Three Reasons I Enjoy Watching Stocks I Own Decline In Price

I believe that if you want to be a successful long-term investor you’ll want to have control over your emotions. Letting your inner greed or fear run amok simply because Mr. Market is feeling particularly manic or depressive on a particular day is a surefire path to destruction of capital over the long haul.

I took great interest in the psychological aspects of investing in stocks right from the outset. Although I’m not inherently any “better” than anyone else out there in regards to controlling my emotions, I have realized that I’m in the minority when it comes to seeing the prices on the stocks I own declining in price – and the fact that when this happens I’m flooded with a sense of joy.

There are many investors out there that cringe when the S&P 500 is down big for a day, a week or a month at a time. They may look at assets they own and see the prices on those assets decline, and with it their net worth. This can be understandably discouraging. These investors might be those who have saved up for an entire lifetime and are now selling off assets to produce income and fund their lifestyle. Investors in low-cost index funds would fit in this category, for instance.

However, I don’t view events that cause the prices on stocks I own to decline as negative at all. Rather, I look forward to watching the prices of shares in high quality companies that I’m a part-owner of go down. It should be noted, however, that my perspective comes with a big caveat: I only enjoy watching these prices decline as long as the long-term fundamentals of the companies remain the same. Deteriorating fundamentals would indicate that lower valuations are warranted and are a sign to investigate further and/or possibly sell.

I’m going to explain why I enjoy watching stocks I own decline in price:

Share buyback programs are more effective, enabling companies to buy back shares at cheaper prices.

International Business Machines Corp. (IBM) recently made waves in the news after it posted its sixth consecutive quarterly revenue decline. Those who do not believe in the long-term story at IBM sold on this news, and IBM has been setting fresh 52-week lows. I initiated a position in the company not long ago at what I felt was an attractive price. What do I think about the stock now trading lower from where I bought it? I’m ecstatic!

IBM has one of the biggest share buyback programs on the planet. Since 2000 IBM has reduced its share count by 35%, and they expect to spend $50 billion on share repurchases during the 2015 Road Map period. Now, if IBM plans on spending $50 billion share buybacks would a long-term investor in the company prefer shares at $212 as they were this past spring, or $175 as they are priced now? I think the answer is obvious. Long-term investors should prefer share prices to languish as a company is buying back shares. It allows all investors to benefit by increasing their ownership stake by a larger percentage as the float is reduced at lower prices, thereby allowing the company to buy back more shares for the same amount of money.

My income stays the same!

Where some investors who are busy selling off their assets to fund their lifestyles, I look at my portfolio as a tree that produces bountiful fruit (dividends). I choose not to cut off the branches (sell assets), and instead harvest the dividends monthly while leaving the branches that produce the income intact. This strategy means my dividend income will continue to grow over time even while the underlying assets producing the income also continue to grow. While I’m not financially independent yet and therefore not living off of my dividend income, I am actively and selectively reinvesting that income into attractively priced dividend growth stocks.

The great thing about this strategy is that it isolates me from the psychological madness of the stock market. Shares in The Coca-Cola Company (KO) could zoom up by 20% or fall by 30% and it won’t really matter to me at all. Coca-Cola will still send me that $0.28 quarterly dividend no matter what the market wants to price its stock at. It’s quite entertaining watching investors go crazy watching stock prices fluctuate wildly while I collect an income that rises constantly. It’s important to remember that gains or losses on stocks are unrealized until you sell. Focusing on the income the businesses send my way allows me to keep perspective here and not sell simply because short-term prices are cratering based on noise.

I have the opportunity to increase my ownership stake for less money. 

I look at every stock in my portfolio as an ownership stake in a company, because that’s exactly what stock represents. I own little, tiny pieces of real-life businesses that sell real-life products and/or services to people and other businesses around the world. If a company is doing very well fundamentally, but the price declines for a myriad of reasons unrelated to the actual operations of the business I’m more than happy to increase my stake in the company. At that point I’m able to increase my exposure to rising earnings, and with that rising dividends. This means that my passive income goes up, and I’m able to accomplish this using less capital when the prices of stocks I own decline.

