1. WE’VE BEEN ACCUSED OF EXTOLLING the vir-
tues of investing in stocks that pay a growing
dividend almost to the point of hyperbole. To that we
plead guilty—sort of. We’ll explain in a moment. Part
of the reason behind our enthusiasm for dividend stocks
is the fact that our EQUITY INCOME strategy, which
focuses on investing in high-yield stocks(1) that pay a
growing dividend has done well both at growing client
income and on a total return basis. This has been done
during what has been one of the most challenging in-
vestment environments for stocks since the 1930s.
As we tend to remind folks almost on a quarterly
basis,(2) every major stock market index is still down in
price since year end 1999. Which means for every dollar
invested in the S&P 500 index in 1999, investors have
less than a dollar in their pocket today—more than a
decade later. That’s excluding any return from dividends.
After factoring in the erosion in purchasing power from
inflation, investors are down even more.
If there’s a silver lining in the dismal stock market
price performance over the last decade or so, it’s the fact
that inflation has been relatively benign, by historical
standards, which has helped hold the cost of living in
check. We doubt many NASDAQ investors still feeling
the pain from a 55% loss since 1999 would agree or
even care much about the flat inflation statistics of the
last ten years.
Our enthusiasm for dividend paying stocks, par-
ticularly those with the financial strength to raise them
on a regular basis, remains in full, ah, enthusiastic-ness,
mode in the current financial environment for one im-
portant and often overlooked reason: there simply isn’t
anywhere else to go. In other words, when you look around
for reasonable investment alternatives in the current
zero interest rate environment, there just aren’t any
viable alternatives to high yield stocks, for long-term
investment options that is. Particularly when it comes
to the income side of the investment equation to help
provide for living expenses in retirement, for example.
Beware the Long Term Bond!
Long-term bonds, as we’ve noted several times in re-
cent issues, are in the throes, in our humble opinion, of
what could well turn out to be the biggest bubble in
financial history. Why do we say that? Well for the
most obvious of reasons; interest rates have never been
this low—ever. Does that mean we know when interest
rates will begin to rise and the bond market bubble will
burst spewing bond losses all over investors in an ugly,
price deflating spiral? No, of course not, but we do
know from having gone through an interest rate spike
in the late 1970s, that buying a 10-year Treasury Note
with a current yield of less than 2.5% is simply not
worth the considerable risk.
Needless to say, hardened VIEWPOINT readers
have heard all this from us many times before. But that
doesn’t keep us from feeling compelled to remind you.
Besides, what else is there to write about? The
Cardinals? Yeah, right. Well maybe the Rams.
Investing for the Long Term
Is there any other kind of investing?
One of the many mistaken beliefs about investing is that
there is such a thing as “short-term” investing. The way
we see it, investing is long term, everything else should
be considered “savings.” We realize that we may be
arguing semantics, but it would probably help most
investors meet their long-term investment objectives if
they made a distinction between saving and investing.
When you can clearly indentify the potential use of
the money: college tuition, room addition, rainy day
fund, it should be considered savings and kept in liquid
investments like money market funds, Certificates of
Deposit or other short-term, safe and stable assets (like
treasury bills). The primary objective of savings is the
preservation of, and ready access to your capital. It
should not be put into anything that could fluctuate in
value and lose money between the time it’s socked away
(Continued on page 4)
3rd Quarter 2010
Volume 11, Issue 3
Helping You Navigate in an Uncertain Investment World
Inside this issue:
Dividend Growth Investing 1
Front Seat, Investing and the proper
attitude about stock prices
2
Chart 1: Does share price matter? 2
Table 1: If dividends are growing? 3
Chart 2: How income grows over time. 4
Demystifying Mutual Fund Fees 8
Chart 3: How Principal grows over time 5
Johnson & Johnson Review 6
Equity Income Portfolio
3rd Qrt 2010 Update
7
1) For the record, our definition of “high yield” is dividend yield more than twice the S&P 500 index average. 2) Okay, how about
every quarter.
Dividend Growth Investing: It’s About Capturing Compounding
Dividend yield and dividend growth make for a potent compounding machine.
Deschaine & Company
is an SEC registered
investment advisor,
managing approxi-
mately $70 million for
pensions, endowments,
and individuals.
WorldHeadquarters
128 South Fairway Drive
Belleville, Illinois 62223
Phone: (618) 397-1002
mark@deschaineandcompany.com
marnie@deschaineandcompany.com
MaryvilleOffice
Jason Loyd
(618) 288-2200
jason@deschaineandcompany.com
HighlandOffice
Matt Powers
(618) 654-6262
matt@deschaineandcompany.com
We’re on the Web at:
deschaineandcompany.com
Deschaine&Company,L.L.C.
A REGISTERED INVESTMENT ADVISOR
Deschaine & Company
Illinois PBE Certification
Deschaine & Company was recently
certified as a “Person with a Disabil-
ity Business Enterprise” (PBE) under
the State of Illinois Business Enter-
prise Program for Minorities, Fe-
males, and Persons with Disabilities.
For more information on our
certification, please contact Mark
Deschaine at (618) 397-1002.

2. Page 2
“Another word for Volatility is “Opportunity” (3)
-- Mark Deschaine,
President & Chief Investment Officer
AFTER MORE THAN 30 YEARS in the investment manage-
ment business and many hundreds, if not thousands of
conversations with investors of all stripes, sizes and sophistica-
tion, I’m convinced that prices are at the heart of their conster-
nation with the stock market. Actually, I should clarify my
previous statement, I’m convinced it’s the propensity for stock
prices to “fluctuate” that’s at the heart of most investors anxi-
ety with investing in stocks. They don’t like it when stock
prices fluctuate, although mostly they don’t like it when prices
go down. Higher prices they’re okay with, (funny how, I never
hear anyone complain about
“volatility” on the upside) as
rising stock prices tend to
have a peculiarly soothing
effect on many an inves-
tor’s psyche.
