They say, “a stitch in time, saves nine,” but sometimes waiting to do something pays off even bigger. In investing, it’s a bit of luck.
My broker had been calling over the last 8 weeks to ask what we wanted to do with a big chunk of cash that came our way through a real estate sale. I’m lucky I didn’t decide what to do with the money until now since the stock market has fallen 8 straight weeks in a row!
I called him back on Friday, figuring that the market has to be close to done with this Bear streak. The S&P 500 hasn’t fallen 8 weeks in a row since 1932, according to the Wall Street Journal. I know we have recession fears, oil fears, and inflation fears, but at some point, “all hope is lost,” and the market has to turn back to positive territory.
I know you can’t regularly time the market, but it sure feels nice when you do. I timed the pandemic market bottom almost perfectly on St. Patrick’s Day 2020, so maybe I’ll get lucky again this time.
I would have lost tens of thousands of dollars had I been prompt in getting our cash reinvested when we got it two months ago. The market is down nearly -20% since then.
Now I’ve asked him to push our extra cash into some high-dividend index funds within the S&P 500. Regular reader and Dividend King, KlausWetzel, will surely approve of that move! We’ll find out in the coming weeks & months if my timing was good.
We don’t have plans to spend the money for 3-5 years, so I think it’s the right call. Hopefully it will be hard to even recall the early 2022 market downturn in 3-5 years!
Do you think the current stock market malaise has reached bottom, or is close? Or, will go much lower than it is right now?
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MrFireStation 
Hi,
To invest in a bear market it can be helpful to not only take a long-term view but also accept that you will be wrong. Personally, I had built up cash savings in 2008 that I started to invest in equities beginning that Fall and continuing through Spring 2009. As soon as I invested, I would often see my values decline (sometime precipitously). Ten years post that period my annualized returns were significantly above long-term averages.
I see a similar opportunity and dynamic in today’s market. The major difference, however, is that it seems we are in a state of significant restructuring of the globalized economy; which is difficult to predict and likely will continue to generate the things investors like least: uncertainty. That said, for those with the discipline and understanding that they will be wrong on short-term timing, this may be a great opportunity to find value.
GLTA,
J
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Yes – I’m guessing it might go down a bit further before it starts going up. I’m hoping it’s not too far further though. I like your comment … “significant restructuring of the globalized economy”. I do think some big changes are happening, both geopolitical and changes in how work gets done.
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2010 was my happy hunting ground. Great companies for sale at amazing discounts. I bought Home Depot when it had a current yield of 4.5% and it was growing its dividend over 20+, including through the 2008 – 2010 housing melt down. There were many other companies just like HD.
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Thank you for the kinds words Chief.
Living on Dividends is similar to owning an apple orchard and selling apples every fall to generate income to live on. Living on Capital Gains is similar to chopping down your apple trees to sell firewood. You may get a one time bump in income, but what are you going to live on next year when you have no apples to sell.
I stumbled onto Dividend Investing in 2010 when screening for stocks and I found some great companies such as Home Depot, Microsoft, Abbie, Target, Accenture, etc. that had a current yield that exceeded 4%. You could also see that they were increasing their Dividends at a rate that beat inflation handily. They also had a long history of always increasing their dividends, including through the 2008 – 2010 rough market.
This was a light bulb moment for me. Retirement planners for decades have recommended that 4% is the optimum withdrawal rate for having enough to live on and not outliving your money. A portfolio of dividend paying stocks paying over 4% yield covers the 4% withdrawal rate without chopping down your apple trees. These same stocks growing their dividend every year keeps you ahead of inflation.
According to Ned Davis Research, dividend growers posted an average return of 10.07% between 1972 and 2013. An equal weighted index gained 7.64%. Non-dividend paying stocks rose just 2.34%. Dividend cutters had a negative return. (Sorry I don’t have the exact figure close at hand.)