Lower prices on high quality stocks means I’m able to buy more shares for the same amount of money that I’d otherwise spend when prices are inflated. And what do more shares buy me? More dividend income, because more shares means a right to more of the company’s profits. And more income means I can in the future buy more shares with the reinvestment of that passive dividend income. The ability to buy even more shares compounds itself on and on and on. A lower initial price for an ownership stake in a high quality company means your compounding snowball of wealth is able to start higher up the hill and with slightly more snow. That initial inertia can carry on for a lifetime.

I celebrate lower prices as long as fundamentals remain strong.

Just like I love seeing lower prices on gasoline, food or the electricity that lights my small apartment, I also enjoy seeing lower prices on high quality assets. When I own a piece of a wonderful business and the stock market is in the mood to price that business at a level that’s less than its intrinsic value I’m quite excited. The company is able to buy back shares at attractive prices, thereby increasing my ownership percentage in the business at a larger rate than would otherwise be possible and I’m also able to buy shares in the company at attractive prices, thereby increasing my passive income for the same amount of capital. On top of it all, my income is completely unaffected by the whims of the market and the prices therein.

As long as short-term price fluctuations are not due to a negative change in long-term fundamentals I’m more than happy to increase my ownership stakes in high quality businesses. I celebrate these lower prices as the buying opportunities they historically are. 

How about you? Enjoy watching stocks you own decline in price? 

Full Disclosure: Long IBM, KO

Thanks for reading.

Photo Credit: jscreationzs/FreeDigitalPhotos.net

Edit: Corrected spelling in third paragraph.

Comments

  1. says

    Good post DM, currently I am tight in capital so seeing some stocks decline is good for a buy if we are interested in the company. I am fine in decline till a certain %, and I don’t see any dividend cuts.

    • says

      Dividend Mom,

      Glad you liked it. :)

      Great point there. Seeing prices decline is especially helpful for those short on capital. You get to stretch your dollars a little further. It’s almost like showing up to the grocery store with a big, fat coupon.

      A dividend cut would be a sign of deteriorating fundamentals. A big sign. That would be an indicator for me to sell.

      Best wishes.

  2. says

    I still have trouble watching my stocks go down in value but seeing them go up kinda bothers me too since adding to my position will be more expensive. Sometimes I just wish my stocks wouldn’t move at all. A lot of this comes from the time when I simply traded for the capital gain, long before I realized the power of dividend investing.

    • says

      Captain Dividend,

      It’s easier, psychologically speaking, to not see assets you own decline in value. But, keep in mind that these fluctuations are all on paper. The gains or losses on your stocks are unrealized until you sell. For me, a reduction in price is simply a great time to buy and let the market re-price a security at a more appropriate level later down the road. Cheaper stocks definitely help the power of compounding, both for you as the individual investor and the company alike – as long as the company is actively buying shares.

      Best wishes!

  3. Anonymous says

    Well if they go up, the chances the dividend increase will be larger. So kind of a double edge sword. I would rather have larger dividend increases over time.

    Example is Intel. The share price was stagnant so the dividend increase has paused. That is what happens.

    • Anonymous says

      While I have no empirical evidence, I strongly suspect that a company’s dividend policy is NOT influenced by the stock price. The above noted comment suggesting the level of a dividend increase is dependent on the direction of the stock price flies in the face of a prudently developed dividend policy. This thought process, in my opinion, is flawed.

      A properly crafted dividend policy takes into consideration a number of factors over which the company has control (sales, cash flow, debt obligations, etc., etc.). Furthermore, many companies broadcast their dividend payments several months in advance. If we follow Anonymous’ logic, then a company would need to know in advance as to how the stock price will perform in the future.

