24 Questions With Gary Denson

GuruFocus.com
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- By PJ Pahygiannis

1. How and why did you get started investing? What is your background?

I started investing with a 401k around 1987. Around 1995 I started saving money and used mutual funds for my investment needs. By 2010 I decided that mutual funds and 401ks were not providing the growth I wanted for retirement and started to buy my own dividend growth stocks. My background is as an automotive technician; this helped me because I am used to reading and studying to keep up with the extreme technology of today's cars.


2. Describe your investing strategy and portfolio organization. What valuation methods do you use? Where do you get your investing ideas?

My strategy is to look for large companies that are the top holdings of several mutual funds and buy them when conditions have driven down their prices. I also look for history of dividend increases and past performance of share price. I like yields between 3% and 6% with some exceptions, of course.

3. What drew you to that specific strategy? If you only had three valuation metrics, what would they be?

My favorite valuations are price-earnings (P/E) ratio, price-book (P/B) value and debt to equity.

4. What books or other investors changed the way you think, inspired you, or mentored you? What is the most important lesson learned from them? What investors do you follow today?

I have read "Stock Investing for Dummies" and numerous publications centered around Warren Buffett and Benjamin Graham. I also read Seeking Alpha and Insider Monkey. I still use Buffett even today.

5. How long will you hold a stock and why? How long does it take to know if you are right or wrong on a stock?

Some stocks I plan on holding for as long as I live; some I have sold within two months or two years.

Over the years I have developed good patience but also can move fast when information arises telling me to sell or buy.

6. How has your investing approach changed over the years?

I now realize that some stocks that have low dividends can still be good performers; MasterCard (MA) is a good example

7. Name some of the things that you do or believe that other investors do not.

I read what most of the hedge fund managers are holding or buying or selling.

8. What are some of your favorite companies, brands or even CEOs? What do you think are some of the most well-run companies? How do you judge the quality of the management?

My favorite companies are Altria (MO) and Reynolds American (RAI). Brands like McDonald's (MCD) and Starbucks (SBUX) are also nice. As for CEOs I feel they are more important in the early stages like Steve Jobs driving Apple (AAPL) to where it is today. Sometimes CEOs are not as relevant.

9. Do you use any stock screeners? What are some efficient methods to find undervalued businesses apart from screeners?

I just look for large-cap dividend growth stocks that are not at a 52-week high and are held by some good fund managers

10. Name some of the traits that a company must have for you to invest in, such as dividends. What does a high-quality company look like to you and what does a bad investment look like? Talk about what the ideal company to invest in would look like, even if it does not exist.

A good brand, a large moat to keep competition at bay, a good P/E ratio and profit margin.

11. What kind of checklist or homework do you utilize when investing? Do you have a specific approach, structure, process that you use? Or do you have any hard-cut rules?

I use ESP.

12. Before making an investment, what kind of research do you do and where do you go for the information? Do you talk to management?

I read numerous articles wide variety of sources, Seeking Alpha, Zacks, Motley Fool and many others

13. How do you go about valuing a stock, and how do you decide how you are going to value a specific stock? When is cheap not cheap? If you can, give some examples.

I look at 52-week price range, 10-year price range and P/E ratio

14. What kind of bargains are you finding in this market? Do you have any favorite sector or avoid certain areas, and why?

I found Sunoco LP (SUN) at $24 a share with a yield of over 13%. It was in T. Boone Pickens' hedge fund.

15. How do you feel about the market today? Do you see it as overvalued? What concerns you the most?

A little overvalued. It may be time to add some defensive positions or hold 25% in cash.

16. What are some books that you are reading now? What is the most important lesson learned from your favorite one?

Nothing right now.

17. Any advice to new value investors? What should they know, and what habits should they develop before they start?

P/E ratio and P/B value.

18. What are your some of your favorite value investing resources or tools? Are there any investors that you piggyback or coattail?

The Berkshire Hathaway (BRK-A)(BRK-B) fund holdings.

19. Describe some of the biggest mistakes you have made value investing. What are your three worst investments that burned you? What did you learn and how do you avoid those mistakes today?

Got burned buying Kinder Morgan (KMI). I didn't take their debt problem seriously

20. How do you manage the mental aspect of investing when it comes to the ups, downs, crashes, corrections and fluctuations?

Well I am patient and realize you can't win big on all picks

21. How does one avoid blowups in value investing?

Diversify enough that when one tanks; it will not kill you. Also good quality companies don't tank as often.

22. If you are willing to share, what companies do you currently own and why? How have the last five to 10 years been for you investingwise compared to the indexes?

Altria, Reynolds American, Philip Morris (PM), Apple, AT&T (NYSE:T), Vodafone (VOD), Merck (MRK), Verizon (VZ), Phillips 66 (PSX), Alibaba (BABA), BP (BP), Amgen (AMGN), AbbVie (ABBV), Lockheed Martin (LMT), Enterprise Products (EPD), Cummins (CMI), MasterCard, Union Pacific (UNP), Procter & Gamble (PG), Ameriprise Financial (AMP), Sunoco, Starbucks, Kinder Morgan.

23. Here's a fun one - Which stock would Warren Buffett (Trades, Portfolio) or Benjamin Graham buy today if he were you?

Starbucks.

24. What is the most contrarian investment you've ever made? Why did you make it and how did it turn out?

Bought some Pfizer (PFE) in 2010 and held it until 2014, more than doubled my money. I bought it with very little research, just noticed the dividend was over 4% and that it had been 41 per share in 2000; I got it for 16 so I though it is time to increase and it did. I felt like a grade school kid who guessed on a test and got an A.

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