David Crosetti's  Instablog

Introduction:

Just recently, at our house, we were able to reunite as a family. My oldest daughter is living with us while she gets her nursing degree, my son was back from his sophomore year at Mississippi State, and my youngest daughter was home from completing her freshman year at Ole Miss.

After dinner one night, the kids decided to pull out old video tapes that chronicled the early years of their lives. They were laughing and carrying on, so the wife and I decided to sit in and reminisce with them. It was so much fun. The tapes brought back memories of our early years as a family and led to us sitting around and telling stories about things we remembered.

It was funny, because some of the stories that were told, I had no memory of, but one story, in particular, was one that all five of us remembered. It's was the story about "the money tree."

Anyone who has kids knows that raising them can leave you at a place where there's more month left over at the end of the money. Our family was not immune from that circumstance.

Things for us financially had really ratcheted out of control. So one day, after sitting in the office and paying off all the bills that had stacked up on my desk and sending off the minimum payments to keep the creditors off our backs, I became quite distraught. I walked into the kitchen and stood in front of the big window and was staring off into the back yard.

My wife said, "David. What are you doing?" I didn't look at her, but just kept staring out into the yard. "It's gone, Tam," I said. "What's gone?" She asked. "The money tree. It's not in the back yard anymore. Someone must have cut it down."

The kids, who were listening couldn't wait to go to school the next day and tell everyone how we had been robbed, because "Someone stole Daddy's money tree right out of the back yard!"

What I Know:

This incident was a life-changing event for our family. For the first time, my wife and I began to discuss our finances. In the early years, I felt that it was my job to be the bread-winner and the keeper of the money tree, but I had not been a very good gardener.

We began to look at our finances as a business. My wife and I both worked and we were generating a nice income, but we spent it as fast as we made it. We had no financial plan of any kind. We were basically running our "business" into the ground, because we were mismanaging it. If we were really a business, we should have been fired.

What We Started To Do:

Our business was heavily in debt. We decided to attack the expense side of our business by prioritizing that debt and getting it paid off. In order to do that, we needed more revenue. I took a second job on the weekends at Home Depot and my wife began tutoring kids in math. The income from those jobs was applied 100% to our debt load. One by one, we paid off the credit cards and started a program of "cash only for new purchases." When the car loans were paid off, we kept driving the owned cars instead of replacing them with new ones. With increased cash flows, we began a savings program.

Little by little, we were able to see a light at the end of the tunnel. Once we arrived at the position of having more cash flow than expenses, we began saving. We both started funding our 401k and 403b plans at work. We took the extra money and started to fund IRA plans. We also established savings plans to eventually pay for the kids college educations.

How We Invested:

We "rediscovered" Dividend Growth investing. While I had been buying dividend paying stocks in the past, as a single guy and now as a married guy, I never really understood what I was doing. I mean, I'd buy what I thought were great companies, but I didn't really know that my style of investing was "Dividend Growth" investing.

As time progressed, I noticed that my Schwab account was growing in the amount of cash that was being generated by my stock holdings. One day, I visited my local Schwab office as they were having a seminar in regard to income investing. That was an eye opener for me. The guy giving the seminar had found a "money tree." I couldn't wait to come home and tell my wife, "You won't believe this-but I found us a money tree!"

What Happened Next:

From that seminar, we decided to convert our mutual fund investments to individual stocks. Dividend paying stocks. We had Schwab reinvest those dividends into more shares of stock as the dividends were paid to us.

Our investment vehicle of choice became the IRA. We would have no tax issues with dividends paid, dividends reinvested, or stock positions sold with capital gains. One day, we would draw money out of the IRA and pay taxes as ordinary income-but that day was a long way off.

Lessons Learned:

We learned that we were responsible for managing our money. We began to operate our lives as a business. We planned out a budget with revenue, expenses, capital improvements, and arrived at an "operating income" line. For the last 20 years, through job changes, various medical issues, market ups and downs, boom and bust financial cycles, and even surviving the impact of Hurricane Katrina, we have been able to move upward and onward towards the goal of financial freedom-provided though our money tree.