      I suggest a Board of Directors spends considerable time developing the company’s dividend policy and does not make changes on the basis of equity market conditions.

      Chuck in Ontario

    • says

      Anonymous,

      “Example is Intel. The share price was stagnant so the dividend increase has paused. That is what happens.”

      The dividend payout comes from business operations, and has nothing to do with the share price. If a company’s share price falls by 20%, but profits are up by 20% do you really think the company is going to cut or suspend a dividend? If so, I encourage you to study how businesses operate a little further. Share prices and business operations (profits) are usually coupled, but not always. This inefficiency is how Buffett was able to amass such a large fortune. And this inefficiency is exactly what this post is all about.

      Furthermore, specifically to Intel the dividend raises are not necessarily paused. They have until the end of 2014 to keep their dividend growth streak alive. Moreover, the dividend has been held static over the last six quarters because business operations have not been well. I recently sold most of my INTC position because of this (poor execution), not because the share price has stagnated.

      INTC would be a great example of a stock declining in value because fundamentals are deteriorating. This is referenced in the article as not being an example of when I’m happy to see share prices go down. Knowing the difference between deteriorating fundamentals and market folly is what separates the investors who are able to determine the health of a company and react appropriately and those who succumb to the noise of the market.

      Cheers!

    • says

      gibor,

      I hope you’re right. I’m still holding firm with 100 shares. They’ve been aggressive lately, but so far it’s not been enough. I’m looking forward to seeing what Intel brings to the plate in 2014.

      Best regards.

  4. says

    Good post… Most people still focus on the Big portfolio balance number instead of the cashflow from dividends and distributions. I would rather my portfolio CASHFLOW income to me instead of having to sell part of my portfolio when I get older for income purposes.

    • says

      Investing Pursuits,

      Absolutely. Focusing on the cash flow your portfolio is producing is where you want to be if you’re a dividend growth investor. Certainly achieving satisfactory total returns (relative to what you consider satisfactory) is something you’ll want to consider as well, but my bills in retirement will be paid from the dividend income my portfolio provides, and not some arbitrary value that will change from day to day.

      Take care.

  5. Anonymous says

    I like to see my stocks go up unless :
    - I am still building my position (which is my case)
    - there is a buyback program for a particular stock
    Why do I like to see them go up : because if they go up too much way over their fair value, it is an opportunity to make a capital gain.
    As I said, I am building my position since I discovered DGI, selling a property and putting all in stocks, so for the moment I do not like to see stocks go up.

    • says

      Anonymous,

      We all have different goals, and so our actions and wishes will therefore be different as well. If you’re looking for capital gains, then seeing stocks rise above fair value would be a great opportunity to sell and lock in your profits.

      I’m not looking to sell anything. In fact, the less I sell the better. I’m only looking for rising dividend income, with which one day I’ll be using to fund my lifestyle. Therefore, rising prices inhibits my success to a degree.

      You and I are both actively accumulating assets, so in that regard we should both wish for cheaper stocks. Once we’re done accumulating rising stock prices won’t negatively affect our ability to build positions at relatively attractive prices, but it will still reduce the effectiveness of share buyback programs.

      Best regards!

  6. says

    Good morning DM,
    It’s funny IBM and KO are the two you mentioned in this post. I added to my positions in both late last week. I feel this market to be very highly priced, and therefore figure investing in strong brands that are very investor friendly is the way to go.

    The only time a declining stock really bothers me is if I need to sell for some reason, which has only happened once. However, if I can’t commit my capital to a company for the long term I shouldn’t have bought the stock. Buffett had a great quote on the matter.
    -Bryan
    -Bryan

    • says

      Bryan,

      Nice buys there! I circled around KO recently and probably should have bought when shares eclipsed the 3% yield mark. That doesn’t happen often. IBM is one I’m looking at right now. I just don’t know how large of a position I really want in IBM, due to my natural aversion to tech.

