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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
  • Prospering In Spite Of Market Volatility 18 comments
    Jun 25, 2013 10:08 PM

    Introduction:

    My grandfather was an interesting man on many different levels. While he only had a 3rd grade education, he was a prolific reader and someone who loved history and geography. In his library, he had books that many college educated people have difficulty understanding.

    One of the things that his reading gave him was a sense of perspective. As a young man, growing up in Italy and being called to World War I, he learned that taking life for granted was a fool's game. He tried to live every day as though it was his last and always found the time to appreciate every kindness and every person that he came into contact with.

    In his later years, he took a job as a kitchen helper at Sonoma State Hospital. It was a place where people would institutionalize their Down Syndrome children and the state would take care of them for as long as they lived.

    My grandfather was deeply touched by the people who were housed there. They all knew him as "Ted", a guy with a ready smile and an encouraging word. One day he had a young man come to him and ask if he could help Ted in the kitchen. My grandfather showed the young man how to clean and sanitize a big kettle that the hospital used to cook oatmeal in the mornings. When the young man finished his task, my grandfather got his supervisor and showed him the quality of the work done by the young man.

    The supervisor was impressed, because like many people, he had considered the folks at the hospital to be unable to function with real life tasks. The supervisor suggested that Ted recruit individuals to train as kitchen helpers. And that was the start of a very successful program that earned my grandfather recognition from Pat Brown, the Governor of California, when the Governor found out about the program.

    My grandfather rose through the ranks at the hospital and ended up as the head of the food service department at the hospital, before he retired. The gift that he gave these the residents of the hospital was a sense of purpose and a sense of accomplishment. His own personality was geared toward the notion of "what could be" rather than "it is what it is."

    What I Know:

    As a Dividend Growth Investor, I have been trying to invest with the notion of "what could be" as opposed to "it is what it is." That means that when I began this journey, I looked to the future and determined what I wanted that future to look like. Once that was outlined, the next question was "how do I get there?"

    While I have different investments outside of the stock market, it seemed to me that buying ownership in quality companies with growing revenues and growing earnings was a wise thing to do.

    Working at Coca-Cola, I began to buy stock in KO through my 401k program. Traveling in my job and meeting other sales people who worked for companies other than KO, opened my eyes to a world of "what could be" that has served me well. I bought stock in companies like Kimberly-Clark (KMB), Procter and Gamble (PG), Colgate Palmolive (CL), Johnson and Johnson (JNJ), and other consumer product companies. Not a diversified portfolio, for sure, but diversification would come later as I began to learn more about investing and markets.

    What You Should Know:

    I like to buy stock in companies that is priced at a value to the intrinsic worth of the company. While I tend to focus on dividend paying stocks that does not eliminate my investing in companies that do not pay a dividend or that pay a dividend that is below some benchmark. Again, I'm looking for "what could be" as opposed to "it is what it is" opportunities.

    I try to focus on revenue growth and earnings growth. In my career, I've been responsible for profit and loss numbers and I've learned that there are different ways to make a bottom line. In my own experience, I learned that "saving" your way to a bottom line, by cutting expenses is a short term method and if you can't increase revenues, you better plan on getting transferred to another job, soon

    I take that same approach with company stock. If the company is saving its way to earnings, then in my opinion, the company is taking a short term approach to making their numbers. That isn't someplace that I want to invest long term. On the other hand, if I find a company that is increasing revenue, managing expenses, and delivering earnings growth, then I get very interested in finding out more about the company.

    Additional Thoughts:

    With the recent pull back in the market, I am sure that there are investors who look at the events of recent days with some consternation. As a DG investor, I look at it from a different perspective.

    My goal with my DG portfolio is to increase income for my retirement years. The day to day price changes in the stocks held in my portfolio are just that-day to day changes. The dividend income stream, on the other hand, continues to flow into my portfolio and that income is increasing year over year by a rate that is larger than inflation. After all, that is the end game and the purpose of the DG portfolio.

    I am not concerned about the value of my portfolio from a day to day perspective, since I have no intention of selling my stocks in order to fund my retirement living. Instead, it will be the income from the dividends that provides that funding. The stocks themselves will be left to my wife and then to my children.

    What We Are Buying Now:

    Absolutely nothing.