INTRODUCTION:

I was born and raised in California, but for the last 20 years, I've lived in Mississippi. It seems like almost every day, someone is asking me if I miss California.

In some ways I do miss it. In some ways I don't. I miss the weather, the French bread, the Italian deli's, the neighborhood restaurants where you can get a great meal for two people for under $30 bucks.

There is so much to do in California and so much to see there. If you in California and you ever find yourself saying, "I'm bored,"then you're just not trying.

AN OBSERVATION:

There are many reasons why we live where we do. For me, my first experience with Mississippi was to run a Coke operation in a small town on the Mississippi Gulf Coast. I thought, "What have I done to make someone at Coke so mad at me that they were sending me to Mississippi of all places?"

When I got here, though, I found that people were very friendly. They got a kick out of my "accent." The guys I worked with took me out to different haunts that they frequented. Aunt Jenny's, Hartz's, Mary Mahoney's, McElroy's, and The Blow Fly Inn to name a few.

We would take our boats out from the Biloxi Back Bay and cruise into the Gulf and head out to Ship Island, fishing along the way for Cobia and Red Fish.

Friday nights were high school football. Saturday's were SEC football during the day and the nights were cook-outs with crawfish boils or oyster parties with all the trimmings. It was a casual lifestyle, with golf shirts and shorts being the order of the day. It didn't take long to fall in love with the place.

WHAT I KNOW:

Mississippi has worked hard to establish "Certified Retirement Cities" in the state. There are currently 76 Certified Retirement Cities in the US, with 21 being found in Mississippi. What exactly does that mean? How does a town or city earn the designation of Certified Retirement City?

To qualify as a Certified Retirement City in Mississippi's program each town must pass through a three-month intensive screening process conducted by Hometown Mississippi Retirement, the state's official retiree attraction program. Each city is evaluated on criteria important to retirees - affordable cost of living, low taxes, low crime rate, quality medical care, recreation, educational and cultural opportunities, and most importantly - a warm, welcoming community.

HOW MISSISSIPPI STACKS UP:

The Magnolia State is tax friendly for retirees:

Income Tax Range:
3% - 5%

Property Taxes:
Single-family residential property is taxed at 10% of its assessed value. The state offers a homestead exemption, in the form of a credit, to all eligible taxpayers. The maximum credit for regular homeowners is $300. For homeowners 65 years of age or totally disabled, there is an exemption on the first $75,000 of true value. You do not have to apply for homestead exemption each year.

Sales Taxes:
7%. Prescription drugs, residential utilities, motor fuel, newspapers, health-care services, and payments made by Medicare and Medicaid are exempt. County and city taxes may add an additional 3% to the state rate.

Exemptions to retirement income:
Qualified retirement income is exempt from state income tax. Social Security is not taxed, regardless of total income. Retirement income from IRAs, 401s/403s, Keoghs, and qualified public and private pension plans is not taxable. Interest income from federal securities and obligations of Mississippi and its political subdivisions are all exempt.

Inheritance and Estate Taxes:
There is no inheritance tax and no estate tax.

WHAT YOU NEED TO KNOW:

How does your state treat retirees? Is it tax friendly or not? Will you be able to take advantage of the tax breaks that your state offers when you retire and have a better life style than you do today?

Many people dream of living in some foreign country. That used to be a very attractive idea to me. But as I get older I find that I like to visit those places like Panama, Costa Rica, Belize, Aruba, Puerto Rico-and have less interest in moving there.

Being close to family is important to me. My kids plan on living here in Mississippi or close by, here in the Southeast. Seeing the grandkids and all that is a big part of retirement for me. The kids being close is important and while I may enjoy a fruity umbrella drink in some Caribbean resort location, you just can't beat having the family close by.

CONCLUSION:

Where you choose to live is a personal decision that only you can make. Be aware, however, of the potential tax savings and income enhancing opportunities that you may find in your own state or one just across the border from you.

