To be a successful dividend investor, you need to change the way you think about market volatility and risk.
There is one thing for certain when investing in dividend stocks and that is that the market value of your holdings will bounce up and down constantly. This is less so with the stable blue-chip companies we’re after but their value will still fluctuate.
The key is to get to a place where you are very confident in the financial stability of the companies you own and not worry about how the market is valuing your stocks day to day. Remember, you are not investing in the stock market, you are investing in businesses. The stock market is just a means of buying shares in those businesses.
Benjamin Graham, a famous value investor and mentor of the legendary Warren Buffet, referred to “Mr. Market” as a “manic depressant” that constantly reacted based on the emotions of fear and greed.
This emotional reaction causes stock prices to fluctuate wildly in both directions. In the short term, the market value of your holdings will be unpredictable, but over the long run their value will increase along with their earnings and dividends! The name of the game is to take advantage of the emotions of “Mr. Market” and buy when it is undervaluing the dividend stocks on your radar.
You will learn to love sharp drops in the stock market because they present excellent buying opportunities! In the back of your mind, you’ll know that your companies have not changed. They are still in great financial shape and customers are still buying their products everyday.
Wall Street expects companies to hit their earnings estimates and when they don’t, the company’s stock value often drops temporarily. A temporary fluctuation in revenue is not something to be worried about. If the company has a long history of growing earnings and dividends every year, has a clean balance sheet and top quality management, a dip in their stock price is an excellent opportunity to buy more stock at a discount.
If you adopt this mindset and view a down market as a buying opportunity, you’ll be very successful in the long run.
Legendary investor and one of the richest people on the planet, Warren Buffet, famously said “be fearful when others are greedy and greedy when others are fearful”.
That is the mindset of a successful dividend investor. Know your companies and be very confident in them. Learn to love when the stock market is down because your companies will be on sale!