Forget investing trends, and ignore the market’s twists and turns. That might seem like surprising advice coming from a financial planner, but Gerald Loftin stands behind it: “That’s where you get into trouble, because what you find is that you’re buying when you should be selling, and you’re selling when you should be buying.” Loftin runs his own financial advisory firm, Renaissance Financial Group in Norwood, Massachusetts, which has $42 million in assets under management. Loftin, who is also a licensed insurance and securities consultant, shared his investment philosophy.
Given the market’s recent fluctuations, from the big dip in February to its recent record highs, should investors worry that a correction may be in store?
I’m constantly teaching clients about the merits of why they want to take a long-term perspective. If it’s a good company, it’s going to be a good company whether the market’s down or up.
So, ignore the trends?
I try to ignore a lot of trends because they come and go. Here’s an example: Let’s look at “a day in the life.” Perhaps when you woke up this morning you put on shoes from DSW. You might have called into work on your Verizon cell phone because you had to stop for gas at Exxon. Then you got to your desk and “Googled” something.
If you’re buying quality companies–regardless of whether the Dow Jones industrial average is up 100 points or it’s down 1,000–the things that you’re going to do in your day are going to be no different from the other millions of people who are doing the same thing. Clients who blew out of their portfolios when the Dow plunged are now sitting on the sidelines wondering when is a good time to get back in. By the time they realize it’s a good time, they’re buying at a higher price.
I tend to be very methodical when it comes to buying companies: looking at how long the company’s been around, if it’s a growing industry, assessing its cash flows and price-to-earnings ratio, and also determining whether the company has run into money problems or legal problems.
With that said, I gather you would recommend DSW?
Why wouldn’t you like DSW Inc. (DSW)? It’s one
DSW is up 60% since going public in 2005, and in its last fiscal year earnings per share rose 48%. Analysts are projecting that DSW will average earnings growth of 20% a year for the next five years. Is that realistic?
The stock’s done very well. The only concern with DSW, which operates in 36 states, and what may hurt their stock is if for some reason people stop flooding the stores. Their growth is limited to how much saturation they’re going to get in the market (and hopefully they don’t cannibalize themselves). The stock is up 26% over the last year. It is truly what I consider a small-cap growth stock. When you look at risk-to-reward ratio, there’s high reward potential, but on the other hand, there is some
You also like Verizon, which recently hit a 52-week high.
It’s buying what you know. When I look at Verizon, they have by far one of the few premier takes on the telecommunications industry. Here in eastern Massachusetts, they’re now doing Voice over Internet Protocol (VoIP) service. More of their business is concentrated in the Northeast and Southeast. It’s a very large company. And it is considered more of a value-oriented stock and has fairly low volatility.
At 4%, Verizon’s dividend yield is pretty high. Is that a factor?
I work with a lot of pre-retirees and retirees, and I’m a big believer that if you can’t get capital appreciation from the stock price, the other way of getting capital appreciation would be from the dividend income. When you look at large-cap value stocks, you’re going to buy those companies for a combination of price stability and cash income.
Sherwin-Williams is another of your picks. Won’t it be impacted by a slowdown in the housing market?
Will they be impacted by the fact that builders eventually will need less paint because the housing market’s not moving? Keep in mind, builders aren’t the only ones buying paint. Yes foreclosure rates are higher than they’ve been in the past, but my opinion is that foreclosures can be correlated to the fact that a lot of banks got greedy and lent money to borrowers who, given normal market conditions, they would have never given money to. If you look at the reality of it, we’re talking about 10% of the housing market. So 90% of the people who are borrowing money are still paying their mortgages on time.
Do you have a favorite market pundit?
I don’t necessarily do things based upon what Warren Buffett says, but one of his quotes stayed with me. The question was, ‘When is the best time to buy a stock?’ and he said, “Whenever the market is open.”
| Company (Ticker) | Price High | Price Low | 52-week price range High | 2007 Est. EPS | 2007 P/E Ratio | Comment |
| DSW Inc. (DSW) | $38.37 | $27 | $45 | $1.41 | 27.2 | With shoe sales of more than $1 billion last year, profits rose 48%. |
| Sherwin-Williams Co. (SHW) | $65.99 | $44 | $71 | $4.58 | 14.4 | Shares of the paint maker should withstand any subprime lending woes. |
| Verizon Communications Inc. (VZ) | valign=”top”>$41.16 | $30 | $41 | $2.36 | 17.4 | Dominant telecom player with attractive dividend. |