LOOK! Did you see it?! If you didn’t no one could blame you because it was really quick and not glaringly obvious. That my friends may have been the correction many investors have been looking for. I don’t know what you guys think, but my own take is that it was a pathetic excuse for a “correction”.
As you can see in the above graph we barely dipped five percent below the closing high at the end of May. If you were watching carefully you may have picked up a few stocks at a discount, especially in the REIT sector. I added a few shares of Realty Income Corp (O) to my IRA, but failed to catch the low on Monday when it briefly dipped under 40.00. Summer is just starting and as we have seen time and time again Mr. Market will freak out at the slightest hint of uncertainty. China economy slowing down? DAMN! Sell everything! Bernanke hinting that the Fed may tighten the flow of money? HOLY SHIT! THE SKY IS FALLING!! RUN FOR COVER!! As fellow blogger Dividend Mantra would say; this is just noise.
I’m really not a fan of buying in a rising market. Sure, I do a bit of dollar cost averaging by making contribution to a 401k, but I’ve developed a preference to do most of my purchasing when people are pessimistic and feel that the world is ending, when the reality is we find ourselves at different points in the economic cycle at different times. That is the rational side of things, however how you felt over the past few years when your retirement accounts were slashed may be an entirely different matter. Watching a sum of cash “magically” lose value in a short time is a sobering experience.
In some ways I feel that it has been a bit serendipitous that I came to investing when I did. At the end of 2010 things were still looking rather bleak. I wonder sometimes if the news is really a reflection of what is going on in the world or merely a reflection of how we feel about what is going on in the world? Don’t get me wrong for those who lost their homes, jobs, and savings thing were bleak, but in every part of the economic cycle opportunities can be found, you just have to be open to the possibility even when you are feeling most vulnerable and your instinct is telling you to run and hide. Being new to investing I didn’t know enough to be fearful and was too bullheaded to listen to those who said, “you’re only going to lose money in this market”, but I’ve always marched to my own tune and felt that because I wasn’t trying to make a killing in the market that I would be just fine; and I was.
With all the news that the housing market is beginning to rise, I feel that it was a good move to enter real estate when I did. Again, I purchased an asset at a discount price and with a lot of hard work ahead of me and the belief that people will once again begin purchasing homes (indeed they already are and have been), I stand to do well on this investment just as I have with equities. I firmly believe that when you buy is just as important as what.
I hope for my sake and yours that the markets will dip a little more and offer us a few more buying opportunities. However, the real deals will be found when everyone else is convinced the world is ending. It’s only a matter of when, not if. Patience is indeed a virtue.
What do you feel more comfortable with? Investing during the up trend or the down trend? Leave me a comment. I would love to know your thoughts on this.
The Stoic Investor 
I blinked.
I didn’t expect the markets to start the rally just yet and expected a bigger retracement. At some point that time will come though.
I’m more comfortable investing in the downtrend, but who knows when it gets to a “world is ending” scenario” and we see a 40% drop. I’d like to believe that I’ll stick to my guns and remain levelheaded but I’ve never been through that before with any kind of significant amount of capital invested. Although I’m pretty sure I’ll stay focused since for me it’s all about the cash flow from my investments. If that’s still in tact then why worry?
PIP– Don’t worry, we may soon get another chance. Another earnings season is right around the corner! 🙂
I agree, I haven’t experienced a really big drop like that myself. I’ve had some individual holdings that dropped significanlty, but not an entire portfolio. I think I would act rational, but you can never be sure until you really go through the experience.
Having an income strategy like yours does make it easier. You can look at is an opportunity to add more income with less capital, a nice situation to be in.
Have a great weekend!
Imagine this: After finishing a summer of boot camp you decide not to spend any money on material items. You don’t use your accumulated savings (there’s nothing to buy at basic training) on a new computer. You don’t buy a $700 samurai sword. You forego spending your $2500 on monsters and mountain dews to be stocked up for world of warcraft. That is what the other guys used their savings for. Nope. I bought a stock mutual fund. I finished boot camp in August 2008, almost the height of the market.
The next thing you know it’s down by almost 50%.
That’s pretty fun….. You don’t know what I had to endure for freaking $2500. It went right down the drain, might as well have bought that samurai sword…
I had maybe 5 grand in my ROTH from before the Army. That went down too. It’s hard to imagine now, but those times were BLEAK. I couldn’t even log into my brokerage account. I couldn’t even pull up the finance page on yahoo… It was enough to scar me for life.. I found out that mutual funds and ETFs are not for me. I researched other strategies.
To this day I am in love with defensive stocks. Consumer staples, utilities, and healthcare. Yes please, I’ll take more. I found a way to insulate myself from the crazy stock market. I just don’t give a shit what my portfolio is worth… pretty absurd, but it works for me.
I turned into an income investor because Mr. Market doesn’t get to mess with my dividends.
Anyways to answer your question, I prepare myself for the worst and like to buy on the way down!
CI– Thanks for sharing your story. It would really be hard seeing the value drop like that with money you had worked so hard to get. I think it is interesting both that you continued with investing, even if you did change your approach, and how that that experience changed your method of investing.
I think one’s control over emotions have a lot to do with this. Some are just better suited to let go of their money when they see assets appreciating at an appreciable rate, while some (like me) love nothing better than to buy when the everyone is panicking.
Like CI said above, I focus on the income my assets provide because it shifts my focus away from what the market is willing to pay for my assets and rather the income they provide for me, which I can then reinvest back into more income-producing assets. It just plain works.
Great post! And thanks for the mention. I completely agree that what’s going on right now (the Fed, interest rates, the growth of the economy, speculation over China slowing) is definitely noise. Over a 30-40 year time frame very little is anything but.
Best wishes!
DM… Your approach seems to be working. I don’t think anyone can argue with the results!
Not too long ago I read that the market drops 10% every 3 years, 20% every 9 years. Purely statistical of course.
So guys, just remain patient, save your dividends an the time to “pull the trigger” will come. For sure!!
Just don´t forget: like bear-markets seemingly can last “forever” the same is true for bull-markets. The longer the bull-market lasts, the bigger is the likelihood of the next bear-market to start next year!
I started investing in 2010 as well but thought that I´d built up my account in the beginning of july 2011…how wrong was. That experience together with me going broke in 2002 taught me so much. Since then I discovered Dividend Investing which gives me a nice income-stream already. When the next real correction comes I´ll focus definitely on Dividend Growth Investing. When the next battle is over for example GE, JNJ, CVX, MCD, PG, CSCO will be so cheap again that they will likely pay around 5% dividend.
DM is so right talking about ones emotions. In the end its only them that keep you from making money…all the best with O. Its on my list for a while.
I would love to add more of O to my IRA. I’m hoping but patient enough to wait for the next bit of news that makes the market uneasy.