      I agree with you: needing to sell a stock for any reason would definitely be a bummer, especially if it’s at a disadvantageous time (a recent pullback for any reason). That’s why it’s always important to keep some cash aside for emergencies or unforeseen expenses. I have historically never kept much cash around, but as my portfolio gets larger I’m okay with keeping a few grand aside just in case something happens. However, I don’t see the need for a year or more of expenses in cash unless you have major expenses, a home (especially an older home) and/or a family. I’m single, rent and have a large spread between my monthly income and expenses, so I’m comfortable not having a ton of cash laying around earning close to 0%.

      Cheers!

    • says

      Pursuit,

      I concur. It’s extremely important to focus on fundamentals. If a company is perfectly healthy and operations are doing well then I welcome a steep reduction in the price of shares. Too often people think the price of shares in the market represents what a company is worth, instead of looking at operations and valuing the company based on cash flows or dividends or profits.

      Best regards!

  7. says

    Psychologically, I hate seeing my stocks decline. However, I know it is best for me because I can pick up shares at a lower price. I’m a long term investor so a decline right now will most likely be turned around to a gain over the 30+ years I hope to own my companies.

    You make a good point about how declining prices make share buyback programs more effective. I’ve never thought about that one but definately another reason to enjoy lower stock prices!

    • says

      Dan Mac,

      I agree with you that it’s tough on the mind to see prices go down. Red is bad. Green is good. It’s all just psychological. Losses are only so if realized, meanwhile cheaper stocks means more dividend income and the ability to compound your wealth at a greater degree. It’s tough to wrap the brain around this. Again, this is only an effective way to buy stocks if the fundamentals remain strong.

      Stay in touch!

      Best wishes.

  8. says

    Very much a product of those relying on solely on capital gains for growth. As for myself, I love the volatility as it allows for purchasing opportunities. I played this game with KMI earlier this fall and came out successfully giving myself some seriously discounted shares.

    All that being said, as was mentioned above, generally speaking an increase in price long-term will benefit DG investors as well. As a company grows, it’s stock price, and dividend will grow as well. It isn’t good for any one holding to be too stagnant in the short term.

    • says

      w2r,

      Yeah, volatility is discussed in negative light. However, I like volatility. When stocks are way up, I just shake my head and wonder who’s buying overpriced assets. When stocks are way down I’m giddy and trying to buy as much as I can. Volatility creates opportunity for some, and capital loss for others.

      I agree with what you’re saying in the second part of the comment. Over time, if a company’s fundamentals are strong and profits are rising the stock will have nowhere else to go but up. This may take time, and for some stocks it will take longer than others. But eventually stocks will revert to some type of mean. Therefore, the best time to buy is before that reversion occurs and when they’re on sale.

      Best wishes.

  9. Anonymous says

    DM, eying any purchases these days? The Dow rocketed up with all the debt deals, but is anything still looking good to you? I’d like to deploy some capital, but I haven’t found any strong contenders that aren’t already in my portfolio.

    • says

      Anonymous,

      Great question.

      It’s tough right now. I have capital; I have enough for at least one more purchase this month. However, I don’t see a lot that interests me. I was considering IBM, but even it has bounced back up a bit. Furthermore, I never intended for IBM to be a very big position for me due to the low yield and my natural inclination to limit my exposure to tech (even blue chip tech). However, IBM offers fairly compelling value if you’re a believer in the company long-term.

      I’m really interested in adding consumer defensive and consumer discretionary stocks to my portfolio. Names like KMB, GIS, CLX, UL, CL and NSRGY are are conspicuously missing. But I find it incredibly difficult to talk myself into paying today’s prices for many of these companies.

      One company I wouldn’t mind buying right now is GE. CAT also took a big dive today, but I’m not totally convinced that the type of company I want to invest in.

      Best regards!

  10. Anonymous says

    Some want stock prices to go up. Some want them to go down. Everyone has an opinion at a SPECIFIC point in time based on CURRENT circumstances. You may disagree with this statement but stop for a moment and ask yourself whether your CURRENT opinion would change if we added the following twists to the equation.

