Why I Avoid Roller Coasters
As a child, it was a rare occasion when I would be taken on a visit to an amusement park, usually to Steeplechase Park, in Coney Island, NY. At the time, I looked forward to taking various rides, including the roller coaster. (As I recall, it was made mostly of wood.) I enjoyed that ride at the time.
(Aside. With the decline in attendance during the 1960s, Steeplechase Park closed. The land was later bought by Fred Trump. Donald’s father.)
But Later
Some years later, as a teenager, in another locale, I rode a roller coaster. This time the results were not benign. I came off looking the proverbial “green,” as the experience was horrifyingly distressing. I swore off roller coasters forever.
Which Brings Us To The Present
“Always the casino, sometimes the roller coaster.” If I could describe the stock market, that would be the best definition.
That definition does not mean I swore off the stock market. It is just that I deal with it differently. I started by considering why do people buy stock?
Why Do People Buy Stock?
Most people buy stock because they hope that the stock price will go up and then they can sell it for more than they bought it for, making a profit (look up Greater Fool Theory).
Is Hope Your Strategy?
Hoping the stock price will go up is a precarious strategy. I propose that there are probably better approaches that relying on “hope.”
Whither Analysis?
To avoid random choices, much effort goes into analysis. Looking at company financial information is commonly used in an attempt to determine if its stock is worth purchasing. Stock analysis is part of the mix.
Not Me, And What About You?
I’m not a financial analyst. Maybe in some future lifetime, but not this one. So what can I do? I am unable and unwilling to put in the multiple hours and years to learn the kind of financial analysis that purports to understand companies and their stock in depth.
Playing The Field
When I look at the financial world, we see that analysts often make predictions. Predictions which are not always correct. So financial analysis is not an exact science, even the most intelligent cannot correctly predict what will happen.
Oh, The Horror, The Horror, The Panic, The Dread, The Frenzy
When the markets decline in tandem, we see much alarm. Some sell while in the depths of their despair at the state of their investments.
The Price is Just The Price
Selling when prices decline is timing the market and locking in the low price. Many people will lose much if not all their investment by doing so. As it has been stated many times, Time In The Market Beats Timing The Market.
So How Do You Avoid The Disaster Of Price Declines?
By focusing on the price of a stock, one cannot avoid what happens to the price. But there is another way.
Why I Don’t Focus on the Price of a Stock
Because I am more interested in dividends. I am interested in growing my dividend income. Which means I am a dividend investor. When I buy stock I am primary interested in these factors:
1. The long-term viability of the company.
2. The long-term viability of the company’s dividend.
I do look at the price of the stock, the yield, the price-earning ratio, and other data. I find out what others are saying about the stock and its dividend. I don’t ignore the price because I don’t want to overpay.
After Purchase
After I buy the stock, I don’t put a lot of attention into following its price. I put more attention following the dividend, the prospects of the company, and the general state of the economy. Which means that price increases and decreases are just part of the ups and downs of the stock market.
Opportunities
The oft repeated saying “Never Let A Good Crisis Go To Waste” can be ascribed to the stock market as well.
What is the difference between the following two phrases?
Stocks declined Stocks went on sale
In my view, it’s all in one’s perspective. What is yours?
What is your view of recent stock market volatility? Send your comments from this page: Contact
The photograph of the Matterhorn, Switzerland, is in the public domain. Courtesy of Pixabay.
The illustration of a stipple engraving of a cultivated tulip is by Pierre-Joseph Redouté (1759-1840), and is from “Choix des plus belles fleurs et des plus beaux fruits”, published in Paris between 1827-1833.
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