How do you handle rough performance?

[Russellhantz]

Hi Guys,

I'm wondering how do you cope with blotchy rough performance? I started my portfolio at the beginning of the year and a bunch a handful of the stocks have dropped 10%+ and my portfolio as a whole has dropped around 3-5% on 50,000.

From your experience how do you handle these situations? These are all decent companies, PG, CNR, etc. so i'm not disappointed in my choices.

Do you guys search for money to buy more to average down? Ride it out?
And what is the lesson to learn here? That I bought at the wrong time?

Thanks in advance.

[crimsonghost747]

Dollar cost averaging: so buying constantly, no matter what the prices are. Some people do this in a "pure" way, $1000 dollars everytime they get paid etc. I personally try to adjust to the market: for example for the past few months I have been buying with less than I could have. This might be the first month where I'm going to buy a bit more and I do have cash on hand should the markets fall more.

So yes, it's a bit painful to see the value going down but in reality, for me, it's just an opportunity to buy more. It all depends on your overall goal and time frame etc. but I'm sure that most people here will tell you the same. When the prices are down, buy more. You liked PG when you paid say $85 for it. Why wouldn't you like it now that you can get it for $77?

I guess to sum it up: I can't predict where the markets are going. So I buy constantly, using more cash when I think the prices are good and less when it seems expensive. Whether we are diving down towards the bottom or hitting all time highs, in most cases I just sit on my portfolio and smile at the end of the month when I note down the dividends received.

[hendi_alex]

Before buying long term positions at high valuations during a long in the tooth expansion, one should make sure to be comfortable enough to hold and continue building through the other side of the cycle when valuations are likely to be more favorable. At the very least, the price drop allows one to continue accumulating at more favorable prices. Aside from energy and REITs, I think that the current market is seriously over valued. Outside of energy and REITs, there are virtually no DG types of stocks that are anywhere near my buy range. EMR is fairly close though. My move into typical DG big cap stocks will not come before we have at least a 20% correction, and buying will just be modest at that level.

[benjamen]

I measure my month to month performance by increase/decrease in projected 12 month dividend income. As the market falls, I can increase my income stream faster.

[ronn38]

Of course, we try to "buy on he dips" and purchase value--but time in the market is often a surer bet than timing the market (to misquote anonymous). I focus mostly on yield; how much are my investment throwing off, and here sound choices pay off ... literally! A few months ago my taxable portfolio was just over $360, and today it’s about $343--ouch, right? But wait, from the beginning of this year my dividend payout (though I mostly DRIP) has grown almost 5% --and that's with a few cuts, freezes and one eliminating dividends altogether!

Nobodies likes to watch they're capitol vanish (even though today my portfolio is still worth much more than what I "paid" for it), but if the goal is income with buy and hold as the strategy--it really is little more than noise. LOUD AND OBNOXIUOS yes, but still just noise.

I keep in mind 3 simple truths:
1. Think before you buy--this should get you into sound companies (for the most part)
2. You will make mistakes--sell and move on, or sweat it out; but just accept we're none of us perfect
3. Judge the value of your portfolio by the income it’s generating (if that includes capital gains, then so be it.) For me, O going down just means better time to buy O.

There are several here who, in addition to DGI, also trade; and they see (and experience) success in this strategy. I usually don’t “trade” unless I see a silly profit happening (because what I sell, I lose income from). But that’s just me

[Dividend Watcher]

Russell,

I just went and looked at your introduction post to see where you were coming from and now understand your angst a little better.

I liked the other replies to your question. Here's where I'm coming from. We've got about 8ish years left before thinking of retirement. We're not wealthy and we're depending on Social Security (in the US) and our IRA's to make it through retirement. No 401(k)'s, no pensions -- just us. To compound it, my wife didn't do a thing about retirement until I took over her meager retirement fund about 5 years ago that she had gotten from a short-term job. Luckily, we had the wind at our back coming out of the Great Recession but it was (as still is) a work in progress building our dividend growth portfolios. I just updated our spreadsheet and a little over a third of our holdings are underwater; all were bought within the last year or so. You can see where we were here.

What are we doing about it? Just following our plan. Contribute as we're able, invest in one of our watchlist companies or add to existing holdings when sufficient cash is available and the price is reasonable, and watch the income stream.

Sure prices have come down a little but it's done the 3-5% drops you mentioned several times in the last 5 years. Maybe this will blossom into a full-blown correction which used to be generally defined as a >10% drop. For myself, I'm looking forward to it. Every dividend that gets reinvested will add to the income stream and the lower the price, the bigger the chunk of dividend dollars I can expect in the future.

So why don't I sell and buy in at a lower price? Well, I already know I'm a lousy market timer. I just bought some REITs and utilities a few days ago and they've already dropped to prices that I would've been much happier with except for the fact that I wasn't expecting them to drop so much so soon. But what if they hadn't and I held onto that cash paying me 0.01% in the brokerage cash account? All of them will pay me a dividend within 2 months on that cash I invested that far exceeds the interest I would've earned.

As I was looking for other links in the this post, I ran across a thread I had started in February of this year. You might also want to read that and check out the link. http://dividendgrowthforum.com/showthread.php?tid=856

You asked ...