    How would you react if your existing holdings went down in value 10%? 20%? 30%? Think this can’t happen? Look back over the past 40 years.

    What if you have a significant other? What is their level of risk tolerance? You might be able to stomach a 30% correction but what about your partner?

    Now, let’s throw in another curve ball. What if your primary source of income were to come to a halt after the market has taken a significant dip? Could you weather the storm financially without having to liquidate your holdings at “fire sale” prices?

    I think many would change their opinion as to whether they want stock prices to go up/down if some life changing events were to be thrown in the equation UNLESS…

    You have multiple streams of income and the interruption of some of these streams would have minimal impact on your lifestyle.

    You have NO debt. If you owe money on something you own…you don’t OWN it. Get rid of that debt!!! Don’t fool yourself into the “good” debt/”bad” debt train of thought. “Good” debt becomes “bad” debt as soon as you can’t meet your obligations!!!

    Don’t EVER forget this one…..Your significant other, if applicable, MUST be in sync with you.

    I hope I have not offended anyone with the above. If I did, it certainly is not my intent. I am merely tossing out questions you may want to factor into your “financial freedom” decision making processes.

    Chuck in Ontario

    • says

      Chuck,

      “How would you react if your existing holdings went down in value 10%? 20%? 30%? Think this can’t happen? Look back over the past 40 years.”

      I’d love to be in the position where I can find out exactly how I’d react to such a large correction. I think I can honestly tell you that I would be glad to see stocks go down by 20% or more from here. I don’t think that would be particularly crazy, to be honest. Rather, that would simply bring many names back down to historical norms.

      Of course, I’m actively accumulating assets. If I were living off my dividend income and no longer buying stocks I would be disappointed in such a correction only because I wouldn’t have the capital to go out and buy the great deals! I’d be inclined to go out and get a quick part-time job to have some cash to buy stocks on sale. :)

      Best wishes.

  11. says

    DM,

    Nice post, it makes a lot of sense. I switched from total return investing to income investing a few years ago around the time we began recovering from the great recession. The great recession was so brutal to total return investors (me at the time) that I couldn’t even bring myself to log into my brokerage account (a grown man scared to look at a website, HAHA). I resolved to never behave like that ever again. It took a year or two to fight off the total return demons, but I think the transformation is now complete.

    These days my main concerns are dividend freezes and conditions which may lead to future freezes/cuts.

    Very liberating, although probably less than 1% of the population view investments this way. Anyways I’ve always enjoyed your blog because it’s nice to follow someone who “gets it.”

    Take care

    • says

      Compounding Income,

      I’m in the same boat. I also focus on dividend freezes and changes in fundamentals that could/would lead to negative changes in dividend policies. If fundamentals remain strong and a business is ever more profitable, the rest will take care of itself.

      Thanks for the kind words at the end. I think you and I are definitely in the minority regarding pricing. It’s quite fortunate, because otherwise it might be more difficult to buy on sale. :)

      Keep up the great work.

      Cheers!

  12. Ferd says

    It seems to me that all this implies that you are beating the market with your dividend investments, no? Or planning to beat it on a fairly consistent basis through buying shares at bargain prices. Of course, if you take monthly measuring basis, your investment are not as volatile due to the dividends, but if the measurement basis is over 1, 3, 5 or 10 years, all that will matter is that over that time frame, you have beaten the market (as it very simple to invest in the market through ETFs). I am by no means a financial guru, so I always appreciate the feedback!

    • says

      Ferd,

      Well I think that depends on your goals. You must first define your goals, and then from there have a clear plan to to achieve or exceed said goals. You’ll notice that every year I’ve laid out goals, and I’ve largely done well. Moreover, I have an overarching goal of being financially independent by 40 years old and in a position to pay all of my bills with passive dividend income. I’ve been quite open about that.

