Dividend Growth Investing Strategy: Benefit From 'Other Persons' Mistakes'

Apr. 15, 2012 9:15 AM ETBDX, ITW, MDT, UTX70 Comments

A sudden and broad decline in the stock market can be a harrowing experience for many investors. While browsing news websites, they encounter alarming headlines that refer to fear and panic in the market. Turning on the television to a financial channel, they hear a commentator warning of further losses and recommending that investors lower their exposure to equities. Checking their portfolios, they observe a sea of red, with most or all of their stocks heading downward.

Driven by what they see and hear around them, some investors will feel compelled to take action and sell some of their stocks. They might do it either to lock in whatever capital gains remain or to limit the extent of their capital losses. They may sell while giving little or no regard to what is happening with the actual companies that underlie their stocks. That is, the stocks of stable, high-quality companies might be sold simply because their prices have suddenly dropped in concert with the rest of the market. When this happens, an opportunity arises for dividend growth investors. It is the opportunity to benefit from other persons' mistakes.

The Value In Dividend Growth Investing

In his book The Intelligent Investor, Benjamin Graham devoted an entire chapter to market fluctuations. One of the most important parts of the chapter was the following passage on p. 203 (italics in original text; bracketed text is mine):

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic

This article was written by

I am a 40-year-old investor and a professor at a university. I have been following a value-oriented dividend growth investing strategy since 2012. I have written occasional reviews on Seeking Alpha about my portfolio and investing progress.

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