Fed Up – Movie Review

Last Friday, my wife and I went out to watch the new health documentary Fed Up. The main theme of the movie is about the obesity epidemic in the US, how the US government has been unable to fight the corporations effectively and takes a head-on fight against sugar. The movie is produced and narrated by Katie Couric, featuring interviews from high profilers such as Bill Clinton, Michael Pollan etc.
Fed Up – The Trailer
The argument that the movie producers are trying to make is that working out isn’t enough to lose weight; and the scales are tipped against an individual’s favor when considering the amount of junk food available everywhere. Kids from a very young age are targeted in advertising and are hooked onto the legal drug – sugar. Parallels are drawn between the current junk food industry and the cigarette industry from the yesteryears. The movie producers and the speakers in the documentary call for a change in food habits and for the government to act accordingly.

While nothing new to health nuts such as my wife and I, this movie is probably an eye-opener for plenty of people, who have no idea where their food comes from and how the un-nutritional and harmful processed food generally is. We felt that the movie got very repetitive, but we could see why the producers had to do that in order to get the message across. So, that was our short takeaway from the movie, and with that out of the way, lets see why I am writing about a health documentary on this blog.

In addition to watching a health-related documentary, my investor brain was kicking in, trying to find opportunities in the trends identified. The movie focuses on the processed food industry such as McDonalds (MCD), Coca Cola (KO), PepsiCo (PEP), Kellogg (K) etc, which are the darlings of the investor world. However, what the movie misses to address is how the US government is also enabling this by subsidizing the agricultural sector to produce mass levels of corn syrup, which finds its way into a majority of the products. There was one statement from Bill Clinton that touched on this issue when he states “I don’t think high-fructose corn syrup is a good use of corn”, but seemed to have been missed by the producers as a point of emphasis.
I am not yet invested in the processed food manufacturing industry, but hold stocks in agricultural giant – Archer Daniels Midland (ADM), which receives plenty of subsidies from the US government. In addition to receiving subsidies from the government to produce increased levels of corn for food, corn is also used as an energy source in the production of ethanol and bio-fuel.

The movie simply states some facts such as the rise in obesity, heart diseases etc. One “fact” that was stated in the movie that caught me by surprise was that we now have a lowered life expectancy than the previous generation, although my follow-up research does not seem to suggest any such thing (Source: World Bank data). The advancements we’ve achieved in the pharmaceutical industry (lots of investment opportunities there) and the medical procedures have elongated our life expectancy for sure. How good is the quality of life, is a completely other question.
The increased levels of unhealthy living leading up to obesity, diabetes and heart diseases are probably the best opportunity for investment – as I realized it a few years ago and started investing by initiating positions in companies such as Johnson & Johnson (JNJ) and Medtronic Inc (MDT). I also invested heavily over the last few years in a healthcare mutual fund which I recently sold after doubling my investment, but I still maintain the positions in JNJ and MDT and intend to add more to my positions in the future.

I recommend watching this movie for two reasons: (a) to educate yourself about healthy living and learn about the obesity epidemic in the US and (b) to identify and observe investment opportunities.
Full disclosure: Long ADM, JNJ and MDT. My full list of holdings can be found here.

Chatter Around the World – 44

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

History of Bulls & Bears since 1920

New Blog Posts

Let’s dive into the links that caught my attention this week.

Updates from My Portfolio Holdings

General Reads

Dividend Reads

Dividend Stock Analysis

< All Previous Weekly Links

Have a wonderful weekend.

Passivity of Income

Regular readers of this blog know that I employ various sources of passive income to achieve financial independence. Passive income is a powerful mechanism where I make my money work for me. Since there are various ways to generate passive income and there is always a question of passivity of the income source, this post delves deep into the methodologies and assigns a passivity index to each method.

This article was inspired by a post from FIFighter where he discussed the passivity of each income method and explored how much time needs to be dedicated per week. In this post, I build on that idea with more sources of passive income covered, and explore other details such as the relative risk and reward of each system. Note that these are the risk and reward numbers as per my personal opinion and may differ for each individual. I employ a scale of 0-10 for the risk-reward system, where 0 indicates no risk or no reward and 10 indicates max risk and max reward.

