In tune with tap tap
I’ve never been an advocate for “every cloud has a silver lining.”Been through multiple tornadoes that have caused infinite damage in their path, and experienced hurricanes that make landfall and hit my house directly, sometimes The only silver lining is that it’s all over.
However, both have their surreal moments.
When a tornado is over, it usually dissipates like an ethereal monster into nothingness. This natural expression of anger just disappears into peaceful silence.
During a hurricane, you may get a moment of eerie calm and quiet. When the eye of the storm passes, the wind is not there and you can see the sky clearly. The storm is raging around you, and the eyewall is one of the strongest parts of a hurricane, but here you can stand outside completely dry, in the sun. This is juxtaposed with the knowledge that the storm has just passed halfway through, and your home is only getting a brief respite before the second round arrives. Like a boxer sitting on a stool between rounds, you’ll do your best for a few minutes before getting hit with life again.
The real question we have to ask ourselves in 2022 – is there a better way? Do we have to rely on others to buy our stock to fund our retirement? What if they don’t?
Time is not kind to many of us
Time itself is a relentless force. It wears down the greatest athletes. It robs the greatest minds in the world. It turns once-unshakable institutions into empty shells of their former glory.
When I was in college, I had a professor who used to say that you can’t be a true scholar unless the school you went to doesn’t exist anymore. While Yale, Harvard, and Princeton around the world continue to produce large numbers of graduates, many great schools rise and fall in America and the world at large.
For some of you, your body has eroded and worked over time, and retirement may seem less like the warm arm of a dear friend and more like another ready to spend in your final years Punish your abuser.
That toil leaves you with little to show in terms of the wealthy and wealthy’s vast portfolios. No big legacy left behind to advance your newfound wealth level. You are forced to do it yourself. I commend you for everything you have achieved.
This market is your lifesaver.
For investors who were told at a young age that growth was something to watch, they came back with a lot of money. “You still have years to recover!” they were told. Now facing a down 65 as the FAANGs are over-allocated and the portfolio is losing value at a time when they need to start selling to realise all unrealised gains. This massive retirement account is now 20, 25, or even 30% less than it was 5 months ago. Millions of retirees have gone from being confident to doubting their ability to retire.
This market gives you an opportunity to correct your course.
Are you going to do another round using the same strategy that caused you so much grief and pain? Or will you change direction?
learn, adapt and grow
Beneath the surface, this market reveals a huge dynamic of change. Apparently so large that it caused some Seeking Alpha authors to wonder if their bank accounts were safe!
No matter how many impressive comeback attempts Growth has attempted to stage since September 2020, it has not been able to keep up with Value. Decks are the antithesis of growth investing. Inflation, rising interest rates, recession fears and shaky investor confidence have all hit growth hard. It tries to get up again and gets hit again.
It also leaves you with nothing to show. There is no meaningful dividend at all. I know that for decades, growth has outpaced value in terms of total return, and I would be remiss if I didn’t mention this. I would also foolishly forget that the conditions are ripe for growth, and so will you. Easy money, low interest rates, low inflation and zealous investors have fueled ever-higher price-to-earnings ratios for growth stocks. Like a roller coaster rattling down an incline, the growth will descend quickly and hard. Unfortunately, during this time, two of the three major indexes were over-allocated to a handful of growth stocks — meaning our passive index ETF friends were also prepared to fail. We’re watching them fail along with every other growth investor.
So, it’s time to adapt to the modern market. Trading is free and easy with just a few clicks or touches of your favorite brokerage app. It’s time to focus on value. Why? Value investing has low levels of debt, high levels of current cash flow, and deals in small multiples. They also often pay large dividends to reward shareholders.
Why am I mostly avoiding growth even in its prime? It does not meet my investment criteria and goals. I invest in the income paid to me as a shareholder. All of these dividends are returns to my portfolio that cannot simply be wiped out when millions of others think my holdings are worth less today than they were yesterday because someone tweeted.
Income investment or not, value is the future
Whether you are an income investor or a trader. Value is expected to outpace growth in the coming decades. That’s partly due to the lower multiples we’re seeing growing names, and partly due to recent bias. Recency bias is a powerful force that has helped drive growth over the past few decades.
How does it work? think about it. Joe buys Amazon (Amazon) stocks, and after the price went up, he was confident in them, so he bought more, and later bought more. AMZN’s P/E ratio continues to climb, but so does its price, so he feels smarter than everyone else, giving him the confidence to buy at higher and higher prices.
When the AMZN multiple was revalued by the market and Joe suffered a huge loss, he decided to convert it. Maybe he eschews growth for value, as do countless others. Now Joe feels successful again, and his investments are growing fast again. The all-time low price-to-earnings ratio for value investing has begun to climb as investors turn to value investing and reap the rewards. Another feedback loop arises, and buying value is the fashionable way to do it. Until another market event causes growth and value to swap places again.
These cycles typically take decades to occur, during which growth and value deals perform exceptionally and prominently.
I quit the game and won by doing so
So where does the high dividend opportunity and our unique income approach fit into all of this? We are no longer trying to game the market.
I knew long ago that I didn’t need to be the hottest guy on Wall Street. I don’t need to brag about big wins and quick returns. I just need to generate big income now to enjoy.
When I work every day, I get paid every two weeks. I cashed the check at my bank, waited for it to be credited to my account, and lived beyond my means. I watched my savings grow and put money into the market.
I decided that my retirement and investment philosophy would match my current lifestyle. I’d collect dividend checks — yes, we got actual checks in the mail at that point — and reinvest them. This continues to cause my income stream to get bigger and bigger. As it grows, I’ve watched value and growth back and forth over the past few decades. All the while, my cash flow keeps climbing, getting bigger and bigger.
Over the years, I’ve heard people bragging about their huge unrealized gains. I would ask, “Are you selling?” They would answer, “Of course not!” Then the bubble burst and those unrealized gains slipped away like fog in the morning light.
All the while, I have continued to receive dividends and reinvest them. Of course, that big number in my portfolio changes every day, just like everyone else. However, my dividend has grown. Whether the market is green or red, my income keeps climbing.
I enjoy it when investors flock to growth and show me the lower P/E multiples of value stocks, it gives me bigger gains to capture.
Right now, the market is having a big sale. Yields are rising for no other reason, but with value investing generating a lot of income today, risks and concerns will continue to beat growth stocks. Inflation makes today’s dollars worth more than tomorrow’s. So it’s a safer bet to get a dividend now than to hope for a big win 20 years from now.
For those whose retirement savings accounts have always been small, now is the time to take advantage of the surprisingly high yields of solid companies. Our model portfolio contains over 100 curated products from various industries, all with yields worth buying and loading. Use this quiet moment during the pre-retirement storm to generate income for your portfolio. This market drop is your lifesaver!
Take it from an obscure income investor. I’ve seen the market outpace itself and lag behind it. I’ve seen epic bull markets, and I’ve seen banks fail. All the while, I have been quietly increasing my income stream and continue to do so.
Very relaxing. It’s interesting. You really should try it.