years ago.  Impacted issues may include Disney (DIS) and Comcast (CMCSA) as well as the entire Florida tourism and orange businesses.

The End of the Year

As I was updating the site, I realized that two issues have already paid their final 2017 dividends.  Delving a little deeper shows all of my holdings are past the ex-dividend date for a September dividend leaving but one quarterly payment remaining.  This is only a reminder that time is running out on impacting 2017.  Generally I enter October with an eye on the strategy for the upcoming year as most of my moves will have a minimal impact on the current year.

More Dollar Weakness?

Deutsche Bank argues that more weakness is in store for the US dollar as a result of current monetary policy and a failure of the market to price in further 2017 rate hikes.  They may be onto something as hurricanes and a lack of rational policy agendas from Washington can also be added to the mix.  Now this could be good for exports but lousy for the typical consumer.

Hope your week was uneventful.

 

August 2017 Update

The markets ended the month generally flat while whip-sawing in between on geo-political news (North Korea), domestic disturbance (Charlottesville) and natural disaster (Harvey) taking center stage.  I did deploy a minimal amount of new capital along with dividends received in some positioning moves.  The S&P ended the month up .05% while my portfolio lagged by dropping -0.34%.  The differential can be explained by two events, 1) higher exposure to Texas (e.g., hurricane), and 2) the month-end rise in the US dollar causing my foreign issues to drop a little.  For the year, I remain ahead of the index by 4.47%.

Headlines impacting my portfolio (bold are owned):

  • 8/3 – IVZ in talks to buy Guggenheim Ptnrs ETF business
  • 8/3 – VLO agrees to export refined fuels to Mexico through iEnova (SRE subsidiary)
  • 8/3 – SRC announces spinoff of Shopko properties
  • 8/4 – Ackman requests delay in ADP brd nomination deadline as “8% owner”
  • 8/4 – LAMR acquires Philadelphia market billboards from Steen Outdoor
  • 8/8 – ONB acquires Anchor Bank (MN)
  • 8/10 – PYPL acquires Swift Capital (Del.)
  • 8/10 – INVH and SFR agree to merge (BX stake to be abt 41%)
  • 8/15 – KEY acquires Cain Brothers (pvt)
  • 8/16 – TU acquires Voxpro (pvt)
  • 8/16 – PLD buys out CCP (CYRLY) JV
  • 8/20 – GS approved for Saudi Arabian stock trading license
  • 8/22 – PAYX acquires HR Outsourcing Inc. (a Clarion Capital portfolio company)
  • 8/22 – CLX sells Aplicare line to Medline (pvt)
  • 8/22 – BX considering an IPO/sale of Gates Global
  • 8/30 – KSU forms JV with Bulkmatic for bulk fuel terminal in Mexico
  • 8/31 – BNS confirms discussions to acquire Chile operations from BBVA Spain

Portfolio Updates:

  • Added to VLO
  • Added to LARK
  • Added to AROW

LARK and AROW were positioning moves ahead of anticipated stock dividends (3% announced by AROW post purchase)

Dividends:

  • August delivered an increase of 22.24% Y/Y with the about half of the increase being attributable dividend increases and the other half purchases.
  • August delivered a decrease of 12.99% over last quarter (May).  Semi-annual payers, a date change due to a merger, and normal BX dividend being the culprits.  Also a Singapore dividend paid in August (locally) has yet to be paid via Citi’s ADR (now likely Sept.), so I expect September to be firing on all cylinders.
  • Declared dividend increases averaged 10.92% with 62.71% of the portfolio delivering at least one increase (including 2 cuts and 1 suspension)
  • YTD dividends received were 75.91% of total 2016 dividends which if the current run rate is maintained would exceed last years’ total in early November

Spinoffs:

Brighthouse Financial (BHF) (MET spin) has been received.

Mergers:

AGU/POT (Nutrien) remains pending, SGBK/HOMB received regulatory approval and is expected to close late September.

Summary

Overall another positive month with the only disappointment being the Q/Q dividend decline – which was unexpected.  The primary metric (annual dividend increase) remains on target and well ahead of inflation.