Keep in mind that the following discussion pertains only to passivity of income for each method. By that measure, Income Methods such as Internships & Volunteering and Active Jobs have no associated risk and reward when it comes to passive income and are thusly marked NA.

Income Method Passivity Index  Risk  Reward
Internships &
Volunteering
-1 NA NA
Active Job 0 NA NA
Royalties-1 1 7 9
Real Estate-1 2 7 8
Royalties-2 3 2 6
Trading 4 10 10
Active Investing 5 8 10
P2P Lending 6 9 7
Real Estate-2 7 7 7
GICs &
Bond Investing
8 3 5
Passive Investing 9 2 8
Savings 10 0 1

-1. Internships & Volunteering

This has a negative index on the scale of passivity for obvious reasons. Working as an intern or volunteering means that you not only not generating passive income, but are also not compensated for your time and effort. However, this does not mean that these are necessarily bad. Internships and volunteering can provide invaluable experience that can benefit you in future career or be beneficial in intangible ways.

Passivity Index: -1
Risk: NA
Reward: NA
0. Active Job
This is your regular run-of-the-mill active job for which you are compensated appropriately. The money you earn as income is directly proportional to the amount of time you put in and depends on various factors such as expertise, experience and negotiation skills.
Passivity Index: 0
Risk: NA
Reward: NA
1. Royalties-1
Royalties-1 is anything that requires immense amount of work upfront. Examples include a book or a patent. If we consider the case of a book, work here involves not only writing the book, but you have to work on negotiating a book deal with the publishers, work with designers, market it with book tours etc. It is for this reason that the passivity index is low on this income method. The risks are fairly high as your book has to compete with a lot of other material out there and can get lost in the noise. But the potential rewards are great. Many writers have been able to retire by simply relying on royalties collected from a best seller book.

Passivity Index: 1
Risk: 7
Reward: 9

2. Real Estate-1
Real Estate-1 includes buying real estate and becoming a landlord to rent and manage the property by yourself. This involves a bit of work as you have to screen the tenants, collect the cheques (the easy part :), act quickly if tenants are missing deadlines for rent cheques, address complaints about the property etc. The risk associated involves ending up with problem houses, having problem tenants, potential of missed income if vacant; but the rewards are great as it provides you with a monthly income and if done right, will result in positive cash flow.

Passivity Index: 2
Risk: 7
Reward: 8

3. Royalties-2
Royalties-2 includes earnings where publishing does not include as much of work upfront. Keep in mind that publishing still requires work, but what I refer to here is where you self-publish or e-publish such as online articles, e-books or blogging. The entry point and the hurdles at the beginning to get started are slightly lower here, but still requires marketing (SEO) and other efforts earlier discussed. In my case, blogging on this site brings me advertising revenue and writing content for third party websites provides me with passive income as well.

Passivity Index: 3
Risk: 2
Reward: 6

4. Trading
This income method involves actively trading on the financial markets, which could be trading stocks, bonds, options, futures etc. Traders buying and selling constantly requires work as time and effort has to be poured into understanding the trade. While not a completely passive method, the risks are extremely high as it requires the trader to time the market, an extremely difficult task, but the rewards are just as great if you are on the right side of the trade.

Passivity Index: 4
Risk: 10
Reward: 10

5. Active Investing
Active investing involves investing in companies that you want to own as a business. This usually involves investing in the company stock and holding it for the long run, with income coming through profit sharing via dividends and distributions. Picking the right companies that can perform well year-in and year-out is the risk involved. Holdings stocks for income can be very rewarding as the dividends start rolling in. As a dividend growth investor, this is one of my primary sources of passive income.

Passivity Index: 5
Risk: 8
Reward: 10

6. P2P Lending
P2P lending involves lending money to another person for a higher than market interest rate, which can be rewarding if the borrower pays back. However, the risk is higher as you have to trust that the person would pay the loan back, and on time.

Passivity Index: 6
Risk: 9
Reward: 7

7. Real Estate-2
Real Estate-2 is similar to Real Estate-1 except that a property manager takes care of all the hassles for a small fee. The property manager acts as a middle-man dealing with the tenant, providing the owner/investor with more free time making this option more passive. The risk stays the same between the two options, but the reward diminishes a bit due to added costs.