      However, what you won’t see is a goal to beat the S&P 500 over any type of time frame (1 year or 10 years or whatever). Focusing on that goal would really pull me in a totally different direction from where I’m going now. As a dividend growth investor my primary goal is to eventually build a stream of income that exceeds my expenses by a comfortable margin, and then from there grow my passive dividend income organically over the rate of inflation so that my purchasing power increases, or at the least stays the same.

      Most who try to beat the market will fail, and if that’s your goal you’ll be best served by buying the S&P 500. However, even doing that will mean you’re always underperforming due to small fees. Moreover, you won’t be able to live off the income such a fund would provide, unless your assets are extremely sizable. I’ve discussed why I’m not an index investor here:

      http://www.dividendmantra.com/2013/04/why-i-vastly-prefer-dividend-growth.html

      However, even saying all this many high quality companies have a history of beating the S&P 500 over long periods of time. I don’t think you’d see Warren Buffett stock so much money away into shares in WFC, KO, IBM and the like if he thought he was going to consistently underperform the market (which he doesn’t do, historically).

      Best wishes.

  13. Spoonman says

    This is a very nice article that captures the way many of us DG investors feel about market swoons. I think a DG investor could face a 50% decline in the value of their portfolio with better composure than someone using the Permanent Portfolio strategy, or some other strategy that relies on the selling of assets to produce income. As a DG investor, in the event of a major market decline I would look at the company fundamentals and make my decisions based on that, rather than the price decline.

    Sometimes I amuse myself thinking about how I will feel about market declines once I am FI. Will I continue to feel happy when the market goes down? Or will I feel happy when it goes up? I’m hoping to find out in a year or so =).

    • says

      Spoonman,

      I completely agree. Those who rely on selling assets in order to fund their lifestyle will be sorely disappointed in large corrections, or long-lasting market stagnation. We as dividend growth investors, however, look for such opportunities to buy high quality at a great value. That’s the value investor in us. I pride myself on being a bottom-up investor.

      In regards to your question there, I think I know exactly how I’ll feel during significant corrections once I’m FI. I’ll be disappointed. However, it’s not for the typical reasons (worried about capital loss, paying bills, psychological damage). Rather, I’ll be disappointed that I can’t go out and buy stocks on sale! I can see myself getting a part-time job just to drum up some capital to buy great assets at great prices, however I can see the haters pointing to that as an event that proves I’m actually worried about my investments instead of just trying to buy great stocks at attractive prices. Haters gonna hate!

      Best regards.

  14. says

    I loves to have any dip on any stock I watch and follow because, excepted if the company has a major change in the bad way, it always mean shopping spree for me :)
    Like for one recently, that I hadn’t yet: dipped from $25 to $18 due to a bad quarter and delays into a projects. Got in at $18.8, it is now at $20.6 and climbing. I keep a good yield on the revenue side, far better than its usual one. It’s like a mini 2008 :)
    Sky never falling when you do your valuation, in the Graham & Dodd way, the only problem is the lack of cash when you see bargains, the most frustrating moment :))
    For you, the situation is even more profitable because the US market is overpriced, pumped by the Fed.
    For us canuks, the TSX begin to be the same, to find a good priced stock with a fairly good company is more and more complicated.

    Happy investing DM :)

    • says

      JF Baconnet,

      I’m completely with you. Seeing a big sale on stocks that I’m interested in and having no capital to take advantage is much more frustrating than seeing the stocks fall in the first place. That’s the main disappointment about market corrections: they always seem to happen when I don’t have enough cash! :)

      The Fed’s involvement is a double-edged sword. The pumping of liquidity artificially inflates the market, and this is not true capitalism. The capitalist in me cries foul. However, the smoothing effect has great effects on the larger economy which should yield good results over the long haul. However, I’m quite excited for them to get on with tapering and let the market ride on its own without training wheels.

      The sky never actually falls, but you wouldn’t know that by listening to most investors out there.