Unfortunately, that’s
not the proper way to
view prices or the stock
market—at least not if
you have any expecta-
tions of making money
consistently from invest-
ing in stocks. In fact, it’s
the exact opposite way to
view stock prices and the place
one goes to buy shares of your
favorite company, otherwise referred to as, well, the stock
“market.”
When you think about it, the stock market is certainly
appropriately named. The stock market is just that, a “market,”
for stocks. It’s nothing more than a conveniently organized
place where investors can go to buy, ah well, stocks. What else
should we call it? Yet, the fact that share prices of the thou-
sands of stocks traded on the stock market fluctuate endlessly
is without question in my mind, the reason most investors do
not do well investing in stocks. It’s fear driven by fluctuating
prices that makes investors do crazy, self-defeating things.
For all practical purposes, the stock market operates just
like your local Wal-Mart store. Again, if you stop and think
about it, Wal-Mart is a conveniently organized place where
shoppers can go to buy everything on the planet, ironically,
except publically traded stocks. But hey, give Wal-Mart time and
maybe soon you’ll be able to throw a couple of hundred shares of your
favorite stock into your shopping cart right next to motor oil, fresh
strawberries and that 46 inch flat-screen television.
The point is that the stock market is
viewed by most investors with fear and
loathing primarily because prices fluctuate.
Shoppers would probably view Wal-
Mart with fear and loathing too if they
published the daily price changes on the
merchandise they sell in their stores in the Wall Street Journal
every morning. Why I can even hear the nightly news now:
“dish-washing liquid plunged 12% today as the cleaning supplies
department dropped the price by seventy five cents a bottle. Shoppers
withdrew buying in anticipation of further price drops.”
Obviously, I’m trying (somewhat ineptly?) to use the Wal-
Mart analogy to make a point about the stock prices. But the
analogy is right on point. The stock market is just that, a
“market” of stocks. The stock “market” is open from 9:30 a.m.
to 4:00 p.m. eastern stan-
dard time, Monday
through Friday, except
national holidays.
And that’s exactly how
investors should view the
stock “market,” as nothing
more than a large, New
York based, super-market
for buying (and of course
selling) your favorite snacks,
oops, I meant “stocks.”
Smartbuyers,nomatterwhat
they’rebuying,wantlowerprices
That brings me to my next
point about investing in the
stock market. And I’ll confess, this is a point I tend to make
rather frequently, so don’t be surprised if you’ve heard it be-
fore. (But then let’s be honest, when all one does all day is talk, think and write
about one subject, and that is—repeat after me—“making money in the stock
market,” one is going to naturally have a tendency to repeat oneself, over and over
again repeatedly. Anyway, but I digress, as I often do in these pages.)
Back to my next point about investing in the stock market
and it’s this: the objective of investing is to accumulate the
largest pile of shares of stock, (of one company or multiple compa-
nies) as we possibly can. Now, as you know, I don’t profess to
be a math whiz, but I’m pretty certain that it’s better to accu-
mulate 10,000 shares of Johnson & Johnson than it is to accu-
mulate 1,000 shares and accumulating 100,000 shares of JNJ is
even better yet. (See Jason’s write up on JNJ on page 6.)
I realize I run the risk of insulting the intelligence of our
sophisticated and knowledgeable readership when I use rather
simplistic examples, but I’ve found over the years, that invest-
ing really is that simple (and are most successful) when we stick
(Continued on page 3)
3rd Quarter 2010 Viewpoint
3) Notice, I’m quoting myself now, neat huh?
VIEW FROM THE FRONT SEAT by Mark J. Deschaine
Investing Success Comes from having the proper attitude about prices!
$0.54
$3.42
$10.00
$2.92
$32.25
$‐
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$-
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
$35.00
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Chart 1: Does Share Price Even Matter?
Dividend growing at 8% a year.
Stock price going up at 5% a year.
Stock price stays flat
Stock price goes down at 5% a year.
If your dividend’s going up and you want to buy more shares, should you care about stock prices.
Yes! You should want them to go down!

3. Deschaine & Company, L.L.C.
to the basics. It’s when we lose sight of
the most basic objectives--like accumulat-
ing lots of shares--that we tend to under-
mine our own long-term investment ob-
jectives.
That once again brings me back to
prices. If our primary investment objec-
tive is to accumulate as many shares of
our favorite high-yield stocks as possible,
the best way to do that is for stock prices
to go down. Or barring a steady decline,
at least not have stock
prices go up a lot. What’s
that you say? Declining stock
prices are good? What are
you some kind of anti-
capitalist? Geez, everybody—
even rookie investors know
that bull markets are good
and bear markets are bad.
Talk about not understand-
ing one of the most basis in-
vestment tenets.
In the “Front Seat” column in this
year’s 1st quarter issue, I used the price
analogy of a Corvette for sale on my lawn
to make the point about how most folks
tend to view prices differently when it
comes to stocks. I included three scenar-
ios of stock prices over a 20-year period.
One included stocks dropping in half over
the first ten years, a second where prices
stayed flat and three, where prices double
over the 2o-year period. The totals after
20 years for both annual dividend income
and portfolio values confirmed that a
share price that drops over the first ten
years (before doubling) allows an investor
the ability to accumulate the largest num-
ber of shares for every dollar invested.
When combined with a growing dividend,
the compounding effect can be amazingly
powerful. I think intuitively every investor
knows that when buying stocks we want to
pay the cheapest price possible. It’s just hard to
implement in real life when share prices drop.
