How I Invest

A few weeks ago I did an Ask Me Anything edition of the newsletter, a massive special feature that swelled to more than twice the normal length of a typical one.

It was great for me because it gave me a bunch of topics I that I’m choosing to expand into full-length posts.

One topic that came up again and again were various questions about my investing process, things like:

• What are the things you research when looking for stocks to buy?

• What are the most important metrics?

• What are the rules you will never violate?

This edition of the newsletter will hopefully answer those questions, and more.

I firmly believe that simple plans are best pretty much no matter what you’re doing. So I try and keep things simple.

If you’re trying to lose weight, use a combination of moving around more and consuming fewer calories.

Turning around a business? Figure out the key metrics that you want to improve and focus your attention on those.

My investing strategy is the same way.

In a nutshell

The big reason I keep things simple is because the more variables a plan has, the more chances it has of failure.

So with that in mind, here’s essentially what I’m looking for in a nutshell, something that can be easily replicated by everyone.

Then, once I use this screening method to identify interesting stocks, I do deeper research.

I’ve gone over simple screening methods over the years, including the Buffett Method, something that Buffett successfully used to buy Apple (NASDAQ:AAPL) shares. I think there’s a lot of value there, and so I’ve shamelessly copied much of it.

Anyway, without further adieu, here it is. My ridiculously easy screening process, which is short enough it can fit into a tweet. Basically:

• I look for solid, boring, old-school companies

• That I understand

• Which pay growing dividends

• With moats

• When they’re temporarily cheap

• From a long-term perspective

Remember, my goal for a very long time now has been to live off the dividends. I believe dividend growth investing is the best way to do that, since a properly constructed portfolio will deliver income that grows faster than inflation, while also protecting me against dividend cuts.

My method was designed to filter through the entire dividend stock universe and focus on the cheapest ones. I believe that such a strategy will give me the most dividend income for my buck, and will also help with capital gains as each individual name recovers.

When I come across a company that interests me, I immediately run it through the filter.

How I run a company through the filters

Next, let me show you how I run a company I’m interested in through the filters, and then what I’m looking for after that.

I’ve been looking more closely at Hormel (NYSE:HRL) over the last few weeks. So I run it through the filter using a series of yes/no questions:

Is Hormel a solid, boring, old-school company?

Hormel is definitely boring. Processed meat products aren’t going to make the hair stand up on the back of anybody’s neck. It’s also old-school that the recipe for SPAM has remained pretty much unchanged for about 90 years.

The “solid” adjective is the tricky one, but I added it because I think it’s important to invest in enterprises that have a certain degree of conservatism built in. These are the companies that live to fight another day.

Some things that would check off the “solid” box for me would include:

• Relatively low debt levels

• A history of prudent management

• No dividend cuts

• Highly predictable revenue/earnings

• Strong returns on equity/returns on invested capital

You could substitute “high quality” for “solid” here.

This is also the point where I take a closer look at the company versus peers. If I can find a similar company that has much better financial metrics, then I will either abandon my research or switch over to that one.

Next, I run it though the ‘can I understand it’ filter.

I’m just not interested in putting my cash to work into some new technology I don’t fully grasp. So if I don’t understand the business model immediately, I’m usually out.

If I’m in doubt, I try and explain the business model to my wife. If I’m able to explain it to her, chances are I get it too.

Hormel is easy to understand, so that’s another check.

After that, I check the dividend history in much more detail.

Some people need a certain history of dividend raises in order to invest, but I’m not that anal. What I’m looking for is a company that is committed to growing the dividend over time, and has the ability to do so.

Remember, dividend growth is the direct result of earnings growth. Without the latter, you’re not going to get the former. A company can fake it for a while, but it eventually comes back to haunt them.

Hormel has a 50+ year dividend growth streak. It definitely takes dividend growth seriously. The payout ratio is a little elevated today, and the last increase was a little anemic, but I believe dividend growth will continue once profitability returns to normal. So that box is checked off.

Does the company have a moat?

I use a simple test to determine if a company has a moat:

If you gave me the company’s market cap and asked me to replace it, could I easily do so?

Since Hormel has a bunch of brands that consumers love and a bunch of existing customers that are happy, I wouldn’t want to take on Hormel. Therefore, it has a moat.

Are shares temporarily cheap?

I use a couple filters here. The first is looking at a company’s valuation over the last decade. If it’s trading for close to a 10-year low in valuation, it checks off the cheap box.

I will also use dividend yield as a proxy. If a stock’s dividend is far higher than average, that’s a good sign.

Hormel checks off these two boxes.

Hormel is offering a valuation of approximately 30% cheaper than its median valuation over the last decade, while the dividend yield is much higher than normal. These are both massive green flags.

