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David Crosetti
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I was born and raised in California. I worked in the family business for a number of years and then decided to spread my wings and try working for someone else. My first significant job was with Frito Lay. After a stint in the salty snack business, I transitioned to the beverage industry,... More
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  • Investors: Is Researching Stocks A Total Waste Of Your Time?

    Introduction:

    I read an interesting article by a fellow named Daniel Solin. Here's a link to his article, which is titled, "Investors: Researching Stocks Is A Total Waste of Your Time." In his article, Solin begins with this statement:

    There are a lot of myths about investing. They all share these common traits:

    1. On the surface, they make sense.
    2. They are fairly easy to implement.
    3. They give you a sense that you are doing something positive.
    4. They provide a false sense of empowerment.
    5. They require closely monitoring the financial news.

    The most insidious of these myths is that researching individual stocks is the key to investing success. Unfortunately, many believe this fairy tale to be true. CNBC's Jim Cramer, for example, recently established it as his "golden rule for long term prosperity."

    Like many other "gurus" in the financial media, Cramer counsels investors to obtain "a solid understanding of a company's fundamentals by looking at earnings reports, reading news stories and parsing through Wall Street analysis." He believes doing this "homework" is the key to profitable investing.

    What You Should Know:

    Daniel Solin likes to invest with index funds. You see, Solin believes that if you own a lot of companies, then you are spreading your risk to levels that you just can't get from owning a portfolio of say 30 stocks.

    Instead, by owning index funds, the investor has no need to research a thing, because the number of companies owned by a portfolio of Index funds eliminates that risk all together.

    Solin tells us:

    I am familiar with many portfolios that consist solely of mutual funds. The stock portion of these portfolios often own more than 10,000 equities. They frequently include most publicly listed domestic and international stocks.

    I have never done any research on any of the stocks in my own portfolio. I have no interest in the fundamentals of these companies. I have even less interest in the views of Wall Street analysts or pundits who appear on TV.

    I am content to capture the returns of the global marketplace.

    Later in the article, Solin goes on to say the following:

    The most sophisticated fund managers in the world struggle to select stocks from among the S&P 500 that will beat the returns of the index itself. This dismal performance is not an aberration. Over the past five years, more than 70 percent of all actively managed funds failed to deliver returns higher than their benchmarks.

    Then he concludes by saying this:

    Even if you concluded, based on your research, that a stock is underpriced, there must be someone on the other side of the trade willing to sell that stock to you. That person or institution has reached the opposite conclusion. Why would you assume you are right and they are wrong?

    Here's the request I encourage you to make of anyone who is telling you to research stocks in an effort to "beat the market": Show me your data.

    You are unlikely to receive anything meaningful in response to this demand. Conversely, the weight of evidence against trying to pick stock "winners" is overwhelming.

    What I Know:

    After reading the article, I have to admit that I think Solin might actually be on to something here. When you read his thoughts, they make a lot of sense. Let's face it. On any given day, you can search Seeking Alpha and you can find an article that considers "XYZ" company to be the best thing since sliced bread. Then you can find another article that warns investors that "XYZ" company is doomed and investors buying that stock are "catching a falling knife."

    Who's right and who's wrong? Who knows? Surely, I don't know. That's one of the reasons that I do not make my stock selections from what I read about a company at Seeking Alpha or any other investing web-site.

    So when Solin suggests that when we consider a stock to be undervalued, how in the world can we possibly know that we are "right" when someone else has to come to exactly the opposite conclusion to our own, in order to create a transaction point where we can purchase their shares?

    But look closely at the statement that Solin closes his article with. He says:

    Here's the request I encourage you to make of anyone who is telling you to research stocks in an effort to "beat the market": Show me your data.

    Well, fine and dandy. But, what makes you think that my own investment goal is "to beat the market?"

    I mean, is "beating the market" the only goal for an investor to have? Are there any other goals that an investor can have, besides "beating the market?" I think that there are.

    Goals and Goal Setting:

    I think that it makes a lot of sense to consider why you would be putting money at risk in any investment vehicle. That includes real estate, farm land, collectibles, numismatic coins, stocks, bonds, or whatever. What's the goal of making the investment? The goal might very well be "to beat the market," but is that the only goal that is a worthy one?

    As a Dividend Growth Investor, my goals are not to beat any market. My goals are to create a reliable income stream from dividends. My core principles can be summed up this way:

    1. I want to purchase stock in companies that are priced at a value. That value is determined by my own set of metrics and for all intents and purposes, those metrics are "in my opinion." Being "in my opinion" I can be right and I can be wrong. It doesn't really matter much and I will explain why at a later point.
    2. I want to purchase stock in companies that have a history of increasing their dividends annually. I like to look at companies with a track record of 5 or more years, but will forego that if the stock is on track to meeting that particular goal.
    3. I want to purchase companies that are increasing dividends at a rate that is greater than the underlying rate of inflation.
    4. I want to select companies with the revenue and earnings growth history to support increasing dividends moving forward.

    Have you noticed that nowhere in these core principles is there any mention of "beating the market"? My investment goal is income. Since I am planning to be a long term holder of the stocks in my portfolio and not be actively trading these stocks, the price of the stock at any given point in time is of less importance to me than the income that the company is producing for me in the form of dividends.

    Summary:

    While Daniel Solin is promoting an investment strategy that focuses on Index Investing, with a goal of "capturing the returns of the global marketplace" his goals are not my goals.

