To be frank, I expected 2019 to be a good year. I was hoping the POTUS to get to some kind of arrangement with everyone, even if this would only mean that people learn how to handle his very specific character. But as we can see, the situation is completely out of control.
We have a new military conflict brewing up. We see a trade fight developing on a previously completely unimaginable scale, with even the largest companies in the world being brought down to their knees. Huawei is about to be the first victim and might very well not survive this fight. But what happens if China puts a ban on Apple? Or Starbucks? Some companies will pay a hefty price for what is happening.
Investors panic and my main portfolio suffered. It is now down to a total result of -12,7 %. This does not include received dividend payments. If I include the received dividends then I am at -7,8 %. It’s not too bad yet, so should I limit my losses and sell off?
Staying the course
The clear, only and simple answer is “no”. I am not selling even one share. We had chaos before. We had conflicts before. And the stock market always came back better and stronger.
What I am doing now is standing on the sidelines. I collect dividends and wait patiently to see how things are going to unfold. Most importantly, I am closely observing other stocks and specifically the dividend kings and dividend aristocrats. Chances are that even these behemoths which pay and increase dividends for 25+ or even 50+ consecutive years might come down significantly and therefore create great buying opportunities.
Cost-averaging down and yielding dividends up
For those who are convinced that their stocks will survive, whatever happens, a stronger market correction is a great opportunity to add more shares of those companies to your portfolio. For one, if you add shares to an existing position at a lower price, your average purchasing price for the entire position will be reduced. This way you will be able to balance off the losses more quickly once the correction is over and markets start to rise again.
Another benefit is, that while you are lowering your average purchasing price, as long as the company doesn’t cut its dividend, your dividend yield will automatically go up and your dividends will increase due to higher share count.
Growing dividends is all I want as my target is to be able to retire early with nothing else but dividends to cover my expenses.
Conclusion: No panic
For an inexperienced investor, it might be difficult to keep calm while watching the portfolio shrinking. However, as we know the market is designed to transfer money from the active to the patient. At least that’s one of the teachings from Warren Buffett and no one knows it better than him. So let’s enjoy the show, stay the course and don’t be fooled. We will pass this one. And the next.
Disclosure: I am invested in Apple via stocks.