A longer look at prices
This time I’m going to extend the three
pricing examples to 25 years and have the
stock price either rise every year for 25
years by 5% a year, have the share price
remain flat for 25 years or the price de-
cline by 5% a year for the 25 year period.
The chart on page 2 depicts the three
scenarios. In each of the three scenarios,
the dividend increases by 8% per year
over the 25 year period, which is a reason-
able dividend growth assumption.
The question we’ve asked before in
these pages is this: if you’ve got money to
invest from dividends and interest income
or from new contributions and savings;
would you rather have stock prices go up,
stay flat, or go down? The answer when
investing $1 million in a stock with a divi-
dend that grows at 8% per year over a 25
year period is shown in table 1, below.
No, the numbers in column 3, (in red)
are not typos nor are they incorrect. I’ve
double and triple checked them. Just to be
clear, a rising dividend combined with a
declining stock price is the ideal invest-
ment environment for accumulating stocks,
growing income, and getting rich!
Lucky for us investors in buying
mode, we’re in such an environment to-
day, as many stocks are flat or have even
declined significantly since the stock mar-
ket peaked in March 2000.
What’s notable about each of the
three scenarios is that when investing in a
stock with a yield of 5% and a dividend
that’s growing at 8% a year, your total
returns (while they will vary greatly depend-
ing on what the stock price actually does) are
all exceptionally good compared to his-
torical stock market returns.
For example, the worst outcome is
when the stock price goes up 5% a year.(4)
Under that scenario, you’re forced to
chase higher prices. As a result, you’re not
able to buy as many shares with your divi-
dends. Yet the 12.30% annual com-
pounded return earned over 25 years in a
rising market environment still signifi-
cantly exceeds the long-term stock mar-
ket returns which are somewhere in the
9% neighborhood historically.
Such splendid results begs the ques-
tion; why aren’t more investors realizing
such returns? And the answer is; for a
host of reasons. Not the least of which is
that over the years, investors have given
little credence to the combined com-
pounding power of dividend yield and divi-
dend growth. And, as we mentioned ear-
lier, investors are usually scared out of
buying more shares when prices drop—
which is the exact opposite of what inves-
tors should be doing. Those two reasons
alone account for most of why investors
don’t achieve investment returns any-
where near the ones
shown here.
One important point
in case you missed it. When
it comes to reinvesting dividends
that grow at a healthy rate over a
long period of time, share price
means almost nothing.
At the end of the day,
whether the stock market
goes up, stays flat, or goes
down while we’re buying
stocks will obviously determine our an-
nual investment returns, but it really only
means the difference between earning
12%, or 14%. Or in the case of a steadily
declining stock market, some magical
compounding number like 25%! So why
sweat stock prices?
Better yet, if your dividend income
exceeds your income needs, why sweat
the stock market at all? In fact, if you’ve
got extra income to reinvest, you ought to
be rooting for prices to go down—not up!
Now, admittedly, my reasoning could
be rendered kaput if you’re forced to sell
off a sizable chunk of your portfolio to
fund some unforeseen emergency, but
except for something like that, which by
definition you can’t foresee anyway, you
shouldn’t care what the stock market does
from day to day, week to week or month
to month, other than to bargain hunt for
higher yields.
One final point about the stock mar-
ket, prices and dividend income. If your
portfolio is producing a growing income
stream from growing dividends, year in
and year out, and you’re regularly rein-
vesting your dividends, you win no mat-
ter what prices do. If prices go up, you
win with higher portfolio value, if prices
stay flat you’re able to buy shares at a
reasonable price. If they go down? You
get rich that much faster.
Now do you view stock prices differently?
(Front Seat, continued from page 2)
4) Yes, you read that correctly, the worst case scenario is when the share price in my example goes up 5% a year. What a whacky concept! The more we’ve explored the process of building wealth, the
more we’ve come to realize that a rising stock market is the enemy of investors looking to grow income and build wealth. Unfortunately, we, like every other investor on the planet have been subjected to
the endless onslaught of capital returns and the desire to get rich from latching onto a Microsoft, Wal-Mart (or now Apple?) and watch it grow 10 fold in market value. The problem with that strategy
is that it is simply extremely rare and next to impossible to find early enough in its growth cycle for an investor to catch a meaningful part of the ride up. Dividends win through relentless slow growth.
Page 3
Table 1. If your dividends are growing,
do you really want stock prices to go up? Not if you reinvesting them!
1) Stock price
goes up by
5% a year
Annual
Growth
Rate
2) Stock
price
unchanged
Annual
Growth
Rate
3) Stock price
drops by
5% per year
Annual
Growth
Rate
Annual Dividend income in year 25 $1,627,617 14.9% $6,915,014 21.8% $148,900,335 37.7%
Position Market Value in year 25 $18,183,615 12.3% $28,724,878 14.4% $286,027,048 25.1%
The results of a $1 million dollars invested in a stock with a 5% dividend yield with a dividend that grows at 8%
annually for 25 years. Under three share price scenarios: a 5% rising price, a flat price, and a share price that
declines 5% a year for 25 years. We’re always happy to send the data behind the numbers. Just let us know.

4. $6,915,014
$161,255 $1,344,412
$19,863,269
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
$8,000,000
$9,000,000
$10,000,000
$11,000,000
$12,000,000
$13,000,000
$14,000,000
$15,000,000
$16,000,000
$17,000,000
$18,000,000
$19,000,000
$20,000,000
$21,000,000
$22,000,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
3rd Quarter 2010 ViewpointPage 4
5) We’re realize we’re talking about investing $1,000,000, but if we can’t visualize our portfolio at that level, how can we make it happen.
Chart 2: How Income Grows over time.
Compounding $1,000,000 at 5%
Compounding $1,000,000 at 5% with a 5% annual growth in income.