Passivity Index: 7
Risk: 7
Reward: 7

8. GICs and Bond Investing
Investing in GICs and bonds can be quite passive and have a passivity index of 8. However, investors have to keep an eye out for macro economic measures and where the interest rates are going. Since the Fed and/or central banks around the world do not change interest rates on a monthly or quarterly basis (even though they meet frequently), the investment horizons are generally in years and decades. The risks are low as it is guaranteed income for the period, but there are risks involved nonetheless. If the interest rates rise, the face value of the bonds can fall. Similarly, GICs locked-in for years can erode your wealth if there is rampant inflation.

Passivity Index: 8
Risk: 3
Reward: 5

9. Passive Investing
Passive investing is where you simply invest in the financial markets using a fund on a periodic basis. Investors using the passive investing method seldom pay attention to what is happening on a day to day basis in the market and prefer buying broad funds that invest in indexes. This is one of the most common methods of investing, be it for beginners or seasoned investors who do not have the time to follow the markets and monitor closely. The risks are mitigated when using broad index funds and the rewards can be great as long as the expenses are kept in check.

Passivity Index: 9
Risk: 2
Reward: 8

10. Savings
Savings accounts provide the most passivity, but also have the least reward. Over a short period of time, the interest generated by savings accounts can be rewarding, but over time the cash loses value as inflation erodes the buying power. The interest paid by savings accounts seldom keep up with inflation. However, there is no risk associated with savings accounts as they are usually insured by a federal agency.

Passivity Index: 10
Risk: 0
Reward: 1

So there you have it. That should provide you with an idea of how to generate passive income and understand the risks and rewards associated with each. I would love to hear your thoughts, comments and/or questions. Feel free to start a conversation below.

The Bright Future of Data Pipes

The rise of smart-devices has led to a tremendous growth in data over the last decade, but is expected to rise exponentially going forward. The push for smart devices including phones, tablets, wearables, cars and Internet-of-things has resulted in data moving to the cloud for better synchronization, storage and analysis. The common denominators that stand to benefit from the need for infrastructure support for communication includes cable,  internet and wireless service providers.

To read the full article, click here.

 

