Are we waiting to find the “right thing” and the “right time” to invest? Here’s the secret: There is no perfect investment. Never was, never will be.
Time
You can wait for the perfect investment to come along, but that means you will wait forever. There is nothing perfect, especially in investing.
Fluctuate, eh?
Famous quote ascribed to J.P. Morgan, when asked about what the stock market will do: “It will fluctuate.”
Stock prices go up, stock prices go down. Frequently. Constantly. Often with no relation to the underlying business condition of the company in question.
What To Do
What to do? Accept that prices fluctuate. It has been said that if one cannot stomach price drops, then one should not be in the market. However, if that were true, and if people were rational, there would be less opportunity to buy, since rational people would not sell just because prices decline. That there are major sell-offs seemingly proves that people are not rational. I guess that is no surprise.
Prudence
Of course, being prudent is a virtue. Overpaying is not particularly a good thing. So while buying low is most commendable, one can buy when things are normal. In fact, there are situations where buying before a decline is when dividend investors can make great progress.
Not One, Many
When we invest, we diversify. This means not all our money is invested in one company. We have stock in a number of companies. There is not hard and fast rules about how many companies. Since prices vary and fluctuate, and no investment is perfect, we have reduced our risk by investing in more than one company, and more than one industry. I accept some headwinds and reduced return for the relative safety of diversification.
No amount of diversification can prevent losses when overall economic conditions deteriorate. But I will contend that dividend investors suffer much less than market timers in adverse conditions. Dividend-paying companies are, on average, more stable. That’s my opinion.
The Good, Better, Best News
The best news is that one does not need to be perfect. Since there is no perfect investment, one need only be good, or good enough, to be a success. When we buy dividend paying stocks, and set to reinvest dividends, we are already ahead of the game.
Reasons
Dividend paying stocks pay dividends. That’s so obvious, but that dividend does not end. Only is rare occasions do dividends end: adverse business conditions, or a company is bought by a non-dividend paying acquirer. Otherwise dividends continue, and often increase year after year. Many companies have expectations that they will raise dividends annually. Of course, nothing is guaranteed, but traditionally this is what happens. So, if we keep ourselves diversified, we can normally expect the dividends sent to us increase over time. The only thing we did was buy some shares, and after that dividends just keep on coming. That’s as close to perfect as one needs.
Do dividends cometh for you? Let me know here.
The illustration of wormia alta appears in “Comprehensive catalogue of Queensland plants, both indigenous and naturalised. To which are added, where known, the aboriginal and other vernacular names; with numerous illustrations, and copious notes on the properties, features, &c., of the plants” by A. J. Cumming, in 1909, published by the Australian government printer. Wormia alta is also known as dillenia alata, commonly known as red beech, golden guinea flower or golden guinea tree, is a tree in the Dilleniaceae family, found in tropical forests of the Moluccas, New Guinea, and northern Australia. Illustration courtesy Biodiversity Heritage Library
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