Appendix 9: Importance Of CSR : Wednesday, 29 March 2017: (04:04)

The number one hot topic of 21^st century is how ethical a company is or not. The larger the company is the more emphasis to its culture is given. It is not acceptable a company to maximize its wealth on disadvantage of third parties. The main requirement is the business to obey at least the law, however this is not enough anymore. It is “obliged” to act according to what the collector conscience says is right. Actually the company should awaken society’s awareness about their rights on this earth as well.

Tesco‘s turnover was steadily increasing till 2013. When Financial Authority Conduct started investigating the company’s accounting, an inaccurate financial disclosure was identified. Furthermore, the value of its products as well as the collaboration with its suppliers has been accused for an unethical misconduct. Its revenue has a downward trend which negatively affects the company’s profit. 2013 Profit before taxation was half than 2012 profit, in 2015 the company declared a loss of £6bn and in 2016 had a 162 m profit only.

Tesco is fan of the old fashion culture; in the past unethical activities used to provide the highest returns due to their opaque annual report. However, nowadays companies are “obliged”, due to competition, to become more and more transparent to public. The market is efficient and any disreputable information is able to harm the company’s financial performance decreasing its attractiveness to investors and customers. CSR researchers state the importance of customer satisfaction. Customers will to pay higher priced products if are engaged with ethical activities. However, Tesco’s revenue decrease was not that bad, consumers did not change their buying behavior and kept making their shopping from an unethical company. 

I live in England for three years now and I have never seen Tesco empty. On the contrary is always so busy! It might be cause is the only big supermarket in town though. However, personally never buy row materials like meat, fish or fruits and vegetables. Their taste is horrible.

From the shareholders perspective the company did not pay any dividends last year while its share price has dramatically been decreased, 3 times lower than the share price on 2013. Its lower prices sound like an opportunity to invest to a huge corporation however is been three years now that the company cannot overcome this downward trend. It announced a £85m to pay its investors back.

After the Enron scandal in 2001, and due to the media coverage of any unethical activity, companies try to become more and more ethical. The advantages of CSR projects overcome its disadvantages in long term basis. Society’s awareness has been dramatically enhanced the last couple of years, therefore CSR is able to influence every corporate activity, as customers, productivity, efficiency or investment attractiveness.

Appendix 8: Anglo American's recovery strategy: Monday, 27 March 2017: (15:55 )

Sometimes we have to sacrifice something, like sleep and hobbies, in order to achieve the maximum result of something else, like a high degree grade. For Anglo American though is more complicated when the commodities’ prices went down and the company was heavily indebted. The common sense would suggest the firm to increase its prices to avoid financial distress, however the CEO, Mark Cutifani, decided to reduce its portfolio imposing a $3bn asset sale.

When a company’s gearing is high, its fixed costs are paid with borrowed money. The financial distress is inevitable when the returns are decreased. However, if the level of costs is reduced the company might avoid this situation. A way to reduce these costs is to reduce the production level, as Anglo American decided to do. It decided to specialise on three instead of six commodities.

It is surprising that even when the commodities’ prices raised again he did not give up of his plan. Into contradiction he stuck to it and stated: “You cannot say that two good months in coal is a new world. That is the mistake we make in the industry. You get a little of joy and you think that the world has changed.” And surprisingly he was right, the result was to reduce the company’s debt by $1.5bn lower than what was expected, he just had to change its capital structure.  This is a good example of why lenders set disposal asset limits to the issuers. If Anglo American did not have the assets to sell and balance this financial sheets would had led to bankrupcty. Probably, would not be able to pay neither shareholders and especially nor the lenders who are on priority.

But what happened to shareholders’ returns though? Companies usually have high leverage in order to pay high dividends. In one year time Anglo America reduced its debt from $15 bn to less than $9 bn. As a sequence the dividends paid to shareholders were 0.32p on 2015 and zero on 2016. The company plans to delay the dividend payments till 2018 in order the company to recover from the financial crisis.

It was preferable for the company to reduce its attractiveness to new investors till it financially recovers rather than selling more assets in depreciated prices which they not reflect those assets’ real value. 

Appendix 7: "Curry in a hurry": Monday, 20 March 2017: (15:07)

The author of “Curry in a hurry as Just Eat Delivers” article, was questioning how a company like Just Eat Plc can be valued? Obviously its shares will be highly valued, about 535.5-559.0 GBp, is a successful combination of food, technology and psychology. An individual, like me, who does not like sharing food, is able to order as much food as wants without feeling is being judged.