For me, the Magnolia State is home sweet home.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

INTRODUCTION:

When I was a kid, growing up, in California, one of the things that I would look forward to every year was our two week family vacation. Every year, my mother would plan a trip for us. Months before we would all load up in my dad's car, she would be studying travel brochures and AAA maps.

By the time we were ready to go, she had planned out our entire itinerary from day 1 to day 14. She already knew how far we were going to drive each day, what sights we were going to visit, where we were going to eat and where we were going to sleep. It was a logistical exercise, worthy of Alexander the Great and his conquest of the world.

Every year, it was the same thing. We went to the Grand Canyon, Carlsbad Caverns, Mount Rushmore, the Little Big Horn, all of the California Gold Rush sites, and we even went to Canada one year. She left no stone unturned. She had this down to a science. She was an expert at travel arrangements and second to none.

My favorite trip of all and one that we would do pretty regularly was the trip to Las Vegas. The first time we went, we toured Hoover Dam and Lake Meade. But, the casinos. With all those lights, the noise, the smoke, the men and women yelling and carrying on-now that was something special.

As I got older and was able to enter the casino, I have to admit, I was hooked. My dad was a Craps player and I would watch him play-but never really understood the game. He would try and explain it to me, but it seemed so confusing and I thought that learning how to play well, would be an impossible task.

CROSSING OVER TO THE DARK SIDE:

One day, I came across a book.

It was written by a man named, John Scarne and it was called "The Complete Guide to Gambling." For those of you who have never heard of John Scarne, he was the greatest card manipulator that ever lived. If you have ever seen the movie, "The Sting" there is one scene where Paul Newman is sitting in his cabin on a train. He is warming up for the card game with Doyle Lonnigan, by handling a deck of card. The hands manipulating those cards in the scene belong to John Scarne.

In his book, Scarne breaks down every game of chance and tells you everything that you need to know about playing it successfully. His explanation of the game of Craps is the best I've ever read and if you follow his line of thinking, it will improve your game, Like every casino game, Craps is all about probabilities otherwise known as "the odds."

Now, regardless of your opinion, "the odds" are what they are. You can't change them, you can't ignore them. The odds are nothing more or less than mathematical probabilities. For example, if you toss a coin, the odds say that heads or tails is an even bet. That is, the coin will turn up heads just as many times as it turns up tails. But, you say, it is possible for the coin to come up heads 10 times in a row. Well, yes it is. But if you toss that same coin enough times, it will come out 50-50 heads and tails.

Just as I didn't totally understand the game of Craps, before reading Scarne's book, didn't stop me from playing. I didn't do very well, because I was taking bets that were sucker bets and taking chances that were not in my best interest. There is a reason that a particular bet pays 20 to 1 or 15 to 1. That's because those bets operate heavily in favor of the house. They can "afford" to lay those odds, because most of the time, they will be picking up your bet and putting it in their bank. After reading Scarne's book, my success at the game of Craps increased 10 fold.

WHAT'S THE POINT?

Now the point here is that there is a direct comparison to gambling and stock market investing. I am not saying that investing in the stock market is gambling. What I am saying is that in the world of gambling and in the world of the stock market, there are mathematical laws of probability that you have to take into account.

If you are going to play the game, then you need to understand the "rules" of the game. Each investment strategy is a seperate game. Dividend Growth Investing has rules to follow.

(http://seekingalpha.com/article/294338-10-commandments-for-dividend-growth-investors

Understanding how to play your game and the rules involved in maximizing the results of your game are the most critical factors in your success, playing the game. You don't want to deviate from the rules and you don't want to be making up rules as you go along. Instead, trust the experts and don't be trying to reinvent the wheel.

Now John Scarne looked at the world of gambling and he looked at the people who gambled. He classified them into a group of 7 different types. I found his categories to be very interesting and wanted to share them with you. There are some very interesting characters in the world of gambling and many of these same "types" can be found in the world of stock market investing. This was just as much of a look at player's mindsets as they played the game and in many cases speaks volumes about the way many investors approach gambling as an enterprise.

