2018 – Is it time for a crash?

Last week was apparently the worst week for the stock market since the BREXIT announcement back in 2016. My portfolio took a hit with some of my favorite stocks crashing down. In particular, one of my REITs (Real Estate Investment Trust) crashed 12% while announcing a dividend cut. I don’t have a large position in it and see an opportunity here to add more and to lower my average purchase price, but yes, it hurts. Having said that, the dividend yield is still fine and it will keep creating passive income for more years to come.

Now I didn’t really start describing in detail yet about what I am doing here but if you took a look at my previous post, you will quickly understand that one of the things that I will constantly write about is opportunities to get closer to what I would describe as freedom. Passive income is one of the main tools to get there, for the simple reason because it is hard to talk about freedom if you are depending on a job, a boss and a paycheck. So getting to this point where this freedom-restriction is not your major concern anymore is pretty vital.

While 2016 and 2017 were great years for investors, 2018 might be a rough one and I actually think that we may see a correction in some sectors. My portfolio may drop as I do have some speculative titles in it, but while some people spend their money on avocados, cappuccinos, and clothes, I prefer to pour it into dividend-paying equities that will hopefully support me in a not too distant future and start to cover my cost of living. Any crash in the stock market is, therefore, an opportunity to purchase more stocks, lower my average purchase price for equities that I already bought in the past and set up new positions that will bring me closer to my target.

So let’s see what happens. Apple came down in price nicely despite reporting record profits. Starbucks got back to “normal” prices. AT&T is still in a good dividend yield range, Realty Income is back to a 5% dividend yield, IBM seems to turn-around and getting stronger in its cloud business section. In Europe, my all-time favorite BDC (Business Development Company) Aurelius announced a 5 EUR dividend which at the current price is a 9% yield – and 10% at my entry point, Vodafone is speculating about takeovers, and BT Group just announced a very robust business. While some people might get spooked, I am pretty optimistic and all these equities now yield over 5% on average, some up to 10% a year.

I am looking forward to the correction and some amazing buying opportunities. So is it time for a crash? I don’t think so. Most companies actually are reporting record earnings and the bigger players are swimming in cash. Stock valuations in Europe are very moderate and while in the US they may seem high for some, the tax cuts and improved economic conditions will soon let this numbers go up. Dividend yields are good and might even get better after the correction. There is no reason to panic. Unless something really terrible happens in the world, a crash is not very likely anytime soon.

However, I am not an oracle so just in case the crash happens anyway: You better keep some cash on the side to get in the market right after the crash. Now we know very well that it’s almost impossible to time the market and to generate optimum profits with our limited time, knowledge, access to information and speed of execution. But, it actually doesn’t matter.

As a simple rule, one should look at it like this: There are companies which you simply know will be around in 10 years from now like i.e. the titles I mentioned above. It doesn’t matter if the world economy crashes, I KNOW there will still be a Starbucks, people still need to make phone calls and access the internet and premium brands such as APPLE are very hard to kill. These companies are all valued very well now, no matter how much they crash, as a result, their valuations will only get better and in 10 years from now it will be 10 years back and you will most probably sit on triple-digit earnings and enjoy quarterly dividends on top. If you get the right companies, it may even be monthly payouts. So when a stock comes down 10, 20 or 50%, we actually never really know when it will turn around and come back, thus you got to make peace with the idea that you won’t hit the perfect spot. Instead, you need to realize that being invested alone is already the right thing to do. Make the first purchase when the valuation (P/E ratio) and dividend yield look good enough for you (for me a P/E should be below 15 and the dividend yield should be over 3%) and wait. Don’t spend all your money immediately. Build up your first position and wait. Maybe a week or two or maybe even a month. If it goes down, buy more. If it goes up, buy more. Whether you improve your purchasing price or jump on the up-trend – chances are high that 10 years later you won’t regret any of it.

Don’t worry, be happy. Happy investing everyone.

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