Compounding $1,000,000 at 5% with an 8% annual growth in income.
Compounding $1,000,000 at 5% with an 8% annual growth in income
plus $100,000 a year in new savings/contributions
All income reinvested over 25 years.
Chart Deschaine & Company Research©
and the time you expect to need the money. Par-
ticularly in the current investment and economic
environment where capital seems more at risk
than ever. Earning an acceptable return on your
savings in today’s world is a challenge, but you
should not lose sight of your primary object of
cash, which is preserving principal in the pursuit
of a little extra (in today’s interest rate environment,
very little extra) return. You just have to get it in
your head that the trade-off between risk and
reward in today’s interest rate environment is
too great to risk the capital for any modest incre-
mental return. It’s just not worth it, period!
“There seems to be some perverse human characteristic
that likes to make easy things difficult.”
–Warren Buffett
When it comes to investing, we like to stress the
basics and nothing gets more basic than com-
pounding. Charlie Munger, Vice Chairman of
Berkshire Hathaway, says that truly understand-
ing compounding and the difficulty in getting it
consistently is the root to understanding invest-
ing. We concur. We’ll even go one step further
and suggest that having faith in the power of
money to compound over time is the very foun-
dation for investing in dividend stocks.
We recently created a series of charts and
examples in an effort to illustrate the power of
compounding, particularly the power dividend
growth too, as we like to say, “turbo charge”
returns over time.
The first thing you need to know about the
outcomes shown in the charts discussed here is
the returns do not take into account any return
from stock price change. That is, we assume
stock prices do not change. Instead, we make the
assumption that each account grows from simply
piling up dividend income that’s reinvested back
into the account. The portfolios build “at cost,”
like a savings account where the interest earned
simply accumulates in the account over time.
The value of the portfolio doesn’t change
from any change in price like a share of stock. Of
course, this assumption cuts both ways as a port-
folio would benefit if it were invested in stocks
and share prices double. Yet, as we show in the
front seat column, the portfolio would also bene-
fit more if share prices dropped over time so we
could buy more dividend producing shares at
cheaper and cheaper prices.
Dividend Growth, The Real Compounding Wonder
Let’s start with the most basic compounding
example, a bank certificate of deposit account.
Let’s say you stopped into your local bank and
your friendly banker offers to sell you a
$1,000,000 Certificate of Deposit with an annual
interest rate of 5%.(5) A bit unrealistic in today’s
interest rate environment we’ll admit, but hey,
play along. The catch is that you have to keep the
money and all the interest earned in the bank for
25 years to allow for compounding.
After 25 years, earning a positive 5% a year,
your account would grow to $3,386,355 dollars
and would be generating $161,255, in annual
income in year 25. Not too awful bad, or as the
sayinggoes,“It surebeats a sharp stickin theeye.”
The outcome is the direct result of com-
pounding from consistently positive returns of
5% per year. Most investors should do as well
because sadly most don’t.
Of course, the appeal of the stock market is
the potential to compound at a higher rate of
return than 5% thus creating a bigger pile of
money in the end. Certainly, the potential to earn
10% compounded (the long-term stock market return
often quoted in Wall Street marketing material) is a
strong incentive to invest in stocks. Consider
that $1,000,000 compounding at 10% a year
would grow to $10,834,710 in 25 years.
Here’s Where Dividend Growth Kicks In
Now let’s say this time when you walked in the
bank, your friendly banker decides he likes you so
much he’s going to cut you in on a great deal.
The bank is selling common stock in the bank at
$10 a share and they’re going to pay a cash divi-
dend of 5% a year. Your banker also offers that as
an incentive to buy shares that if you agree to
keep you stock for 25 years, they’ll raise the divi-
dend 5% a year. Under such a scenario,
$1,000,000 grows to the princely sum of
$9,681,594, and generates annual income of
$1,344,412 in year 25. Quite a jump from simply
adding a dividend that grows at a modest 5% per
year into the mix.
Next, let’s say the bank does real well and
actually increases the dividend by 8% annually. The
returns now jump to $6,915,014 in annual income in
year 25 on a portfolio value of a whopping
$28,724,878! Or more than 42 times the amount of
annual income from our basic 5% savings account
example.Thus the power of a growing dividend!
Just for grins we also calculated what would
happen if we threw an additional $100,000 in
new savings or contributions into the equation
each year. Those are the ridiculous numbers in
black or $19.8 million in annual income and a
portfolio value north of $58 million.
At this point, the question you have to ask is
(Continued from page 1)
(Continued on page 5)

5. Page 5
Deschaine & Company, L.L.C.
6) Of course, the contribution of interest income to total return for bonds over the long term is 100%.
$28,724,878
$3,386,355
$9,681,594
$58,007,859
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
$45,000,000
$50,000,000
$55,000,000
$60,000,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Chart 3: How Principal Grows over time.
Compounding $1,000,000 at 5%
Compounding $1,000,000 at 5% with a 5% annual growth in income.
Compounding $1,000,000 at 5% with an 8% annual growth in income.
Compounding $1,000,000 at 5% with an 8% annual growth in income
plus $100,000 a year in new savings/contributions.
All income reinvested over 25 years.
how reasonable are our assumptions? First, a 5%
dividend yield. Our current EQUITY INCOME
portfolio yields 5.85% as of September 30, 2010.
Its been as high as 7.05%. Second, how reason-
able is an annual dividend growth rate of 8%?
The EQUITY INCOME portfolio’s annual divi-
dend growth rate since 2000 is about 12%,
which includes 2008 and 2009 when the portfo-
lio had 13 stocks—all financial related—that cut
or eliminated their dividends. Dividend growth
so far in 2010 for the EI portfolio is about 13%.