Here is a suggestion for comparing Dividend Paying Mutual Funds. Go to finance.yahoo.com. Punch in the ticker symbol of a mutual fund that you are looking at. Select historical data, set the Time Period to Max, and set Show to Dividends Only. This will allow you to see how the mutual fund has paid out dividends over time. I really avoid dividend cutters. This screen will allow you eyeball a mutual fund or stock and see if they are a dividend cutter.
When I first started Dividend Investing, I screened for combination of Current Yield and Growth. I ran the screen I just described to rule out Dividend Cutters.
Here are some YTD numbers for this approach. My overall YTD across all my holdings is -3.33% YTD. I have some Muni Bonds where the value went down because interest rates went up, but they are still paying their tax free interest like clock work. I also have one particular stinker which has a product you like, Disney. They suspended paying dividends over two years ago, decided that they were political activists instead of an entertainment company, and their new CEO paid himself $34 Million in 2021 for a stock that was the worst performance of the Dow. (I am ready and waiting to vote an alternate Proxy.)
There is a bit of good news though, my annualized income has increased YTD by 7.92% because I am only living on 2.5% of my principal and am reinvesting around 2%, plus my holdings other than Disney have been increasing their dividends. I also selectively harvested some capital gains in self-directed IRAs on stocks that had become more popular, so that I could put the money to work at a higher current yield.
I do not try to time the market. I am interested in buying great stocks at great prices. During Bull Markets it is harder to find the deals I am looking for. During down Markets you can find some great deals caused by people throwing out the baby with the bath water.
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You are an investing inspiration! I like the apple orchard analogy. I will check out my new high-dividend mutual funds on the Yahoo! Tracker you mentioned. Thanks, kind sir!
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Here is what I have seen screening many stocks and mutual funds over the years. When a dividend is very high, say around 10% you will find that most never grow the dividend and in fact are dividend cutters. With high growth stocks you have to sell firewood to pay the bills. The sweet spot is right in the middle where you have livable current yield and good growth that is predictable.
The timing for buying would most likely be when there is some momentary bad news baked into the stock price. Think about your time working at Mega Corp and the times when the stock was beat up. It probably was a good time to buy.
Not exciting, but you can live on this approach and beat most people who are chasing just maximum current yield or growth, over the long term. Warren Buffett wrote, “You find out who isn’t wearing a swimsuit when the tide goes out.” He also wrote, “Be greedy when others are afraid and be afraid when others are greedy.”
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I’ve also heard him say something about when others cry is the time to buy. I told my broker on Friday that I think pretty much everyone was crying by the end of last week and it made me want to buy.
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This advice sounds easy, but is hard in execution because you need to learn to let your spreadsheets instead of your emotions make your investment decisions. You have to be willing to go against the crowd.
Great investors going back centuries have been taking advantage of emotional investors to buy bargains and sell when they are expensive.
Nathan Rothschild, a London Banker in 1810 said, “buy on the sound of cannons, sell on the sound of trumpets”.
The Banker Mr. Potter in the movie, “It’s a Wonderful Life was showing this in action when he was buying savings accounts for 50 cents on the dollar.”
The next one is a toss up with Buffett’s swimsuit and tide going out remark.
Sir John Templeton said, “To be successful in investing you have to be in the business of helping people. When people desperately want to sell you a stock, you need to help them by buying it. When people desperately want to buy your stock, you need to help the, by selling to them.”
Being able to invest this way gets easier when you get older because you have better control of your emotions and hopefully have seen these situations play out multiple times. I am working to teach these concepts to my sons at a much younger age than I got started. They are more than capable of doing the math, but they need my help learning to control their FOMO (Fear of Missing Out) and emotions when the market is tanking.
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Hey guys, love the market banter! My models were calling for a major bottom on June 30th w tight stops below mid June lows, and forecasting next major peak in markets in early September! Happy Trading! ~ brschultz
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My approach is buying income streams that have a good probability of increasing over time. During a richly valued market, very few stocks pass my screens. After corrections, more stocks pass the screen. Lately, I have been seeing more candidates then I did at the beginning of the year.
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