10 Dividend Paying S&P 500 Stocks Near Their 52-Week Lows

It is hard to find a bargain in the US market these days. The major indices are at their all-time high and bond yields are close to their all-time lows. Stocks have had quite a run up and investors hunting for income have driven up the prices of most dividend paying stocks. However, there are still a handful of companies in the S&P 500 that are near their 52-week lows at these stratospheric levels of the index.
The Screener
The following list has been screened for only dividend payers belonging to the S&P 500 index with a current price of 0-5% above their 52-week lows. The screener has yielded one company in Basic Materials sector, four in Consumer Goods, two in Financials, two in Technology, and one in Services. Without any further ado, heres are the companies that fit the criteria.
1. Avon Products Inc (AVP) manufactures and markets beauty and related products with operations all over the world. The major categories of products include beauty products, fashion products home products and nutritional products. The stock is currently priced at $13.60, which is 2.87% higher than its 52-week low of $13.22. AVP yields 1.76% and has seen six different insiders purchase the stock this month.
2. Citigroup Inc (C) is a diversified financial services holding company, provides various financial products and services to consumers, corporations, governments, and institutions. The company’s Global Consumer Banking segment provides traditional banking services to retail customers through retail banking, commercial banking, Citi-branded cards, and Citi retail services. It offers various banking, credit card lending, and investment services through a network of local branches, offices, and electronic delivery systems. The stock is trading at $46.99, which is 4.38% higher than its 52-week low of $45.02. The stock yields 0.09%.
3. Coach Inc (COH) is a popular brand in fashion, especially handbags. The company also makes accessories, wearables, jewelry, sun-wear, travel bags, watches and fragrances. Coach Inc markets its products to consumers through a network of company-operated stores in North America, and Asia. In addition the company sells its products to wholesale customers and distributors in approximately 25 countries. The stock is currently trading at $42.12, which is 1.2% higher than its 52-week low of $41.62. The stock yields 3.21%.
4. Family Dollar Stores Inc (FDO) operates a chain of self-service retail discount stores primarily for low- and middle-income consumers in the United States. FDO currently operates 8,100 stores in 46 states. Merchandises include consumables such as household chemicals, paper products, food products, health and beauty aids, hardware and automotive supplies, pet food and supplies, and tobacco, home products and fashion accessories. FDO is currently trading at $57.84, which is 3.86% higher than the 52-week low of $55.69. The stock yields 2.14%.
5. International Game Technology (IGT), a gaming company, designs, develops, manufactures, and markets casino-style gaming equipment, systems technology, and game content for land-based and online markets worldwide. The company offers casino-style games; casino-style slot machines that determine the game play outcome at the machine; wide area progressive jackpot systems with linked machines across various casinos; and central determination system machines connected to a central server, which determines the game outcome, encompassing video lottery terminals used primarily in government-sponsored applications and electronic or video bingo machines. IGT is trading at $12.22, just 0.49% above the 52-week low of $12.16. The stock yields 3.6%.
6. Loews Corp (L) Loews Corporation operates primarily as a commercial property and casualty insurance company. The company provides risk management, information, warranty, and claims administration services; management and professional liability insurance, and other specialized property and casualty coverage; commercial surety and fidelity bonds; and warranty and alternative risk services for vehicles. It is also  involved in the transportation and storage of natural gas and natural gas liquids (NGLs), and gathering and processing of natural gas. Loews is currently trading at $43.25, which is 1.6% higher than the 52-week low price of $42.57. The stock yields 0.58%.
7. Leucadia National Corp (LUK) through its subsidiary, Jefferies Group LLC, primarily operates in the investment banking and capital markets sector. The company also owns and holds investments in various other businesses, including beef processing, manufacturing, energy projects, asset management, and real estate. It is engaged in equities research, sales, and trading activities; financing, securities lending, and other prime brokerage; wealth management; fixed income sales and trading; futures, foreign exchange products, and commodities trading; and equity and debt financing activities, as well as provides equity capital markets, debt capital markets, financial advisory, mergers and acquisition, and restructuring and recapitalization services in the Americas, Europe, and Asia. The company also processes, packages, and delivers boxed beef, ground beef, hides, tallow, and other beef and beef by-products. Leucadia is currently trading at $25.60, which is 4.36% higher than the 52-week low of $24.53. The stock yields 0.98%.
8. NetApp Inc (NTAP) engages in design, manufacture, and marketing of networked storage solutions. The company supplies enterprise storage and data management software and hardware products and services. It offers FAS Storage Platform based on Data ONTAP, an operating system (OS) that supports storage area network (SAN) and network-attached storage (NAS) environments; storage efficiency technologies, such as FlexVol, FlexClone, and Deduplication technologies; and storage management and application integration software comprising OnCommand management software that controls, automates, and analyzes shared storage infrastructures. NetApp is currently trading at $34.19, which is 2.55% above the 52-week low of $33.34. The stock yields 1.75%.
9. Rowan Companies Inc (RDC) Rowan Companies plc provides offshore oil and gas contract drilling services. The company owns and operates 30 self-elevating mobile offshore jack-up drilling units and ultra-deepwater drill ships. It operates in the United Kingdom and Norwegian sectors of the North Sea, the Middle East, the United States Gulf of Mexico, Southeast Asia, West Africa, Trinidad, and Egypt. Rowan is currently trading at $30.86, which is 3.17% higher than its 52-week low of $29.91. The stock yields 1.3%.
10. Ralph Lauren Corp (RL) designs, markets, and distributes lifestyle products worldwide. It offers apparel, including a range of men’s, women’s, and children’s clothing; accessories, home products and fragrances. The company sells its products under various brand names and sells its products to department stores, specialty stores, and golf and pro shops, as well as through its retail stores, concession-based shop-within-shops, and its e-commerce sites. Ralph Lauren is currently trading at $148.81, which is 2.22% higher than the 52-week low price of $145.58. The stock yields 1.21%.
Do you own any of these stocks? The stocks may provide some attractive valuation and will need further research before investing.
Full Disclosure: None. My full list of holdings can be found here.