      Cheers!

    • says

      “they always seem to happen when I don’t have enough cash! :)”
      Yeah most of the time… haha :))

      “The Fed’s involvement is a double-edged sword. The pumping of liquidity artificially inflates the market, and this is not true capitalism. The capitalist in me cries foul. “
      I can only but am agreeing with you. For me too, capitalism has nothing to do with what happen since too many years.

      “However, the smoothing effect has great effects on the larger economy which should yield good results over the long haul. However, I’m quite excited for them to get on with tapering and let the market ride on its own without training wheels. “
      Exactly, and by the way at our level, the only thing that we can do is to have the best use of this system to get free, at least financially speaking. The discipline does the rest of this “second job” we have.

      “The sky never actually falls, but you wouldn’t know that by listening to most investors out there. “
      Many boards are populated with people that have a short vision of the thing, trading isn’t investing.

      Greets!

  15. says

    Good post! As I am still pretty young I don’t mind market fluctuations to the downside because I am reinvesting the dividends so sometimes I welcome it. I may even like to see some of my companies split from time to time for the psychological effects of more affordability for shares. Can buy more shares, reinvest better and over time great companies rise again back to pre split levels per share while dividends steadily increase a lot of times.

    On another note have you read anything or have any thoughts on the proposed ARCP and COLE merger?!

  16. Anonymous says

    What do you think about CAT after recent decline? Do you think the dividend is safe? Anything you have your eyes on?

    Best Regards
    Per

    • says

      Per,

      I’m so-so on CAT, overall. I think it’s got a reputation for outstanding products, but competitors are catching up selling machinery at lower prices. I think their distribution channels allow them scale and a moat, but I’m concerned about the high CapEx, debt levels and the cyclical nature of the business.

      I don’t think I’d mind opening a position, but I’d personally keep it quite small (like BBL).

      Best wishes!

  17. says

    I’m still learning to enjoy lower price. It’s a hard obstacle to overcome. I am so used to being happy when the price rises. Hopefully in a few years I will enjoy seeing lower price. It’s much better for long term investors to see lower price periodically.

    • says

      rb40,

      Thanks for stopping by.

      I hear you. It takes a huge psychological shift to actually look forward to dips. Green is good; red is bad. Takes a while to move past these basic barriers and actually take a long perspective.

      Take care!

  18. says

    Hi Jason,

    I share your perspective on this, although I don’t necessarily enjoy watching stock prices go down. Instead I just ignore them altogether

    With your plan of living off of dividend income, and being retired for 40 (or 50? or 60? or more) years, I figure it doesn’t really matter what the paper value of the portfolio might be. Over that time frame, the odds are high that the portfolio will explode in value. In the end it doesn’t really matter if the endowment I leave behind will fund the largest hospital for the poor on the planet, or one just 20% smaller :)

    In the mean time, if the stock market repeated 2000 or 2008 all over again, I have some cash I could put to good use

    Cheers

    Jeremy

    • says

      Jeremy,

      I agree. When you’re keeping a perspective that allows you to think out 40 or more years, dips of 10% or more today matters very little. KO may drop from $40 to $36 and shortsighted investors are screaming. Meanwhile, I keep thinking of how KO is likely to be multiples higher than $40/share 40 years down the road. Corrections should be celebrated for the opportunities they are, assuming fundamentals are still strong.

      Keep up the great work.

      Best regards.

    • says

      Yesterday and today I had the opportunity to put this in practice. RYN is down over 20% (still up 300% from when I got it nearly 10 years ago.) Dividend is above 4% now, nearly 8% on initial investment. I think I’ll keep it

  19. says

    Great post! I find the following about dividend growth investing fascinating:

    * Stock prices do not influence your dividend income.
    * Stock buy-backs add tax-efficient value to your portfolio.
    * Your portfolio’s projected monthly dividend income.