And finally, I ask myself whether it’s a company I want to own over the long-term.

Like most of the investors I admire, I’m looking to buy something cheap and then hold it for a long time. The share price is almost a distraction at that point; I want to sit back, relax, and collect that dividend. I’m not ignoring capital gains, since I’m confident they’ll happen in the background.

Sometimes I’ll see a name and decide that it’s a decent trade. I’m looking to hold for 1-2 years until some event happens, which I figure would send shares higher. Nelson of a few years ago was happy to own a few of these. Nelson of today doesn’t much bother with that anymore. I want to own quality and I want to own it for a long time.

Since Hormel checks off all the boxes, it has made the list for further research.

Researching individual companies

Once a company has made it through my filtering mechanism, the next step is researching it directly.

My first step checking out a company’s investor presentation. I’ll read a few of them if I can, but essentially I’m looking for further confirmation that it has the qualities I’m looking for.

Next up is the most recent quarterly report, and then the most recent annual report. I don’t go crazy going into the depths of the footnotes or anything crazy like that. I just don’t think that kind of depth is important. Besides, I’m looking for something obvious enough that it’s a screaming buy without the hairy details. If you’re looking in the footnotes of the financial statements for a reason to buy, I’d argue that’s already a compelling reason to stay on the sidelines.

Your 10th best reason for buying isn’t usually something that moves the needle. It’s usually something you identify in the first 15 minutes. Investing is about narratives, and nothing changes a narrative more than short-term results. Thus, I’m usually quite interested in companies that have temporary problems.

Right now, Hormel is dealing with a few different issues. Firstly, the entire CPG sector is beaten up. That influences the price, and not in a good way, either. The U.S. consumer is also struggling. And finally, more unique to Hormel, the company disappointed investors with worse than expected short-term results. The culprit? Higher than expected input costs, a trend that inevitably reverses itself.

Hormel’s input costs are mostly in the form of raw meat, and prices are currently high. What happens when animal prices increase? Suddenly farmers will raise more animals or convert marginal farmland into grazing fields. Supply increases and prices eventually come down. There are few things more predictable.

One advantage to being a stock market investor for most of the past 15 years is I’ve come across most companies in my investment universe before. I’m already familiar with the background, so I can pretty much dive right in. I focus on what’s changed since I looked at the company last and whether these changes are positive or negative.

Say a company makes a big acquisition which changes things, like Hormel did when it bought Planters in 2021. I’ll then focus my research on how the acquisition is impacting the company today. In Hormel’s case, the Planters deal hasn’t really lived up to expectations, but that’s partly because nut input costs have increased. This has both shrunk margins and impacted consumer behaviour, with the average shopper choosing nuts less often because of an unacceptably high price point.

The point of all this is to get to the meat of the potatoes, to dig deep and see what’s really impacting the stock price. If I believe the problem is temporary and fixable, the stock is a buy. And if I’m leaning towards the opposite, it’s something I’ll avoid.

The issues with my method

There’s at least one big issue with my method.

During a bull market — like the one we’ve seen for most of 2025 — there might not be a lot to choose from.

The solution is simple. I just expand my horizons.

I might look at other markets, like the U.S., Europe, or Latin America. I may also depart from large cap stocks and look smaller.

There’s also value in staying disciplined. If I can’t find anything that checks off all the boxes, I’m happy to have some cash on the sidelines. I’ll go find a HISA somewhere and collect 3-4% on it.

I’ve found that in just about every bull market there are unloved sectors, and so I concentrate my efforts there. Besides U.S. consumer staple stocks, I also see value in the pharma space, in REITs (on both sides of the border), in telecom, and in various other old school industries. I find tech and growth to be quite expensive right now, but the rest of the market offers a decent amount of bargains.

I love shopping in beaten-up sectors. There are always tons of different choices. Such an attitude attracted me to Mid-America Properties, and it has gotten me interested in Hormel, too.

The bottom line

I’m happy to answer questions on how I invest. Either reply to this email or, better yet, hit me up on Twitter. You can find me at @cdinewsletter. I’ll get to them (and some of the other people I owe replies to) in the next couple of days.

This is only how I invest. I chose this method because it reflects my personality best and because I believe it helps me achieve my financial goals. Your personality and goals will be different, so you’re not going to want to copy my methods. You’ll want to come up with your own.

Which is fantastic, by the way. The world would be a boring place if everyone just did what I do!

The point of this exercise is two-fold. Firstly, it gives me something I can look back at one, five, or ten years from now. Knowing how past me thought is massively beneficial for future Nelly.

But more importantly, I’d like y’all to come up with your own plan. Figure out what you value and then start moving in that direction. Too many people just chase returns, not enough have a clear, concrete strategy. So come up with your own; your future self and your family will undoubtedly thank you.