Sometimes doing nothing is the best action. Or, to to say it better: Inaction is often the best course of action.
This is especially true in the area of dividend investing. Once I have invested in a company and set the dividends to reinvest, then almost all the time the best course is to let it ride. Ignore the price fluctuations.
Why Ignore The Price Fluctuations?
Prices of stock vary all day long. Dividends are much more stable. If I reacted to every price movement in a stock, I would exhaust myself in a few days.
The goal with dividend investing is to allow the dividends to increase, grow, compound. If I let price changes affect me, then my abilities to allow dividends to grow would be diminished.
How To Ignore Price Changes
I will be the first to admit that ignoring price changes of stocks is a question of attitude. If I am too impatient with myself and the world around me, then dividend investing may not be the best course of action. If I am an impatient person, then perhaps a casino or a racetrack is a place to be. In a casino or at a racetrack, however, I more likely to lose everything.
If I look at any stock chart, I can see over time that prices vary. Sometimes by a lot. If I had reacted to every movement of price, I would have driven myself into exhaustion long ago. Worse yet, I may have convinced myself to sell. Since I do not want to exhaust myself or sell, I learned not to react to most price changes.
Do I Ever Let Prices Inform My Behavior?
Firstly, when I say I “ignore” price changes, I do not mean that I don’t pay attention. I do look at prices. What I don’t do is let most price changes change my opinion about what is best for me.
Most of the time, even if the price declines, the best course of action for me is to do nothing, and let the dividends accumulate.
On the other hand, if I notice the price of a stock falls below the range I have expected it to trade in, if I still feel the company will continue to thrive, I may buy more shares.
I recently ran across a comment that “Dividends are a fact, share prices are an opinion.” That sums it up perfectly. I like facts. Opinions are easier to ignore.
Do I Always Do Dividend Investing?
Most of the time, for most of the shares I own, I let the dividends purchase more shares through the magic of dividend investing. But there are companies for which I do not want additional shares, so receive the dividends via direct deposit into a bank account.
And Another Reason
As mentioned previously more than once, when prices decline, dividend investing purchases more shares, when prices increase dividend investing purchases fewer shares. See here and here for examples.
As a result, when prices decline I remember my dividends purchase more shares. So declines are not a sad event for me. often it is a good thing.
Don’t Companies Sometimes Cut or Eliminate Dividends?
Yes, it happens. Dividends are sometimes cut or eliminated. These are unfortunate events, but they do happen. If I feel the long term prospects of the company are good, I may continue to do nothing. If I feel the longer term prospects of the company are very good and the subsequent price decline means an attractive opportunity, I may buy more shares.
And Another Thing
I find it really fun to do nothing.
What does doing nothing mean to you? Let me know here.
The illustration of a comet is one of a series from 1587 by an unknown author in a hand-lettered book entitled Kometenbuch (Comet Book), subtitled (in translation) “Comets and their General and Particular Meanings, According to Ptolomeé, Albumasar, Haly, Aliquind and other Astrologers.” It is currently in Universitätsbibliothek Kassel (Kassel University Library, Kassel Germany). License: Attribution-ShareAlike 4.0 International (CC BY-SA 4.0).
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