“In bear markets, stocks return to their rightful owners.”
- J.P. Morgan
I love this quote. It summarizes a ton of insights into a simple, succint message.
There is a lot to unpack here.
In short, it means that when stocks fall down in price, panicked sellers tend to dispose of their holdings in desperation. Perhaps they are scared of market declines due to being overextended or not knowing that stocks can decline in price. Those are both expensive lessons, and then some.
The investors who take those shares from the panicked sellers are those who are patient and disciplined. The buyers are long-term investors, who stick to their plan, and buy when they have money to invest. These rightful owners are financially stable and buy cheap when there is blood on the streets. They are financially stable because they live below their means, have a long-term mindset, have their financial house in order, and as a result they have a surplus to invest every month.
Those patient long-term investors with strong conviction often buy stocks at lower prices from panic-sellers, as seen in historical bear markets. It's a story as old as time. It's just that participants change.
Succumbing to emotions can be dangerous for investors, both when stocks are roaring high and when stocks are declining accross the board.
In order to succeed at investing, you need to develop and stick to a disciplined strategy through thick or thin.
Readers of this site stick to a strategy of dividend growth investing. Focusing on quality companies that have increased dividends for a long period of time, investing regularly at good valuations, and maintaining a long-term diversified portfolio are the winning ingredients to long-term success. Also, focusing on the dividend, and understanding the fundamental drivers behind them and their safety, while also looking for value, can greatly aid in the process of long-term value creation.
In addition, ignoring noise, but focusing on the stability of dividends is a good jedi mind-trick that keeps one calm and invested.
As a Dividend Growth Investor, I view share price declines as opportunities to acquire quality assets at a good price. Future income is available on sale when share prices drop. This is something you want to see in the accumulation phase. For each $1,000 that you invest, you are increasing forward annual dividend income by $20 - $40. That dividend income will likely grow above the rate of inflation over time. Reinvesting those dividends further turbocharges dividend income growth. You keep stacking to income streams, brick by brick, until you hit the coveted dividend crossover point. The dividend crossover point is the point at which dividend income exceeds expenses. You are financially independent, job optional, perhaps even an early retiree at that point.
If one is retired, then they are living off the dividends from a diversified portfolio. They can ignore the noise and enjoy the fruits of their labor. Those dividends are more stable, predictable and reliable than share prices, which makes them a perfect source of income for retirees. Dividends from diversified portfolios rarely decline, but they tend to grow above rate of inflation over time, and are taxed preferentially to other sources of income (e.g. fixed income, labor etc). Perhaps you also earn some social security and pension income too. And perhaps even you have a paid off home.
In times like these I am happy to be a Dividend Growth Investor.
I focus on the dividend payments, which are much more stable, predictable and reliable than share prices.
The focus on dividends makes me do the work on fundamentals and valuation and helps me stay invested.
Anywho, I think that this too shall pass.
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