For the record, our annual dividend growth
rate target is 8%. Anything above that we’ll
consider a bonus. We do feel dividends will
grow over the next decade despite the economic
challenges the country faces for a number of
reasons, including the fact that companies are
generating record levels of discretionary cash
from having reduced overhead during the reces-
sion. They also have a record amount of cash on
their balance sheets for the same reason. It’s our
hope and expectation the managers will do the
smart thing and increase dividends rather than
many of the other less efficient things they
might do with the extra cash.
As charts 2 and 3 show, earning 5% and
having that 5% grow at 8% a year over 25 years
will produce quite acceptable investment results.
Any boost from stock prices or dividend yields and
higher dividend growth rates will just add to our
pileofmoney in theend.
“Tax Arbitrage Feedback Theory” (Say What?)
We’ve had the privilege over our long career to
meet some truly smart folks and associated with
some genuinely nice people in the investment
management business. Two such groups are the
folks at CSFB Holt, and now just recently at
IronBridge Capital Management.
Bob Hendricks, the “H” in HOLT, taught
us much of what we know about valuing compa-
nies using economic or cash flow returns, rather
than misleading accounting data. As we extolled
before, “accounting data lies, the question is how
much, and secondly, accounting data lies differ-
ently for different companies.” Obviously, we
believe that relying on accounting data to evaluate
and select stocks is an exercise in delusion and
fraught with peril. In many ways, dividends,
because they’re paid in cash, serve as an excel-
lent proxy and a quick measure of cash flow in
the valuation of stocks.
Recently, we had the opportunity to chat
with Chris Faber, President and Chief Invest-
ment Officer of IronBridge Capital Management
a Chicago based asset manager with more than
$8 billion in assets under management. The
connection between HOLT and IronBridge is a
direct one as Chris worked at HOLT right out
of college in the 1980s just as HOLT was get-
ting going. Another HOLT alum is Sam Eddins,
who is IronBridge’s Director of Research.
After spending about 15 years at HOLT
telling investment managers like us how to use
the HOLT data to pick stocks, Chris, and Bob
Hendricks founded IronBridge to manage assets
utilizing the HOLT research. The success of
IronBridge speaks volumes about the validity of
the research and the talent and skill of Chris
Faber, Bob Hendricks and Sam Eddins.
In addition to the ground breaking work
on cash flow returns, HOLT had done extensive
research on the impact federal taxes have on
asset prices, particularly stock prices.
We take the time to note all of this in part,
to give credit where credit is due which is to the
original brain trust at HOLT but also to draw
your attention to an article Sam Eddins wrote in
2009 under the innocuous title: “Tax Arbitrage
Feedback Theory.”You can assess the article directly
at:http://ssrn.com/abstract=1356159
Quite simply, Sam argues that it was ill-
conceived U.S. federal tax policy (is there any
other kind?) going back more than 20 years that
was the direct cause of the global credit crisis.
Sam’s argument is based on the axiom that all
investors seek the highest, after-tax, rate of re-
turn when making investment decisions. Sam
explains, in plain English I might add, how the
different tax rates for different investor groups,
individuals, tax-exempt institutions, etc., produced
different incentives that contribute to instability
and boom/bust cycles in the economy and the
financial markets.
Sam’s work shows that one, if not the main
purpose, of debt securitization was tax minimiza-
tion. In other words, credit default swaps were
created simply to shift huge amounts of govern-
ment tax receipts to Wall Street bonus pools
through security losses (think Goldman Sachs)
which necessitated the creation of huge amounts
of low-quality debt designed to purposely go bad
to create losses, (think billions in bad mortgages.)
Sam notes, poignantly, that not a single dollar of
“credit default swaps” has ever been used for any
economic propose other than as a tax write-off.
We encourage anyone who wants to truly
understand the causes of the credit mess of the
last 20 years, to access the article and spend 15
minutes reading it. Just ignore the math and the
formulas. Those aren’t required reading and
weren’t meant for us mere intellectual mortals.
As always, thanks for reading. MJD
(Continued from page 4)

6. 292%
214%
204%
75%
32%
8% 4%
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2.20
2.30
0%
25%
50%
75%
100%
125%
150%
175%
200%
225%
250%
275%
300%
Dec‐79
Dec‐80
Dec‐81
Dec‐82
Dec‐83
Dec‐84
Dec‐85
Dec‐86
Dec‐87
Dec‐88
Dec‐89
Dec‐90
Dec‐91
Dec‐92
Dec‐93
Dec‐94
Dec‐95
Dec‐96
Dec‐97
Dec‐98
Dec‐99
Dec‐00
Dec‐01
Dec‐02
Dec‐03
Dec‐04
Dec‐05
Dec‐06
Dec‐07
Dec‐08
Dec‐09
OH MY-LANTA!
JNJ’S HISTORY OF SLOWLY MAKING
SHAREHOLDERS WEALTHY
By: Jason M. Loyd
Vice President & Portfolio Manager
JOHNSON & JOHNSON MAY SEEM out of
fashion in today’s frivolous, hyperactive,
and alpha starved investment environment;
but this $170 billion dollar health care and
personal product empire has been a wealth
creating, income producing, compounding
machine for well over a century.
The company was founded in 1886 by
Robert, James, and Ed Johnson. They had a
simple idea—yet utterly revolutionary for the
time—to create sterile dressings and ban-
dages. Obviously, their idea went over rather
well to the point where I couldn’t even con-
sider providing my kids with anything other
than the latest and greatest “Princess, or Buzz
Lightyear” “bandage.”
With over a hundred subsidiaries, John-
son & Johnson makes and markets thousands
of diverse health care and personal care prod-
ucts including such household medicine cabi-
net staples as Tylenol or Listerine. As well as
some of the world’s most sophisticated medi-
cal devices and diagnostic equipment.
