Author Dave Van Knapp
| Interview with the Author |
1. What is SensibleStocks.com?
I created this Web site to provide helpful information to individual investors. It contains free articles that I have written. It
also describes my two books, SENSIBLE STOCK INVESTING: How to Pick, Value, and Manage Stocks, and THE
TOP 40 DIVIDEND STOCKS FOR 2008: How (and Why) to Build a Cash Machine of Dividend Stocks. The first
book is available on Amazon.com and from other booksellers. The latter is an e-book available from my site.
2. Why did you write these books?
To help other individual investors.
When I first started investing in individual stocks, I tried to educate myself in the subject. While there are many very good
books out there, I discovered that, when taken together, they often left a confusing impression. Some flat-out
contradicted each other. I also ran into repeated terminology problems—terms of art would just be used without
explanation or definition. I set out to solve those problems for myself. I researched numerous sources—some popular,
some academic—and began taking notes for my own use that gradually cleared up gray areas and gave me a sense that I
understood the landscape of stock investing. I became a successful investor myself.
In 2001, I realized that other individual investors must be facing exactly the same problems that I was solving. Given my
own background as an analyst and writer, I decided to turn my notes into a book that could help other individual
investors. SENSIBLE STOCK INVESTING is the result. It was published in 2006 and republished in 2008.
The idea for THE TOP 40 DIVIDEND STOCKS FOR 2008 came from my experiences advertising my first book. I did
some advertising on Google, and I noticed that well over half the clicks to my Web site came from ads that ran alongside
search terms like "dividend," "income," and so on. I figured that there must be strong interest in dividend-paying stocks.
As I researched them, I realized why: They make great investments.
3. On the back cover of SENSIBLE STOCK INVESTING, it says that your book is "innovative." In what
ways is it innovative?
Much of the innovation is in the forms and tools that the book provides. For example, I created an “Easy-Rate Stock
Scoresheet”™ which greatly simplifies the process of rating a company and valuing its stock. It is a form, meaning that
the investor can fill it out, and when he or she is finished, the company and its stock have been graded on a point system.
This helps the user to make an intelligent decision whether this is a company that merits further consideration. Some other
innovative tools are the Shopping List, the Portfolio Review, and the various grading systems themselves. The whole
book has been written with the needs of the busy individual investor in mind, to allow him or her to do a good job of
stock investing without wasting any time. The book is a step-by-step guide.
I carried these innovations over to THE TOP 40 DIVIDEND STOCKS. I modified the original scoring system to focus
on dividend-related factors. I also decided to present the filled-out Easy-Rate Scoresheets for each stock in the Top 40.
That takes a lot of work off the back of the investor.
4. What would be a quick overview of the stock investing approach recommended in your book? Could you
give an example of how an investor using your approach would go about evaluating a specific company, say
GE?
GE is a good example, because it is both a great company generally and also is a terrific dividend-paying company.
As I’ve constructed the evaluation process, there are three phases.
Phase one is to evaluate the company. The fact is that some companies are lousy and should never be considered for
investment. Many are good companies, and a few are excellent. So the first step is to grade the companies, using the
Easy-Rate sheet and the point system I mentioned earlier.
It’s not hard to do. On the Internet these days, all of the information you need is readily available and free. What the
Easy-Rate sheet helps you do is put it into a coherent form, eliminate redundancies, and give you a way to properly
weigh the different factors against each other. As one reader has pointed out, it helps you remove emotion from stock
selection. A stock either scores well or it doesn't.
The second step is valuing the stock. “Valuing” means determining whether the stock’s current price is fair, too high, or a
bargain for what you are getting. If the price is too high, chances are that it will be difficult to get superior returns from the
stock, even if the company is the best one on the planet. If the price is fair, you might have a buying opportunity,
especially if the company is a really great one that figures to be maintain its excellence far into the future. But when the
price is low, that suggests that you are at an advantageous time to buy the stock. The Easy-Rate sheet is also used to
value stocks, using a point system designed just for that. You add the two scores—the Company Score and the
Valuation Score—to get a total score. It takes about an hour to grade one company.