    I am not implying that his goals are unworthy goals, but I am saying that they are different than my own.

    The fact of the matter is that for many investors, Indexing is a very appropriate strategy and can be one that will allow investors to capture the returns of the global marketplace if that is their goal.

    It is not my intent to criticize Daniel Solin or his point of view. As I said at an earlier point in the article, I found some of Daniel Solin's ideas to be very thought provoking and they may well be ideas that can improve your own success as a Dividend Growth Investor.

    We will explore those thoughts in the next article, where we will look at DG stocks and whether or not "researching" them is "a total waste of your time."

    You might find it more interesting than the Editors at Seeking Alpha did.............

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 03 11:39 AM | Link | 52 Comments
  • Callahan Auto Parts Offering IPO: American Made Brake Pads

    Introduction:

    In the stock market, one of the most intriguing events is when a private company takes itself public. The term used for this event is "IPO" which means, "initial public offering." This week, an automotive parts company is going to go public and this opportunity is one that you will not want to miss out on.

    Background:

    This company was founded in 1955, when returning war veteran, Thomas "Big Tom" Callahan Jr. started Callahan Auto Parts in Sandusky, Ohio. Sales have grown year over year and when the founder of the company passed away, it looked like the end had come to Callahan. The company, it seems was on the verge of bankruptcy and faced a hostile takeover fight by the senior Callahan's wife, Beverly, who was attempting to sell the company to Ray Zalinski, the self-proclaimed "King of Auto Parts."

    Issues and Opportunities:

    In order to save the company and keep Callahan Auto Parts running, Thomas "Tommy" Callahan III stepped into the breach and went on a whirlwind sales adventure to sell Callahan brake pads.

    Thomas Callahan III is a graduate of Marquette University and has been the driving force behind the company's explosive growth, along with his "right hand man" Richard Hayden who oversees the day to day operations at Callahan Auto Parts. Callahan's wife, Michelle is the President of the company.

    The turn around event in Callahan Auto Parts history came when Callahan was able to save the company when he landed a contract with Ray Zalinski, for 500,000 Callahan brake pads.

    Looking Forward:

    Callahan Auto Parts has prospered ever since and while financial information about the company is not readably available, I was able to get a look at revenue growth over the last five years.

    Callahan Auto Parts, Sandusky, Ohio:

    (click to enlarge)

    The IPO for Callahan is being underwritten by Goldman Sachs and the stock will be priced in the $20-$25 range.

    The company will trade under the ticker symbol: CAPS and will be sold on the Nasdaq exchange.

    Contact your broker today and put your money on Callahan Auto Parts tomorrow, April 1st, 2014. You won't regret your decision for a moment.

    (I have been advised that my made up symbol for Callahan Auto Parts was in fact an actual company. I regret any confusion regarding that error on my part. There is no IPO for Callahan Auto Parts. This is an April Fools joke.)

    Dave

    Mar 31 10:49 AM | Link | 27 Comments
  • Some Thoughts On Relevancy

    Recently, there have been a few articles discussing the "relevancy" of dividends. It would seem that there are a lot of people who love dividends and a lot of people who don't like dividends. Regardless of which side you line up on, or if you perhaps take a middle road, concerning dividends, the simple fact of the matter is that there are companies committed to paying dividends as part of their business model.

    Most of the companies that I've been investing in over the last 30 years are dividend paying companies. Not only do these companies in my portfolio pay dividends, but they actually increase their dividends annually.

    What I like to do is reinvest the dividends back into additional shares of the underlying company and allow my share balance to increase over time with those reinvested dividends. I even make it a practice to purchase additional shares, with new money, when those stocks in my portfolio present a value, relative to what I consider the intrinsic worth of the company to be.

    I've posted my retirement portfolio in articles on Seeking Alpha. As an active investor, I make it a practice to always be looking for "bargain" priced companies and sometimes (Heaven forbid), I will purchase stocks that do not pay dividends. I have even been known to purchase stock in companies that have a yield below 3% (of some other arbitrary yield point that others might have.)

    What I like about dividends, from the DGI perspective, is that the dividends will allow me to have a very comfortable retirement. On top of my dividend income, I will have Social Security. My Social Security income will supplement my dividend income and act as a "bonus" as opposed to being the "meat" of my retirement income. Social Security is "lagniappe" (which is something my Cajun friends refer to when you get "something extra" in your purchase.

    Now, I have to admit that a lot of the academic discussion regarding dividends is very interesting and thought provoking. I actually enjoy those articles telling me that my DGI strategy doesn't work. I enjoy being called a "zealot." I actually get a big kick out of the argument that some non-DGI folks make when they tell me that "trying to convince a DGI that he is wrong in his investment approach is an impossible task."

    In much the same way, I have to acknowledge that telling a non-DGI investor that "DGI works and here's a look at my portfolio to prove it" is also "an impossible task."

    Regardless of how you feel about it, perhaps the lack of intellectual curiosity is something that has always concerned me, to an extent. But, now, I've come to realize that what someone else thinks is just fine with me.

    At work, we have a lot of people who love to complain about things. They don't like this and they don't like that. They have a real talent for finding out "what's wrong with something," but the people that keep getting promoted are the ones who seem to come up with solutions as to how to fix those things that might be wrong.

    Interesting.

    Feb 28 2:49 PM | Link | 57 Comments
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