Johnson & Johnson
A Dividend Growth Compounding Machine
JNJ has been paying a dividend since 1944 and
has increased it annually for over 47 years.
That’s as in 1963, when John F. Kennedy was
in the White House.(7) To put the power of
growing a dividend for such a long period of
time into perspective, if you invested $10,000
in JNJ back in 1970, you would’ve received
about $167 in dividends that year. If you then
held onto the stock all these years and rein-
vested all your dividends, you would now see
$138,000 in annual dividends hit your invest-
ment account each year. The annual dividend
having grown from $.01 a share to $2.16 a share
in that time or an annual growth rate of 14%
since 1970. Reinvesting all the dividends grow
total dividend income better than 18% a year.
Oh, by the way, the shares you would’ve
acquired along the way would now have a
market value in the neighborhood of $3.6 mil-
lion dollars as of September 30, 2010.
What Is “Yield on Cost”
We’ve held Johnson & Johnson in the EIP
Portfolio since March 2009. The only reason
we didn’t buy JNJ sooner was because the
stock was rarely cheap enough for us to justify
committing a significant amount of capital to
the company. For the record, we paid $52.62 a
share in March 2009, giving us a “yield on
cost” of 4.1% on our position.
So what’s “yield on cost?” As you can
imagine, it’s very much what is sounds like.
It’s the yield you’re earning on the stock based
on today’s annual dividend divided by what
you originally paid for the shares you own. In
the case of the EIP, we paid $52.62 for our
shares in March 2009. If we divided JNJ’s
current $2.16 annual dividend by our $52.62
per share cost, we get a “yield on cost” of 4.1%
on our JNJ shares.
Now a “yield on cost” of 4.1% may not
seem like a big deal, but what if we’ve bought
JNJ in January 1979 and held onto those
shares until now. JNJ’s 1979 year-end share
market price was—get this—$0.85 (as in cents)
after adjusting for three 2/1 splits along the
way. Now, if we divided JNJ’s current annual
$2.16 dividend by our 1979 cost and we get a
“yield on cost” of—drum roll please—254%. In
other words, for every share you might have
bought in 1979 at $0.85, you would now be
receiving $2.16 in annual dividends or more
than 2.5 times your initial investment—each
and every year— and growing to boot!
Going forward, you can be sure we do not
anticipate this kind of supercharged income
growth. However, our analysis indicates that
Johnson & Johnson should be able to continue
to generate positive cash flow from its stable
of products and continue to pay and increase
their dividends for years to come. As long as
that’s the case, and the price of the stock re-
mains reasonable by our valuation measures;
we’ll continue to utilize the dividend and divi-
dend growth attributes of JNJ to provide grow-
ing income to our clients.
Of course, we are always watching for
price drops allowing us to buy JNJ on the
cheap to augment the income growth process.
JML
Page 6 3rd Quarter 2010 Viewpoint
7) And Mark was a mere pup of seven years old. So that ought to give you a good idea of just how long ago 47 years is!
Ticker: JNJ
9/30/10 Price: $61.96
Current Dividend Yield: 3.5%
5-Year Dividend GR: 10.9%
40-Year Dividend GR: 19.0%
Year End “Yield on Cost” & Dollar Annual Dividend
December 1979 to 2010

7. Year End 2009 Viewpoint Page 7
QuarterlyReturns 3rd Qrt 2010
US MARKETS 11.63
GLOBAL EX-US 16.91
DEV MRKTS EX-US 16.78
EMERGING MRKTS 17.75
CORE BONDS 2.37
LT COMMODITY 12.14
Source: Morningstar Q210 Market Commentary
Market Summary 3rd Qrt 2010
EQUITY INCOME Portfolio
3nd Quarter 2010 Update
THE EQUITY INCOME Portfolio current
holdings as of September 30, 2010 are
shownon thetableto theleft.
The third quarter was quite a good one for
most equity investors. Investors actually invested
in equities that is. One of the notable stories of
2010 is the massive moveby investors into bonds
and bond funds of all types. For the last 30
months in a row, inflows into bond mutual funds
have topped flows into stock mutual funds. Un-
fortunately, like real estate speculators of the last
half of the decade and tech investors in the late
1990s, we think bond investors are in for a rude
awakening when rates start to tick up as they
surelywillsooner orlater.
DividendsKeepGrowing
Investors looking for income might gander at the
list of stocks to the left. Stocks are showing nice
income yields on growing dividends. Standard
and Poor’s reported that dividends showed a 6%
increase on average over the prior year period,
albeit the comparison is relative to a low quarter
fordividendsin the3rdquarter of2009.
The table to the left shows two columns
we’ve not shown before. The long term dividend
growth rate column is the annualized dividend
growth rate for each stock going back anywhere
from 3 to 20 years depending on the stock. Most
notably is the fact that the average dividend
increase for the stocks shown here is better than
17%annually.
The far right column shows the annual
return each of the stocks earned from dividends
“alone,” no capital returns factored in. Again, the
average annual return from just the dividend for
the group is a healthy 5.87%. How’s that for a
nice rate of return and from just part of the re-
turn equation. Compounding your money at just
shy of 6% while growing your annual income at a
healthy 17% from a diversified portfolio of quality
stocks. Now that sounds like a good strategy for
anystock market environment!
Note, past performance is not a guarantee of
future returns and all that.