By this time, you are way ahead of most investors in your knowledge about that company and your ability to make an
intelligent decision about it.
The third phase is what I call portfolio management. This covers elements such as checking out the stock’s chart to see
how it has been performing in the real world, writing up your investment objectives and strategies, and selecting the best
times to buy and sell. Once you own stocks, you should conduct periodic Portfolio Reviews to consider your
investments from a strategic (rather than day-to-day) perspective.
5. Why should someone buy individual stocks instead of mutual funds?
Not everyone should. I think that mutual funds—especially low cost “index” funds—are a good way to get started in
stock investing. And if someone cannot or is not willing to spend about 100-120 hours a year to research his or her
investments, then individual stocks don’t make much sense, in my opinion.
But if someone wants to move beyond mutual funds, and has the time and inclination to commit to doing some personal
research, individual stocks offer the chance at greater total returns than mutual funds. Sometimes the difference sounds
small—maybe just a percent or two per year—but that adds up significantly over many years. Also, investing in
individual stocks gives you total control over costs and taxable events. Mutual funds don’t.
6. In the book, the concept of avoiding losses comes through loud and clear. Why is that so important? Aren't
total returns the real target?
Yes, total returns are the ultimate objective. It turns out that mathematically, avoiding losses is way more important
in improving total returns than hitting occasional “home runs” with isolated out-of-this-world stock picks. The math is
explained in the SENSIBLE STOCK INVESTING. Warren Buffet has famously stated that Rule #1 is not to lose, and
Rule # 2 is not to forget Rule #1. He's exactly right.
There are several ways to avoid losses or to build safety into your portfolio (which are the same thing: risk control). The
main techniques is to make smart picks in the first place. Others include using stop-loss orders, periodic Portfolio
Reviews, and so on.
It turns out that dividend-paying stocks are often some of the safest, most stable investments you can find. And, believe it
or not, dividend-paying stocks have the best total returns over long periods of time.
7. You mentioned "forms" that you provide to the investor. What does that mean?
We talked about forms earlier, such as the Easy-Rate Scoresheet. A form is a tool meant to simplify the investment
process for the individual investor. It is preformatted and contains blanks for the necessary information. I also provide
logical point systems that allow you to grade each piece of information. In the end, you have a coherent view of any
company that you investigate. As you look at more companies, they are all in the same format, making comparisons
much easier.
8. How long does it take an "average individual" to become an effective stock investor?
In SENSIBLE STOCK INVESTING, if someone follows all the steps and evaluates about 3-4 new stocks per month, it
should take about 120 hours per year to keep up with everything. Because wealth accumulation is important for most
people—to finance their kids’ education or to build a nest egg for retirement—that does not strike me as “too much”
time to invest, although of course each individual must come to his or her own conclusion about that. Many people—
such as myself—find that it is fun.
For people using THE TOP 40 DIVIDEND STOCKS, the time commitment is much reduced. That is because the Top
40 list itself serves as your Shopping List. You can add to it if you like, but you don't have to.
9. How successful have you been using the ideas in your book?
There are two actual portfolios described in the book. They are there because, as I was researching and educating
myself about individual stock investing, I was stunned by how little information is given about how prior
recommendations actually did. On TV, in magazines, and so on, the reader is often left wondering, “Well how did it turn
out?” Anecdotal information is often substituted for a complete picture—last year’s “top picks” will be highlighted, for
example, but not the ones that crashed and burned. Or there's never any follow-up story on the "pick of the day."
That’s not acceptable. There must be accountability. So I created two actual, real-money portfolios (one in 2001 and the
other in 2002) to apply and test the ideas in the book, under the additional pressure of knowing the results would be
published.
The first portfolio invests in stocks where the principal goal is capital gains. It has outperformed the S&P 500 since I
started it.
The second portfolio invests in stocks where the principal goal is dividends. With the publication in May, 2008 of THE
TOP 40 DIVIDEND STOCKS, I re-booted this portfolio. Before I re-started it, it had kept exactly even with the S&P
500.