    Your post eloquently covers the first two. The third is also independent of stock price. It represents the income you can expect to receive every month (on average) for the rest of your life, given your present portfolio and assuming dividend payments stay the same. It goes up when you buy more dividend paying stocks, or when dividends of stocks you own increase.

    • says

      Ferdi S,

      Absolutely. I tried to point out how the income your portfolio produces is completely decoupled from the market, and the pricing of your equities. The price goes down; the income stays the same. Better yet, your income rises even more when you’re able to buy more shares for less money. It’s really a win-win.

      Cheers!

  20. Anonymous says

    Are you saying that when a stock falls by 20-40% the dividend will remain the same? I’m not sure history will back that up. With the Fed pumping money into the market and driving prices to levels we’re uneasy to purchase at, I’m feeling that I’m buying into a very inflated market and my stock value 4-10 years down the road may be sliced significantly. If this were to happen what is your plan to protect your income stream?

    • says

      Anonymous,

      I’m saying that in most cases high quality companies will continue raising the dividend even after stock prices have fallen that amount, or at least continue paying a static dividend. History actually would back that up. Take a look at the 42 companies I’m invested in and backtrack their share price hits during the Great Recession and then also take a look at their dividend payouts. What you’ll find is exactly why I invest the way I do.

      Best regards.

  21. Dividend Gremlin says

    Love the idea of referring to investments as a tree. Being a plant / botany person who has always been interested in farming and works in the science field that is right up my alley. Just sayin’. Why trim the branch if it still makes fruit?!

    I used to have the same idea you did probably when you started of flipping stocks and making bank. Dividend investing is way smoother and more predictable.

    • says

      Dividend Gremlin,

      Cool name!

      Why trim the branch, indeed. As long as the fruit is still coming and the fruit is getting bigger and better every year then I’m inclined to do very little other than collect my bounty. :)

      Take care.

  22. says

    The last paragraph of this article is key. If I own a stock that declines 30%, what is my response? It depends. If it declined for fundamental reasons, then I have made a mistake. If it declined for no fundamental reason, then I treat it as a buying opportunity. The trick, of course, is correctly determining whether the decline was based on fundamental factors or not. Sometimes this is easy to determine; sometimes it is not.

    • says

      S.B.

      I concur with you. It’s very difficult at times to decipher between fundamental issues and transient problems. But I think that’s what makes investing so fun, and potentially so profitable. And I’d like to think it gets a bit easier over time.

      Best wishes!

    • says

      Chuck,

      Thanks for the articles! I love reading that kind of stuff.

      Not sure if the stock split will benefit us or not, but I wouldn’t mind seeing it. I still like BNS at these prices and the new CEO seems like he knows what he’s doing. We’ll see!

      Thanks for sharing.

      Cheers!

  23. says

    I definitely like when stocks are falling or being pushed down by analysts and talking heads. It is the best opportunity to buy. Thus I have a strategy – when my stocks are rising I save money. when they start falling I start buying them with the saved money.

    • says

      Martin,

      Sounds like a sound strategy for me. I try not to let broad values rising and falling determine my purchasing habits, but instead focus on individual opportunities and compare fair value to current value. The more favorable the spread, the more likely I am to buy. I could have 39 positions rise exponentially, but if one stock I own is on sale for 20% and the fundamentals are strong I’ll likely buy anyway.

      Best wishes!

    • says

      Mark,

      I’m completely with you! I’d love to see an extended bear market where stock prices essentially go nowhere for a decade or so. That would make my current capital that much more valuable. :)

      Cheers!

  24. says

    wow, a nobel and informational website about financial market. I like your website surely. Thank’s for published this website. If you want more informastion about stock quotes to visit stock quotes After hitting the Go button, core data for the stock quote you are searching for will appear in a few seconds. The first line of the stock quote will show the name of the stock or security. It is then followed by the ticker symbol, which you will find is placed in parentheses. The second line of the retrieved stock quote will display four important pieces of information.

Join The Discussion!