Equity Income Portfolio Data Update
Company Symbol
Recent
Price
Current
Yield
5‐Year
Average
Dividend Yield
Long‐term
Dividend
Growth Rate
L‐T Annual
Return from
Dividend Only
Abbott Laboratories ABT 52.84 3.33 2.60 18.48 4.30
Arthur J Gallagher & Co. AJG 27.28 4.69 4.70 5.77 5.36
AllianceBern Global High Inc AWF 15.17 7.91 7.95 11.66 12.06
B&G Foods, Inc. BGS 11.14 6.10 5.10 9.10 6.67
Black Hills Corporation BKH 32.60 4.42 4.20 19.31 5.61
Bristol‐Myers Squibb Co. BMY 27.11 4.72 4.80 8.11 4.61
Colgate‐Palmolive Co CL 76.70 2.76 2.10 17.05 6.01
Clorox Company CLX 68.00 3.24 2.50 7.04 4.81
ConocoPhillips COP 61.12 3.60 2.70 11.83 3.72
CPFL Energy Inc. CPL 72.86 7.77 6.50 20.97 3.43
CenturyLink, Inc. CTL 40.47 7.17 4.00 10.11 4.73
Chevron Corp CVX 84.25 3.42 3.10 16.53 5.25
Dominion Resources Inc. D 44.74 4.09 3.80 15.01 4.24
DuPont de Nemours & Co. DD 47.13 3.48 3.90 14.61 4.92
Diamond Offshore Drilling Inc. DO 68.63 0.73 3.90 10.38 4.37
ENI S.p.A. E 45.26 5.67 4.70 0.90 5.61
Consolidated Edison, Inc. ED 48.88 4.87 5.10 20.51 13.76
Elbit Systems Ltd. ESLT 52.84 2.73 1.60 10.29 2.26
Energy Transfer Partners LP ETP 50.05 7.14 7.10 3.10 3.55
EV Energy Partners, Units EVEP 36.27 8.35 8.90 7.18 4.36
Federated Investors Inc FII 24.31 3.95 3.00 0.90 13.43
Fifth Street Finance Corp. FSC 11.40 13.30 8.75 11.95 3.91
Frontier Communications Corp. FTR 8.78 8.54 9.90 11.20 10.13
Gladstone Investment Corp GAIN 7.27 6.60 8.96 14.02 10.08
General Mills Inc. GIS 37.12 3.02 2.70 16.17 7.26
Great Northern Iron Ore GNI 120.50 12.45 8.90 28.07 4.41
Genuine Parts Company GPC 47.58 3.45 3.40 11.20 12.94
Glaxo Smithkline ADS GSK 40.50 4.52 4.00 12.25 7.29
Health Care REIT Inc HCN 50.88 5.42 5.80 9.02 3.74
HCP, Inc. HCP 37.18 5.00 5.80 12.41 4.04
Coca‐Cola Company KO 49.40 3.64 3.40 9.66 9.60
H.J. Heinz Company HNZ 63.99 3.38 2.60 35.12 5.81
Johnson & Johnson JNJ 31.82 3.65 3.60 15.24 2.73
Kraft Foods Inc KFT 66.86 3.95 3.40 10.48 10.38
Kimberly‐Clark Corp. KMB 61.47 2.86 2.80 12.44 3.83
Leggett & Platt Inc. LEG 22.99 4.70 4.10 9.66 7.51
Linn Energy, LLC LINE 32.57 7.74 6.50 11.88 5.17
Eli Lilly & Co. LLY 35.50 5.52 3.80 16.90 5.12
Main Street Capital Corp MAIN 16.69 8.99 8.70 14.11 3.98
McDonald's Corp. MCD 78.44 3.11 2.80 27.53 2.13
Microchip Technology Inc MCHP 30.68 4.47 3.30 20.03 6.48
Mercury General Corp. MCY 43.24 5.46 4.40 21.67 5.99
Altria Group Inc MO 24.95 6.09 6.80 65.65 7.21
Middlesex Water Co. MSEX 17.69 4.07 3.90 58.58 0.97
MLP & Strategic Equity Fund MTP 17.26 4.87 5.50 21.40 4.34
Maxim Integrated Products MXIM 19.08 4.40 2.60 27.82 4.22
Norfolk Southern Corp NSC 61.56 2.34 2.00 22.36 2.66
Realty Income Corp O 35.56 4.86 6.50 5.76 5.74
Paychex, Inc. PAYX 27.92 4.44 2.70 18.88 5.40
Pitney Bowes Inc. PBI 22.06 6.62 4.20 8.49 3.38
Plum Creek Timber Co. PCL 37.25 4.51 4.25 34.31 13.24
PepsiCo, Inc. PEP 65.18 2.95 2.30 19.45 3.50
Procter & Gamble Co. PG 63.51 3.03 2.50 48.32 3.61
Progress Energy Inc PGN 44.96 5.52 5.50 14.83 4.51
Philip Morris Intl PM 57.56 4.45 4.20 11.97 5.39
Pinnacle West Capital PNW 42.20 4.98 5.20 3.59 5.22
Prospect Capital Corporation PSEC 10.02 12.07 11.80 14.30 4.39
QWest Communications Q 6.43 4.98 3.30 9.18 3.77
Reynolds American Inc RAI 63.05 3.11 6.00 59.11 7.63
Southern Company SO 38.13 4.77 5.50 0.00 8.44
Suburban Propane Partners LP SPH 55.02 6.14 8.00 13.50 10.13
AT&T Inc. T 28.34 5.93 4.80 38.82 5.52
Integrys Energy Group TEG 53.35 5.10 5.20 6.05 7.29
UIL Holdings Corp UIL 28.40 6.08 5.40 7.71 7.48
Unilever PLC ADR UL 29.21 3.77 2.60 8.01 4.43
Vector Group Ltd. VGR 18.58 8.61 9.40 19.64 3.53
Vectren Corporation VVC 27.00 5.04 4.90 36.05 10.22
Verizon Communications, Inc. VZ 32.52 6.00 4.50 6.16 3.76
Wayside Technology Group WSTG 10.25 5.85 6.20 9.63 4.04
Aqua America Inc WTR 21.06 2.94 2.40 10.41 6.00
World Wrestling Entertainment WWE 13.89 10.37 7.90 51.12 5.38
# of
years of
Data
20
17
20
20
20
20
3
20
20
20
20
20
20
20
20
12
5
13
10
20
12
20
12
14
3
12
2
6
20
20
20
4
9
20
20
20
16
20
20
9
20
4
3
8
20
14
8
20
3
20
20
20
2
17
20
11
20
10
6
2
16
6
20
14
9
11
8
10
20
7
7
Deschaine & Company, L.L.C.