SCARNE'S TYPE CLASSIFICATIONS:

1. The Occasional Gambler who knows little or nothing about the hard mathematical and psychological facts of the games on which he now and then wagers some money. The vast majority of America's gamblers fall into this class, and it is their losses which make gambling our biggest industry.

2. The Habitual Gambler who plays constantly and who knows considerably more about gambling but is not smart enough to know that he can't beat adverse odds. He craves action, any kind of action, and he lives in a dream world in which he hopes someday to make a big killing and then quit gambling forever. When he does win a bit, he almost always gambles it all back and, like most players, winds up broke.

3. The Skilled Gambler or the Gambling Hustler who knows a lot more about any sort of gambling than the Occasional or the Habitual gambler, plays a much better game than they do and consequently wins more often than he loses. He is usually on hand to start the game, and he specializes in games which contain some element of skill, such as Poker, Gin Rummy, Bridge or Black Jack. The hustler plays for blood: he seldom gives another player a break because he believes that is no way to earn money at gambling. He usually knows where the favorable percentage lies in most private games of chance, such as Craps, and he makes the most of this by offering the Occasional and Habitual gamblers sucker odds, which, not knowing any better, they usually accept.

4. The Professional Gambler or Gambling Operator who earns his living, or most of it, by operating some gambling scheme. He is called a gambler because he runs a gambling operation, but he doesn't really gamble. He is a businessman (or woman) who runs a gambling operation and understands his trade, and either makes direct levies on the play or receives a percentage because the odds are in his favor. The Professional Gambler, like the legitimate banker and insurance operator, acts as a middleman in risks which the players voluntarily take or wish to be rid of, charging a commission for the service. He is not betting against the players; they are actually betting against each other. His top aides are also in this category.

5. The Gambling Cheat or Crook who makes money by cheating at cards or dice, running a fake lottery or raffle, operating a fixed carnival game, punchboard, slot machine or any other gaffed (crooked) gambling device. Also included in this category are any employees of a crooked gambling house or any participants in crooked schemes, whether or not they do the actual cheating themselves. The cheat's gamble is not so much in winning or losing as in whether or not he will get away with it.

6. The Gambling Chiseler who is really only a petty crook and sneak thief. He knows that he needs an edge to make money by gambling, and he gets it by inducing a friend at a racetrack or casino game to give or loan him money with which to gamble. He usually bets only part of the money and pockets the rest, and if he wins, he conceals all or part of the winnings. This is a favorite racket of women chiselers.

7. The System Gambler who lives in a dream world all his own, believing that it is only a question of time until he finds an infallible betting system which he can use to amass a fortune. He is a perfect mark (sucker) for racetrack touts. He buys tips and most of the advertised systems, and although they fail, one after another, he buys more, always hoping to find the one that is perfect. The system horse player usually spends as much money on worthless tips and systems as he bets on the horses, and he wastes many hours trying to figure out a system of his own.

CONCUSION:

John Scarne lived in a time before political correctness. In reading what Scarne describes as the 7 Gambling Types, today's sensibilities may be offended. In Scarne's time, though, he wasn't being critical of the different types of gamblers-he was just telling you how he saw it. He wasn't being judgmental. Remember, he lived in the time of the gangsters and mobsters. Those are the characters that he observed.

Now, I don't know if you want to be any of these 7 types. I know that you have probably come across one or more of these types in your stock market experience. I know that I have. One of the types that makes me crazy is The System Gambler.

In my way of thinking, he is the guy who has first-hand knowledge about the coming doom to America and he has a video for you to watch that will change your life forever. The best part of his video is that it gives you enough information but not the entire package. You get that for only $49.95.

I guess I would prefer to see myself as The Skilled Gambler. One who is a student of the game, who tries to go to the games that offer up the best odds for winning. For me, that is Dividend Growth Investing.

What about you?