Monday, January 21, 2008

the bear approaches

Wow, what a week to take off from posting!

The markets are now in what certainly can be described as 'free-fall'. Whether capitulation has occurred yet remains to be seen, but one has to assume that there are some investors out there that have had enough and have bailed out of stocks all together for the time being. Looking at the charts for many of the main indices and some of the stocks that I follow indicates that we are in dangerous territory. In most cases resistance points have been blown through, and values are dropping like stones. Here are some examples:

XDV (Canadian Dividend Payers ETF) broke down below 2006 lows, and is down 8.3% in the last week.
IGM Financial (IGM) broke down to 2006 lows, and is down 8.2% in the last week.
The S&P 500 Index broke down below 2007 lows, and is down 5.4% in the last week.
Yellow Pages Income Fund (YLO.UN) broke down to 2004 levels, and is currently yielding 9.1%.

These are starting to look like the type of market conditions which I have prepared for psychologically by education myself and learning the mechanics of dividend growth investing. Seeing the markets really take a turn like this might hurt in the short term, however just as I described in my fear the bear post, long term this pain should turn into pleasure.

In order to realize my long term goals I will:

1. Stick to my strategy of buying quality, dividend growing stocks when I deem them to be cheap. (My problem now is that I don't have enough cash to buy what I want)

2. Accumulate cash and deploy it into stocks that fit the bill, no matter where the market goes.

3. Watch my annual dividend stream grow month after month and look to that income stream as one of the factors that motivates me to stick to my knitting.

4. Take solace in the fact that I can now buy more dividends for each dollar I deploy than I could at any time in my investing career.

Too many cheap stocks, too little money. I will have to be selective here and look for deep value in quality names with likely dividend and earnings growth despite the current conditions. If I can concentrate on dividends and dividend growth, long term things should fall into place and I will be rewarded.


Middle Class Millionaire said...

I couldn't agree more.

Dividends4Life said...

I am starting to get greedy with anticipation. Some stocks I didn't think I could ever make the valuations work are becoming affordable. Fortunately, I have been setting some cash back. I would be really depressed if I were still a growth investor; however, these times are exciting if you are a dividend investor!

Best Wishes,

Balanced said...

Intelligent investors had 40% to 60% in fixed income and can start to aggressively move into the bargains now.

Neophyte “stock pickers” were 100% stock when the storm hit and it is too late for them now.

MG said...

Thanks for the comments.

Hindsight is always 20/20 balanced. What looks like bargains now could turn out to be dear if the markets drop another 10 or 20%

scomac said...

Whether stocks drop another 10% or 20% is irrelevant. What matters is that you think that stocks offer good value at current prices. If the answer is yes, you buy. If not, you wait.

You'll never consistently pick the bottom so why try especially if it means that you could miss out on buying quality at a good price by being too "cheap".