8. Page 8 Deschaine & Company, L.L.C.
WorldHeadquarters
128 South Fairway Drive
Belleville, Illinois 62223
Phone: (618) 397-1002
MaryvilleOffice
(618) 288-2200
HighlandOffice
(618) 654-6262
PUBLISHER: MARK J. DESCHAINE EDITOR: JOHN H. DESCHAINE CONTRIBUTING EDITOR: TOM O’HARA STAFF CONTRIBUTORS: MATT POWERS, JASON LOYD COPY EDITOR: MARNIE E. DESCHAINE TECHNICAL ADVISOR: Joseph M. Deschaine. VIEWPOINT is a
complementary publication of Deschaine & Company, L.L.C. a registered investment advisor in Belleville, Illinois. This information has been prepared from sources deemed reliable, but its accuracy is not guaranteed. It should not be assumed that any
securities discussed will be profitable or will equal past performance, or is it an offer to buy or sell any security mentioned. Deschaine & Company and/or one or more of its clients, employees, family or friends may have a position in the securities dis-
cussed herein. © 2010. All rights reserved. Reproduction of this publication is strictly forbidden without written consent from Deschaine & Company. This issue was published on October 20, 2010. If you would like to receive a complementary copy each
quarterly, simply send us your address and the preferred method of delivery: snail-mail or email, to: 128 South Fairway Drive, Belleville, IL 62223 Or email us at mdeschaine@charter.net and we would be happy to add you to one of our mailing lists.
Deschaine&Company,L.L.C. Page 8
DEMYSTIFYING MUTUAL FUNDS
By: Matt Powers
Vice President & Portfolio Manager
EACH TIME WE PREPARE an article for
VIEWPOINT, it usually stems from a topic
we’ve received the most recent questions or
which topic we think is under-covered or not
openly discussed in polite company.
When it comes to compensating someone
for selling a mutual fund for example, it’s clear
that many investors are often caught by sur-
prise when the curtain is pulled back to reveal
the total costs they incur when buying them.
A mutual fund can be purchased in one of
two ways. 1) No-Load: Simply purchasing the
mutual fund without a commission.
Or, 2) with a Load: Which is usually
when a fund is purchased through a brokerage
firm. The load is the commission paid to the
broker or your financial advisor.
Over the years, mutual fund companies
have devised numerous and ingenious ways of
obscuring the load from investors. One way is
to break fund shares into different “classes” and
charge different fees depending on the class of
shares purchased. The three most common are
listed in the chart below.
Make no mistake, mutual fund companies
are in business to generate fees; there’s no free
lunch. Separate from the commissions and fees
a client pays the broker or advisor, is the ever
present mutual fund expenses known collec-
tively as the fund “expense ratio.” These are the
costs related to the investment management
and operating of the stock or bond fund. These
additional cost are deducted from your fund
and paid to the fund company. The average
stock fund’s annual expense ratio, for example
is somewhere in the neighborhood of 1.15% of
the fund’s total value. Remember, that is in
addition to the loads and 12b-1 fees you’re
charged just to buy the fund.
Mutual Fund Advisory
Accounts
Mutual fund advisory
accounts allow you to
purchase mutual funds
without a load or sales
charge through an advi-
sor, while paying an
annual advisory fee.
(We’ve seen this fee as high
as 1.75%!).
The “advisor” fee is
to compensate the advi-
sor for selecting the best
funds for the client, while at the same time
being charged an annual management fee by
the advisor, right?
While this is correct, let’ not forget about
what was left unstated in the previous para-
graph. The mutual fund company also has their
fund management fees and expenses. So, in
order to get an accurate tally on the total an-
nual cost an investor incurs to own a fund
through an advisor, the client will need to com-
bine the two ex-
penses (the advi-
sor’s fee for selecting
the funds, and the
mutual fund fees for
managing the fund)
in order to under-
stand their true
overall costs.
Here’s a typical
combined annual
advisory & mutual fund advisory account fee
example we’ve seen from a number of broker-
age and advisory firms over the years.
The bottom line is this. While we’re in a
low interest rate, highly volatile stock market
environment, fully understanding the costs
associated with your investments and your
managers is crucial. One of the reasons we
work to keep it simple in our fee and commis-
sion structure here at D&C, so you know ex-
actly what you are being charged.
To help better understand the expenses
involved with your mutual funds you can visit
FINRA’s mutual fund analyzer, which can be
found at: http://apps.finra.org/
fundanalyzer/1/fa.aspx. MTP
Fund Shares
Classes
Front Load
(commission)
Back End
Load
12b-1 fees
(ongoing
commission)
Class A
Usually 5.75% of
the purchase value None
.25%
annually
Class B None
Typically begins at
6% in year 1, and
reduces 1% each year
.25%
annually
Class C None None
1.0%
annually
Mutual Fund Share Class Loads
Fee For: Fee Rate
Advisory Fee 1.75%
Mutual Fund
Expense Ratio
1.15%
Total Annual
Account Expenses
2.90%
Combined Annual
Advisor & Mutual Fund Fees