Both portfolios still exist, and their performance is updated each month on my Web site, SensibleStocks.com.
10. Many books have been written about investing over the years. What makes your books different?
Here are the most important distinguishing characteristics, in my opinion.
• The books are very clearly written—jargon and terms of art are used sparingly, and when they are necessary, they
are defined on the spot.
• All my work is designed to help the individual investor. Every process has been pared to the essentials, recognizing
the time demands on busy people today. Redundancies have been eliminated, without sacrificing informative discussions
of the essentials. In THE TOP 40 DIVIDEND STOCKS, the reader's work is reduced even further, since I have
provided the Shopping List of stocks to be considered, plus their filled-out Easy-Rate Scoresheets.
• The forms, tools, and scoring systems are unique to each book. (The Easy-Rate sheets are trademarked.) The
Top 40 list of dividend stocks appears nowhere else.
• The three-phase investment process—while not entirely unique—has rarely if ever been laid out in such a clear and
understandable fashion.
• The books' methods are suitable for beginners and experienced investors alike.
11. Are the techniques in Sensible Stock Investing best for large cap, small cap, international, or other
categories of stocks?
The techniques work for all types of stocks, so long as full and accurate information can be obtained about them. The
principles are the same.
Of course, the scoring systems in THE TOP 40 DIVIDEND STOCKS have been tailored to companies that pay
dividends. These tend to be larger companies. A surprising number of the Top 40 dividend stocks are international.
12. Who are the target audiences for your books?
The short answer is that either is for the individual investor who has decided that he or she wants to invest in individual
stocks.
To put a little more detail around that: Both books are for men and women of any age who want to build their wealth.
They are probably self-directed by nature, looking for a guidebook to help them. They are reasonably confident and
optimistic without being “irrationally exuberant,” and they believe that the individual can do well on Wall Street. They are
prudent but willing to take some risks to reach their financial goals. They are willing to devote a few hours per month to
the task and open to the idea that this work can be fun. They do not need to be math whizzes or financially trained.
Common sense is a more important quality.
I created this Web site to provide helpful information to individual investors. It contains free articles that I have written. It
also describes my two books, SENSIBLE STOCK INVESTING: How to Pick, Value, and Manage Stocks, and THE
TOP 40 DIVIDEND STOCKS FOR 2008: How (and Why) to Build a Cash Machine of Dividend Stocks. The first
book is available on Amazon.com and from other booksellers. The latter is an e-book available from my site.
2. Why did you write these books?
To help other individual investors.
When I first started investing in individual stocks, I tried to educate myself in the subject. While there are many very good
books out there, I discovered that, when taken together, they often left a confusing impression. Some flat-out
contradicted each other. I also ran into repeated terminology problems—terms of art would just be used without
explanation or definition. I set out to solve those problems for myself. I researched numerous sources—some popular,
some academic—and began taking notes for my own use that gradually cleared up gray areas and gave me a sense that I
understood the landscape of stock investing. I became a successful investor myself.
In 2001, I realized that other individual investors must be facing exactly the same problems that I was solving. Given my
own background as an analyst and writer, I decided to turn my notes into a book that could help other individual
investors. SENSIBLE STOCK INVESTING is the result. It was published in 2006 and republished in 2008.
The idea for THE TOP 40 DIVIDEND STOCKS FOR 2008 came from my experiences advertising my first book. I did
some advertising on Google, and I noticed that well over half the clicks to my Web site came from ads that ran alongside
search terms like "dividend," "income," and so on. I figured that there must be strong interest in dividend-paying stocks.
As I researched them, I realized why: They make great investments.
3. On the back cover of SENSIBLE STOCK INVESTING, it says that your book is "innovative." In what
ways is it innovative?
Much of the innovation is in the forms and tools that the book provides. For example, I created an “Easy-Rate Stock
Scoresheet”™ which greatly simplifies the process of rating a company and valuing its stock. It is a form, meaning that
the investor can fill it out, and when he or she is finished, the company and its stock have been graded on a point system.
