Wednesday, March 21, 2007

The Hardest problem in investing

You buy and the market immediately dips, the stock price may stay
below your buy point for years for no fault of the company.

It is possible that the World may go into recession
tomorrow, good companies will still deliver and grow value but
psychologically there will be pain. We have had a long bull run and we
may have a long bear run too. Being prepared for the inevitable will
make it less painful.

Here is what I use to help me stay the course.

1) The company must pay a dividend that can be reinvested at good
rates if prices fall. There must be no danger of cutting dividends.
There are some exceptions to this rule ex Brk-b and Infy.

2) Insiders are buying. Knowing that the Insiders have bought at
higher than market prices is fundamentally meaningless but
psychologically very comforting.

The above two tricks may help you stay the course. As an example in
Japan even in the long years of market stagnation, dividend reinvested
indices have given positive returns.
For example see
The high dividend stocks of japan have returned 7.5% while msci japan
(not msci japan value in the above link) has returned around 3% annualized total returns
for the last decade. Staying invested has beaten selling out and putting your money in the bank.

1 comment:

returntomean said...

I think my analysis is true even after currency values are taken into account. Please correct me if I am wrong. I will post my personal portfolios and watch lists soon, when I find the time. I own Brk.B, I own Infy indirectly via mutual funds and certainly recommend it if you can buy it directly on the Indian NSE.