The founder of Just Eat Plc knows how to take advantage of the market’s demands and needs with the current technological progress. This progress has become parts of our lifestyles and would be very difficult for an individual to live without the smartphone and 24/7 internet connection. This new lifestyle makes everything easier for consumers and firms. For instance Just Eat has increased its revenue due to its easy pattern which can be easily adopted by co-operators as restaurants and easily used consumers on different locations.

As an investor, who I am not, I am quite happy with the financial performance of this company as well. I invested my money on this company due to its future promising results. And in fact it worked better than I thought, its profits exceed the estimations and its liquidity has been increased more than 30% in a year. Its asset valuation has been increased as well, due to its geographical expansion.

However it would be rational for me to sale these shares since their value has been dramatically increased reaching the peak, is against investment rationality: I buy cheap shares with low returns in order to have high returns in long term. If I buy expensive and high risk shares, I might have high returns indeed but in short term, in long term it is very possible these shares will follow a downward trend.

The company has not even introduced a new project to justify the highly priced shares. The expansion of its already existing features are the firm’s promises based on which is not enough though. Its true has very strong liquidation and it boosts its cash flow valuation, but for an investor held money are useless.

The only problem is that I have not gotten my expected incomes yet. The company is using its incomes for its own expansion and therefore does not pay dividends. Shareholders are “committed” to those shares till the company decides to pay them back. It sounds absurd indeed however the expected return is expected/required to be very, very high. 

Appendix 6: What goes around comes around : Monday, 13 March 2017: (16:15)

Amec Foster Wheeler is John Wood Group’s main competitor. They are both multinational companies, headquartered in UK, are listed at London Stock Exchange and belong to FTSE 250 index. They operate in the same industry, their share prices usually meet each other (excluding the last couple of months) and have about the same revenue.

The reason a company exist is to increase its shareholders’ wealth, when a company A acquires another company B is expecting greater revenues and as a sequence greater dividends for its shareholders. When John Wood Group Plc decided to buy Amec Foster Wheeler’s all shares is expecting to exceed the amount of $12.3bn combined revenue. Of course an increased revenue does not mean higher dividends, at least for short term, since the company’s leverage is getting increased simultaneously.

The expected combined EBITDA is about $800m, almost double amount than what each company can achieve separately. Sounds quite attractive, however this ratio is not reliable at all. Is not taking into consideration the implications of payable interests and highly geared companies. When an acquisition take place the bidder has to take a very fat loan to pay the target company’s shares and to keep its own shareholders’ happy. The deal is set for a £2.2bn fully acquisition, added a 15.3% on the share prices as substantial premium for the AMFW’s shareholders’ persuasion. 

The bidder, WG, will join the economic gains from the combined operational synergies, which will be larger and more diversified, however it will sell some of AMFW operations. This acquisition is JWF’s mean for further growth, its pre-acquisition portfolio was based on oil and gas. Its post-acquisition portfolio will include renewables and mining services as well.

This horizontal takeover aims to fight with the commodities’ depreciation the last couple of years, its main strategy is to cut down its operational costs, £110m. Personally I think this takeover will be a huge failure since will be based on the upcoming shortcuts, firing its employees, in order to be able to pay its huge debts.

This type of policy doesn’t really work though. The company’s objective is to increase its revenue but at the same time is firing its employees who are its consumers as well. A policy that really does not make any sense. If its consumers are unemployed they will stop using cars, heaters etc. and as a sequence WG’s revenue will be decreased obviously!!! The irony is that WG’s chairman talks about customer relationship to support this takeover decision!!

I guess he doesn’t know that the earth is round, and as the law of cause and effect works: “What goes around comes around”. 

Appendix 5: New CEO new Dividends : Wednesday, 8 March 2017: (07:56 )

Last October Mr. Rorsted became the new Ceo of Adidas, a new CEO means a new dividend policy. Subsequently, a new dividend policy means new investors. The main goal is of course to bit Nike, personally I prefer Adidas’s shoes. They are very comfortable and they are perfect for a business attire, casual chic without looking short and fat. But I guess their target group are athletes and not business people. Probably that’s why lags behind Nike. Nike's shoes are mostly were at Olympic games and football leagues. 