(06-08-2015, 10:56 AM)Russellhantz Wrote: And what is the lesson to learn here? That I bought at the wrong time?

In my opinion, no. You're experiencing what Ben Graham and Warren Buffet call "Mr. Market having one of its crazy moments" again. Sure prices were a little elevated but there were & are still some decent companies whose stock was fairly valued. Focus on quality companies and have some patience.

I understand why you'd be a little concerned. That's the nice thing about our little cabal here at DGF. We can help keep each other sane when the worries start to settle in. If you can't sleep at night, take a little off the table. The question to ask then is ... what are you going to do with the proceeds? Do you have a plan for when you're going to get back in? Fortunately, you've got plenty of time to adapt and to make up for any temporary losses.

I'll just add one more quote from my portfolio business plan:

Quote:“That’s not to suggest that people invest cash they can’t afford to put at risk; there’s nothing wrong with taking risk off the table, especially at a time when the market makes you nervous, but if you are waiting for the “perfect” time to be in the market — when you are comfortable, confident and worry-free — you’re never going to find it.”

[Russellhantz]

Thanks everyone for chiming in. I'm not in a panic -- im oddly really calm about it but was unsure how to respond.

Dividend Watcher, you nailed it re: REITs and Utilities. They've all taken some damage. But averaging down will be the way to go.

As for a major correction...I guess that will be the real test of my fortitude.

[hendi_alex]

'Fairly valued' is a pretty illusive thing to be stated with such certainty. With both P/E's and earnings elevated to the upside, earnings being near an extreme, those favorable valuations could be more illusion than substance. We are forced to make investment decisions while the fed is pouring liquidity into the system plus giving a strong shot of adrenaline in the form of near zero rates. Also they are acting as a holding tank to keep a gazillion dollars worth of mortgage assets off of the market. The one thing that we know for sure is that such action by the fed causes price dislocations and causes bubbles or bubble like asset inflation. It is hard to know exactly where those bubbles are forming however. I would suggest that one effect is earnings inflation for the companies of most DG types of stocks as well as for other equities. So IMO it is really impossible to determine 'fair value' based upon reported metrics. The best we can likely do is accumulate based upon those metrics, but I'm taking them as a grain of salt at the same time, and am convinced that with more normalized fed policy, earnings and p/e's will makes serious adjustments. Even if the Fed doesn't normalize, then the market at some point will correct the problem, most likely not in a very investor friendly way.

Everyone says to not time the market. I disagree with that and would much rather invest at a slow pace when the market seems top heavy, and invest more briskly when the market seems to present deep value in strong companies. I also believe in keeping a cash weighting. The cash weighting is greatest during times like these, when the market and most DG companies are over valued and the cash weighting is least when those stocks are trading at valuations that clearly represent deep value.

[cannew]

(06-08-2015, 10:56 AM)Russellhantz Wrote: Hi Guys,

I'm wondering how do you cope with blotchy rough performance? I started my portfolio at the beginning of the year and a bunch a handful of the stocks have dropped 10%+ and my portfolio as a whole has dropped around 3-5% on 50,000.

From your experience how do you handle these situations? These are all decent companies, PG, CNR, etc. so i'm not disappointed in my choices.

Do you guys search for money to buy more to average down? Ride it out?
And what is the lesson to learn here? That I bought at the wrong time?

Thanks in advance.

As most have suggested, if you researched your purchases and felt they were good long term buys, then you should not feel too badly that you didn't get to buy them at the lower prices. However, if your goal is long term income than adding to your positions will help you achieve that goal.

If you can lower your average cost, your long term returns and income will increase dramatically.

[Russellhantz]

[/quote]
If you can lower your average cost, your long term returns and income will increase dramatically.
[/quote]

Thanks cannew. Out of curiosity, is averaging down a better move than initiating a position? Obviously this is relative and it's tough to compare without named stocks.

I'm just wondering when you see a dip are you more likely to add to existing position or initiate a new one?

[hendi_alex]

For me, depends what is on the wish list, and how the purchase might affect weighting of both an individual ticker as well as sector weighting.

[Kerim]

(06-09-2015, 10:33 AM)Russellhantz Wrote: I'm just wondering when you see a dip are you more likely to add to existing position or initiate a new one?

To me, the answer to this depends entirely on which alternative is the better value at the moment. If you are desperate to diversify for some specific reason, maybe I'd bias toward the new purchase. But if you have ways to go before retirement, buy whichever is the more compelling value at the time.

As to your initial question in the original post, don't forget that you're talking about less than six months. This is an eye-blink in the world of DG investing. In such short timeframes, anything is possible. Over much longer periods it is fair to expect the value of your shares to increase, more or less in keeping with earnings per share and dividend growth.

More importantly, though, I hope you can cultivate the mindset that -- if you've chosen your companies well -- decreases in share prices are happy and welcome. If you have some time to retirement, you really WANT share prices to fall and languish. It is counter-intuitive to root for your portfolio to decline in value, but really the name of the game is to accumulate as many income-producing shares as you can, and the lower the price you have to pay for them, the better.

As painful as it may sound, the best case scenario is a horrifying recession and dropping / low share prices during your accumulation years, followed by a strong recovery through your retirement years.