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Doug Meeks
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Doug Meeks is a Registered Investment Advisor in Plano, Texas. He is the Principal Advisor for Pier LLC, an investment management company. The focus at Pier is to build and manage income-producing portfolios for our clients. We provide individual service to those who are inclined to see their... More
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  • The Markets Are Down Big, Are You Getting Your Returns? 4 comments
    Feb 3, 2014 9:07 PM

    I know what you are thinking.....

    "Should I sell now?"

    If you are in the market for just price then I'm hurting for you right now. I honestly don't have an answer. You did just watch a big part of those 2013 gains disappear. In fact you are now back to October 18, 2013, like these last 4.5 months never happened.

    If I was an MPT guy I would tell you not to worry that the long term average of the markets is something great like 10% CAGR and just hang in there we are efficient as hell, and you'll be fine.

    I'm happy to tell all of you who are investing for dividend growth (in quality stocks, and not just one or two of them) that things are great. Nothing has changed but the price. I want to further encourage you by taking a look at a return.

    I like to keep things simple. From Investopedia:

    (click to enlarge)

    I would add to this that the capital gains portion of a return is only meaningful when the investment is sold or closed out. A capital gain return does gain some mathematical relevance with large moves and can be further solidified, without selling, by adding some smart option contracts or stop loss orders. However, until the dust settles and you have cash in your hand you do not have a return.

    If you want more return..... well you have to buy another investment and another set of risks. All understand this.

    These kinds of returns are the returns that cause sell-side anxiety.

    Do you sell?

    When capital gains are the major goal or major component of your return then at some point you have to sell to get any return.

    Days like today and the resulting emotions are what cause sell side anxiety and often under performance. Risk against the price component of return is often forgotten about when the markets are moving up and up. Then we have a hard sell off, and we are all reminded that the sweet song of MPT and capital gains are best regarded over long time frames.

    When approaching the market I plan on dividends to be the most measurable and useful return. Dividends are new capital. You own a company that proceeded to get some business done and return you some of the profits. Your return is very real in this case, depending on what you do with it can have other results but because it is a cash payment it's a realized return.

    My returns are doing just fine right now. If you are savvy Dividend Growth Investor then your returns are doing just fine right now as well.

    I'm not a fan of falling prices, but if you are in the market then falling prices should be a part of the plan that you can withstand. The other part should be a growing return of new capital via a dividend.

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Comments (4)
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  • Bob Wells
    , contributor
    Comments (6181) | Send Message
     
    Nicely stated Doug. I can handle pullbacks so much better knowing it does effect my monthly income from dividends. I couldn't say that during the turbulance of 2011 until I discovered Dividend Growth investing.

     

    Bob
    4 Feb 2014, 07:47 AM Reply Like
  • Bob Wells
    , contributor
    Comments (6181) | Send Message
     
    Nicely stated Doug. I can handle pullbacks so much better knowing it does effect my monthly income from dividends. I couldn't say that during the turbulence of 2011 until I discovered Dividend Growth investing.

     

    Bob
    4 Feb 2014, 07:48 AM Reply Like
  • Eddie Herring
    , contributor
    Comments (1986) | Send Message
     
    Good one Doug. Yesterday when I noticed that the market was going down significantly my first thought was to check my watch list to see if anything was in my buy range. So the drop is potential opportunity, not a reason for panic or worry. And you're right, it's the dividends that allow that mindset.

     

    Eddie
    4 Feb 2014, 09:46 AM Reply Like
  • Doug Meeks
    , contributor
    Comments (1697) | Send Message
     
    Author’s reply » I don't do Insta blogs very often, but I was thinking about these people I talk to that just want the price to go up up up. It's tough out there.

     

    I wanted to encourage people that quality dividends are safe right now, they were safe in 2008/09, they are still safe now. Stay the (golf) course.....

     

    thanks for reading Bob and Eddie.
    4 Feb 2014, 09:59 AM Reply Like
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