This helps the user to make an intelligent decision whether this is a company that merits further consideration. Some other
innovative tools are the Shopping List, the Portfolio Review, and the various grading systems themselves. The whole
book has been written with the needs of the busy individual investor in mind, to allow him or her to do a good job of
stock investing without wasting any time. The book is a step-by-step guide.
I carried these innovations over to THE TOP 40 DIVIDEND STOCKS. I modified the original scoring system to focus
on dividend-related factors. I also decided to present the filled-out Easy-Rate Scoresheets for each stock in the Top 40.
That takes a lot of work off the back of the investor.
4. What would be a quick overview of the stock investing approach recommended in your book? Could you
give an example of how an investor using your approach would go about evaluating a specific company, say
GE?
GE is a good example, because it is both a great company generally and also is a terrific dividend-paying company.
As I’ve constructed the evaluation process, there are three phases.
Phase one is to evaluate the company. The fact is that some companies are lousy and should never be considered for
investment. Many are good companies, and a few are excellent. So the first step is to grade the companies, using the
Easy-Rate sheet and the point system I mentioned earlier.
It’s not hard to do. On the Internet these days, all of the information you need is readily available and free. What the
Easy-Rate sheet helps you do is put it into a coherent form, eliminate redundancies, and give you a way to properly
weigh the different factors against each other. As one reader has pointed out, it helps you remove emotion from stock
selection. A stock either scores well or it doesn't.
The second step is valuing the stock. “Valuing” means determining whether the stock’s current price is fair, too high, or a
bargain for what you are getting. If the price is too high, chances are that it will be difficult to get superior returns from the
stock, even if the company is the best one on the planet. If the price is fair, you might have a buying opportunity,
especially if the company is a really great one that figures to be maintain its excellence far into the future. But when the
price is low, that suggests that you are at an advantageous time to buy the stock. The Easy-Rate sheet is also used to
value stocks, using a point system designed just for that. You add the two scores—the Company Score and the
Valuation Score—to get a total score. It takes about an hour to grade one company.
By this time, you are way ahead of most investors in your knowledge about that company and your ability to make an
intelligent decision about it.
The third phase is what I call portfolio management. This covers elements such as checking out the stock’s chart to see
how it has been performing in the real world, writing up your investment objectives and strategies, and selecting the best
times to buy and sell. Once you own stocks, you should conduct periodic Portfolio Reviews to consider your
investments from a strategic (rather than day-to-day) perspective.
5. Why should someone buy individual stocks instead of mutual funds?
Not everyone should. I think that mutual funds—especially low cost “index” funds—are a good way to get started in
stock investing. And if someone cannot or is not willing to spend about 100-120 hours a year to research his or her
investments, then individual stocks don’t make much sense, in my opinion.
But if someone wants to move beyond mutual funds, and has the time and inclination to commit to doing some personal
research, individual stocks offer the chance at greater total returns than mutual funds. Sometimes the difference sounds
small—maybe just a percent or two per year—but that adds up significantly over many years. Also, investing in
individual stocks gives you total control over costs and taxable events. Mutual funds don’t.
6. In the book, the concept of avoiding losses comes through loud and clear. Why is that so important? Aren't
total returns the real target?
Yes, total returns are the ultimate objective. It turns out that mathematically, avoiding losses is way more important
in improving total returns than hitting occasional “home runs” with isolated out-of-this-world stock picks. The math is
explained in the SENSIBLE STOCK INVESTING. Warren Buffet has famously stated that Rule #1 is not to lose, and
Rule # 2 is not to forget Rule #1. He's exactly right.
There are several ways to avoid losses or to build safety into your portfolio (which are the same thing: risk control). The
main techniques is to make smart picks in the first place. Others include using stop-loss orders, periodic Portfolio
Reviews, and so on.
It turns out that dividend-paying stocks are often some of the safest, most stable investments you can find. And, believe it
or not, dividend-paying stocks have the best total returns over long periods of time.