Initially Mr. Rorsted introduced a new profit target: 15% increase every year for the next three years. His objective is fast growth, which is quite tempting but also too risky. I guess will imply many projects within the next three years in order to enhance its profitability. How about the investors’ dividends then?? Probably they have to be decrease or worse to be postponed. Adidas said they will sale some of their brands, which are not profitable, however, no one wants to buy them meaning their prices have to be dropped.

Observing the company's 5year share price fluctuation, a volatile trend is noticed. The company's share prices usually have an upward trend till August-September when they reach a peak and then follow a downward trend. But still their fluctuation those five years would worry me as an investor, “who I am not”.

Since May 2016 the company observes its highest prices. It could be correlated with the new CEO though. If the share price follows the usual trend, now is the best time for me to buy. Summer is coming and people don’t buy sneakers. The share price probably will fall and when September comes I will join high returns due to the demands for athletic shoes that specific period.

               

From the marketing perspective the company does a great job as well. They are cooperating (indirectly) with the Kardashian’s family-Kanye West. “History” can tell us how perfectly this family advertises products worldwide and especially in America, the firm’s targeted market for expansion.

However I have to check the annual report first before I buy. I have to find out about the dividend policy and the promises given by the CEO. I should had never checked those annual reports though. I’m 22 years old and I couldn’t read neither the highlights, which are supposed to be with bold letters and very unambiguous. The horrible colours chosen and the tiny letters made me suspicious, I guess the company tries to hide something.....  

It was strange that Rorsted’s first “letter from the CEO” did not introduced a new dividend policy, or at least to refer them. Since AG increased them by 40p why were not referred at the most important part of the annual report???

A 40p increase on dividend payments was suggested on AGM to be paid the followed May. Due to their realised profits this year, this increase is allowed.

I conclude that Adidas needs cash immediately, since initially starts selling its brands and now is promising higher dividends to increase its share price. In addition, it bought its own shares, 2,128,200 plus the ones from previous years (total=11,150,000 shares), joining the high returns from the multi-year shareholder return programme introduced in 2014.

The small sample used to analyse the company’s current financial performance, indicate a positive future which is supported by the new CEO and his new strategies. I might do a short term investment during this summers, I want to check the new CEO’s ambitious strategy for the following year first.

Appendix 4: "Perception can matter more than the Truth" : Tuesday, 21 February 2017: (11:37 )

The majority, including me, do not like banks. Banks are considered as our enemies who are constantly trying to get benefits from us. Especially when loans are taken, we are required to pay them back plus the interest and been stressed about the set deadlines for every instalment loan. I do not have a loan but still don’t like when the bank is on charge of my own money. For example, I wanted to sign a phone contract with O2, however Lloyds did not approve it. The reason??? Well, I have no idea why I was not allowed to use my own money for the transaction I needed them for.

On the one hand economic crisis terrifies us but on the other hand is a nice feeling knowing that your “antipathy”, in this case the banks, is on discomfort like in 2008 economic crisis. From 2000 till 2007  mortgages and credit cards were in fashion. Every individual wanted this “easy” money without worrying the repayment since it would be requested in the future.

But why were the banks sharing these “easy” money?? The more money were given to  public, especially for mortgages, the greater banks’ cash generation were. Price of houses indicated a constant increase, without salaries following the same upward trend, and ultimately reached the peak on 2007.

Lehman Brothers Bank, the fourth largest investment bank in U.S, was the one introducing 2008 crisis and the largest bankruptcy recording a 75% stock drop in five days.  Lehman used to be a high-class profile company, which is generating profit and keeps its shareholders happy (premium risk). However, its first quarter on 2008 had a $3bn net loss and started selling its assets to cover its financial gaps. Lehamn liquidated its assets in order to keep its WACC stable, in order lenders who have priority to be paid while shareholders to be happy with their returns.

 These losses were the first sign of its tumble. Its constant negative financial performance indicated a very high default risk. Share prices were reduced as long as shareholders were eliminated.

The main problem was mortgages offered to everyone, even to those who were not able to repay them. Mortgages were categorised  according to their risk, and sold to investors. The investors' benefit were the securities. However, the majority of clients lied about their financial situation and as a sequence not being to repay it. Consequently, security holders neither were getting any benefits back nor could sell the houses at the original price.

Now Lehman had a huge loan on its back while was constantly loosing investors.  Probably the company’s accountants did not pay attention on the financial distress occured since 2006. CEOs should probably create a happy, colourful environment for its accountants instead of allocating them to dark and depressing rooms causing them “chemical imbalances”. One day they will destroy everything, as history has taught!