    Yep, that's right. Absolutely nothing. You see the market has not finished falling. There are better bargains to be had in the coming weeks. There will be a rally-but it will be a "dead cat" bounce. Until the economy shows real signs of life, beyond QE transfusions, all bets are off. We are entering a period of time where the market will trend lower, in my opinion, and there will be plenty of opportunities for long-term investors to buy stock in companies at real bargain prices, relative to intrinsic worth. That's a definite "what could be" scenario.

    When I consider "what could be" I see a scenario where I will be able to purchase stock in great companies at bargain prices. For a DG investor like me, that means purchasing companies that are priced where I will have a larger yield point than is currently available to me with today's prices.

    I see a "what could be" where my income from dividends can go up by a rate that is larger than inflation and that can supply me with an income to last me through the rest of my life. So here's my "what could be" criteria.

    1. I want stocks that are priced at bargain prices. Lately Coca-Cola dropped to $39.15 and a lot of people got excited. At that price, the dividend yield is still less than 3%. I want to add KO with at least a 3% yield. That means a price of $35-$37 a share. That's my target.
    2. I want to buy stocks that have a long history of increasing dividends on an annual basis. That means Dividend Champions first and foremost. Use the list provided by David Fish and add two columns begin your search.
    3. I want to buy stocks that are increasing dividends at a rate that is greater than inflation. That means that I want to own companies that have a 1, 3, 5, and 10 year dividend growth rate that is greater than 5%.
    4. I want to buy stocks that have increasing revenue and increasing earnings. I want these, because I want some sense of the company's ability to continue paying and increasing dividends. Earnings growth with paltry revenue growth means the company is likely growing earnings by "saving its way to success." Need both.
    5. Don't be afraid to pull the trigger when your target stock reaches your buy point. It might go lower, but you aren't buying it to trade are you? You're buying it for the long haul-not a short trade.
    6. Stay the course. Don't lose sight of your "what could be" dream.
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Comments (18)
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  • I continue to enjoy your instablogs ! As I've said before, I value your isntablogs over many articles I read daily here.

     

    By the way, I finally got my In Services rollover into my Roth IRA so I have about $4300 to start a few new positions and add to others.

     

    I'm still eying PM, AFL, BP, CVX and maybe waiting to see how the market responds over the next few weeks. On the fence with JNJ, what are your thoughts on current valuations.

     

    Talk about good timing. Some stocks have fallen, and became better valuations (PM is getting close).
    25 Jun 2013, 10:11 PM Reply Like
  • Author’s reply » Stephen:

     

    Thanks for the comments! One thing that I have noticed from my own watch list is that the market is not impacting every stock the same way. My cyclical targets (DE, CAT, SLB) are not having the same price swings as some of my other target stocks. Keep an eye on what we call relative strength. This is an opinion, but I think the lack of volatility in some companies is because they are priced right. Take a look at a screen with price movement over the last 5 days, 30 days, etc. It's pretty interesting.

     

    Dave
    26 Jun 2013, 07:12 AM Reply Like
  • Thanks David for this. "What could be..." indeed.

     

    Thanks for your thoughts and insights here. I have come to see that if a company does not have increasing earnings & rev -- then I move on.

     

    PM & RDS.B are looking good.

     

    Looking forward to your next insights -- sure appreciate them.
    26 Jun 2013, 12:20 AM Reply Like
  • Author’s reply » Not:

     

    I have come to the place in life where I don't have to own every stock out there. I want the best of breed and those are stocks that would help me reach my investing goal. Selection is important and taking the time to buy them at the right price is equally so.

     

    Dave
    26 Jun 2013, 07:17 AM Reply Like
  • Dave: I don't understand your last sentence in #2. Are some words missing or am I just dense?
    26 Jun 2013, 12:28 AM Reply Like
  • I also found that confusing. Add two columns??
    26 Jun 2013, 03:28 AM Reply Like
  • Yeah, I'm thinking something didn't come out quite right there. If David Fish doesn't understand it, I don't feel so bad. :-)
    26 Jun 2013, 07:05 AM Reply Like
  • Great article, Dave. Thanks for sharing your viewpoints.
    26 Jun 2013, 07:07 AM Reply Like
  • Author’s reply » D and D:

     

    One of the things that I was in the habit of doing, is writing my stuff in Office Word. Once I get about 90% of it done I save it. Then I upload it to SA and finish the article there. One problem with that. If you have a brain fart, you can have your article "disappear." So, now I do the entire article in Word.

     

    Here's the problem. As you write it, you realize that "this paragraph needs to go here" or that paragraph needs to go there. So, you start to cut and paste. That can lead to lines like you found in #2.