7. You mentioned "forms" that you provide to the investor. What does that mean?
We talked about forms earlier, such as the Easy-Rate Scoresheet. A form is a tool meant to simplify the investment
process for the individual investor. It is preformatted and contains blanks for the necessary information. I also provide
logical point systems that allow you to grade each piece of information. In the end, you have a coherent view of any
company that you investigate. As you look at more companies, they are all in the same format, making comparisons
much easier.
8. How long does it take an "average individual" to become an effective stock investor?
In SENSIBLE STOCK INVESTING, if someone follows all the steps and evaluates about 3-4 new stocks per month, it
should take about 120 hours per year to keep up with everything. Because wealth accumulation is important for most
people—to finance their kids’ education or to build a nest egg for retirement—that does not strike me as “too much”
time to invest, although of course each individual must come to his or her own conclusion about that. Many people—
such as myself—find that it is fun.
For people using THE TOP 40 DIVIDEND STOCKS, the time commitment is much reduced. That is because the Top
40 list itself serves as your Shopping List. You can add to it if you like, but you don't have to.
9. How successful have you been using the ideas in your book?
There are two actual portfolios described in the book. They are there because, as I was researching and educating
myself about individual stock investing, I was stunned by how little information is given about how prior
recommendations actually did. On TV, in magazines, and so on, the reader is often left wondering, “Well how did it turn
out?” Anecdotal information is often substituted for a complete picture—last year’s “top picks” will be highlighted, for
example, but not the ones that crashed and burned. Or there's never any follow-up story on the "pick of the day."
That’s not acceptable. There must be accountability. So I created two actual, real-money portfolios (one in 2001 and the
other in 2002) to apply and test the ideas in the book, under the additional pressure of knowing the results would be
published.
The first portfolio invests in stocks where the principal goal is capital gains. It has outperformed the S&P 500 since I
started it.
The second portfolio invests in stocks where the principal goal is dividends. With the publication in May, 2008 of THE
TOP 40 DIVIDEND STOCKS, I re-booted this portfolio. Before I re-started it, it had kept exactly even with the S&P
500.
Both portfolios still exist, and their performance is updated each month on my Web site, SensibleStocks.com.
10. Many books have been written about investing over the years. What makes your books different?
Here are the most important distinguishing characteristics, in my opinion.
• The books are very clearly written—jargon and terms of art are used sparingly, and when they are necessary, they
are defined on the spot.
• All my work is designed to help the individual investor. Every process has been pared to the essentials, recognizing
the time demands on busy people today. Redundancies have been eliminated, without sacrificing informative discussions
of the essentials. In THE TOP 40 DIVIDEND STOCKS, the reader's work is reduced even further, since I have
provided the Shopping List of stocks to be considered, plus their filled-out Easy-Rate Scoresheets.
• The forms, tools, and scoring systems are unique to each book. (The Easy-Rate sheets are trademarked.) The
Top 40 list of dividend stocks appears nowhere else.
• The three-phase investment process—while not entirely unique—has rarely if ever been laid out in such a clear and
understandable fashion.
• The books' methods are suitable for beginners and experienced investors alike.
11. Are the techniques in Sensible Stock Investing best for large cap, small cap, international, or other
categories of stocks?
The techniques work for all types of stocks, so long as full and accurate information can be obtained about them. The
principles are the same.
Of course, the scoring systems in THE TOP 40 DIVIDEND STOCKS have been tailored to companies that pay
dividends. These tend to be larger companies. A surprising number of the Top 40 dividend stocks are international.
12. Who are the target audiences for your books?
The short answer is that either is for the individual investor who has decided that he or she wants to invest in individual
stocks.
To put a little more detail around that: Both books are for men and women of any age who want to build their wealth.
They are probably self-directed by nature, looking for a guidebook to help them. They are reasonably confident and
optimistic without being “irrationally exuberant,” and they believe that the individual can do well on Wall Street. They are
prudent but willing to take some risks to reach their financial goals. They are willing to devote a few hours per month to
the task and open to the idea that this work can be fun. They do not need to be math whizzes or financially trained.
Common sense is a more important quality.
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