Fed organised three days before the bankruptcy a meeting with Lehman’s main competitors. The purpose was to rescue Lehman. Either to invest at SpinCo, Lehman’s possible subsidiary in order its poisoned assets to be assigned at. Or Lehman to be sold to Barclays. Knowing Lehman’s financial position none of the competitors wanted to put in danger their own shareholders and participate to this investment. Ultimately, its sale to Barclays was decided. However, due to legislation it could not be accomplished in one-day time. 

I guess, it was meant to be!

The main conclusion after watching “The Last Days of Lehman Brothers” is to predict before it happens. There were figures indicating a downward trend of the bank's ratios. Why the CEO did not changed his strategy to the new data released? For example, decreasing mortgages while increasing their securities. They would have loose customers and investors indeed but would have survived, probably!!

The conclusion is that an empire requires years to be build but could be destroyed in just three days. 

Appendix 3: Let's plan our next holidays!: Saturday, 18 February 2017: (05:31)

Today is the first sunny day of February and I’m denying to talk about anything else apart from vacations. Soooo... somehow I have to correlate diversified portfolios with my future holidays for this spring and summer. As an investor and a traveller, what I have for sure is the price I am going to pay. These prices constantly fluctuate on daily basis or even more frequently. The reason? Because they are dependent on the demand. The more popular the destination or share is, the higher the price will be. They also depend on the company’s demand for cash. If a company needs cash immediately, the company reduces the prices to attract more investors/travellers.

I aim to buy the share with the highest return and for the destination with the most beautiful beaches. However, what I do not know is if I’m taking the most privileged decision. How will I know the specific share will provide me the most promising (by companies) high return? Most importantly, how will I assess if the visiting place is as exotic and fun as it is described by the agencies?

Let’s see what a diversified portfolio is and what it could teach us for our next holidays.

Markowitz’s portfolio theory described it as “the ability of investors to diversify away unsystematic risk by holding portfolios consisting of a number of different shares”. Portfolio theory is a modern way to eliminate the risk taken on investments, unsystematic risk, since beliefs of past trends and collective wisdom have been debunked. After 2008 economic crisis, investments are funded under lots of consideration.

Investing on two  expensive, cheap and particularly international projects simultaneously, which are independent (zero correlation) from each other is considered a more secure investment portfolio. It is very important the portfolio to be “lazy” otherwise the shares will lose their added value. It is also essential to invest in different markets, as independent shares’ result is not affected by companies’ events, but are directly affected by market events.

How do I decide where to invest my money though? It is definitely not an easy decision. It would be helpful,  each investor to develop an “efficient frontier” representing a combination of efficient portfolios, which are expected to maximise the return for a given standard deviation.

The collective wisdom is to invest on “unicorn” companies, start-up companies valued at more than a billion dollars, like Snap Inc. Snap Inc negative financial performance has a positive attractiveness to investors probably because is the only one currently selling its shares. This investment has two drawbacks though, first too many investors with who I have to share  the returns! But I don't like sharing! Second, I don't think the returns will be high at all, works better for me to invest to a less expensive project promising lower returns. But I will (probably) stick to it expecting high returns in long term.

Projects, which are cheap and are expected to have a low return ultimately, are the ones, which issue the highest performances. When a company claims low dividends and share prices, the upward trend for them is inevitable. The keys are diversity, being constantly updated and time. Especially the last element, perfect timing (or luck) makes a huge difference. Ideally, the investor has to buy when the price is low and sell when the price is high.

Now let’s imply all this finance theory for our own “leisure benefit”. Let’s say I want to have the best holiday without spending all my money. It is reasonable to start checking prices now, perfect timing, especially morning times when holiday packages tend to be cheaper. If I'm not satisfied with the prices given for the most popular places, where all our friends are going, I could try something different this time. Instead of spending all of my money to one popular place, which might not be as fun as I expected. I could use these money for three completely different, but cheaper places, diversity.  Be careful and check the reviews first!!!! being updated. 

The concept is about gaining experiences; one place is the least possible to provide me with more experiences than what other three places will do.

The reason I keep saying three places is because even if I love travelling, at some point it becomes very tiring and I do not want these beautiful destinations to lose their value.

Investing and travelling are poles apart. From the first, one is expected to “earn” money and from the latter, one is about to “waste” money, but the similarity between their procedures is surprising!!