     

    That is, lines that appear to have come from a completely different article. This is the case here. It is a line that was placed in the wrong place and not "cut." Things were a lot simpler back when we used a pen and a piece of paper.

     

    What I was alluding to with the original intent was a brief discussion of how I doctor up David's spreadsheet for my own purposes. When I read what I had written, it became very confusing as to what I was trying to say, so I cut it out of the article as it was not where I wanted to go.

     

    Hope that clears things up a bit. I don't know that you can change a blog or not, but I'll look into it!

     

    Dave
    26 Jun 2013, 07:40 AM Reply Like
  • Dave,

     

    Thanks for the interesting blog post. I was especially interested in hearing your takes regarding the "dead cat bounce" and where the market is going. I would be quite excited for more of an across-the-board decrease in the market that brought down the prices of some of the stocks that I'm eyeing.

     

    I have also been intrigued by the way certain stocks have reacted compared to others over the last 30 days. Some of the stocks that I considered overvalued have come down more than those that perhaps were more fairly valued and that have demonstrated a sort of "stickiness" in their price (e.g., compare the last 30 days for CL and JNJ). I don't think that the swing down necessarily means that stocks like CL are now fairly valued all of a sudden, but it is definitely a move in the right direction.

     

    Sum
    26 Jun 2013, 11:41 AM Reply Like
  • Author’s reply » 2006:

     

    I'm not all that sophisticated when it comes to stocks. I keep it simple.

     

    Your observation regarding price movement of different stocks, in my opinion, is dead on.

     

    Some stocks have taken a beating. Those companies are/were "overvalued." On the other hands, other companies have not seen much of a pull-back in their prices and when you start getting into their fundamentals, you can see that they are often undervalued.

     

    When I look at those companies that are not having the volatility that is apparent in the general market, I get curious. I want to dig deeper and try and understand why those companies seem to have more "price" strength.

     

    Those are the kind of companies that I want to invest in, in this kind of market.

     

    But, hey, that's just me.

     

    Dave
    26 Jun 2013, 11:58 AM Reply Like
  • Lovely blog, Dave. Your grandfather was a pretty cool guy, nice to see he passed it down through the generations.

     

    Your 6 criteria are definitely noteworthy. I'm adding them to my permanent file -- minus the two columns, of course. :)

     

    Miz
    26 Jun 2013, 03:23 PM Reply Like
  • Author’s reply » Miz:

     

    Be nice or I will delete your comment! The advantage to a blog is that I can be like "god" with the delete button!

     

    At my age, I am allowed to have "brain freezes" now and then and miss a sentence or two in my articles. That's my story and I'm sticking to it.

     

    But, in all honesty, the point that I was making originally might show up in a new blog article. What I do is use Dave's spreadsheet to save time and effort and it might be useful to somebody!

     

    Yeah, me!

     

    Dave
    26 Jun 2013, 04:03 PM Reply Like
  • Dave, of course you're allowed to have Silver Moments (don't we all?). But if I didn't yank your chain a bit about it, you wouldn't think I liked you, now would you? ;>

     

    I'm looking forward to your next article about how you make the most of David's CCC list!

     

    Miz
    26 Jun 2013, 07:22 PM Reply Like
  • Good blog post David.

     

    Now, tongue in cheek in re my holdings:

     

    BA is cruising in the flight levels with only occasional 'chop'.
    PM is gasping for breath.
    NUE is rusting away.
    BP is floating aimlessly like the oil slick it created.
    GE is chugging along like a slow moving freight train up Donner Pass.
    KO is going flat.
    T is.. Well... On hold...

     

    Peace Bro...
    26 Jun 2013, 05:48 PM Reply Like
  • Author’s reply » Cute!

     

    Dave
    26 Jun 2013, 06:15 PM Reply Like
  • Excellent post Dave;

     

    You are one of the "must read" authors on SA that I look for almost every day. Like a few other writers here, I almost never fail to learn something new from your stuff.

     

    That "2 columns" got me also, like others here. Now I understand............... think. :).
    27 Jun 2013, 04:20 PM Reply Like
  • Author’s reply » MBN:

     

    I might take that one and turn it into an article. Most people might consider my use of David's list as being something simplistic. However, it give me a target price for stocks that I am interested in, base on a yield point.

     

    In an of itself, the yield point is not a measure of value. It is only one component in the search for worthy stock candidates for my portfolio. Just one component, folks.

     

    Dave
    27 Jun 2013, 04:41 PM Reply Like
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