If you have become somewhat disillusioned with the market recently, consider these ideas.
When you consider the purchase of a bond or GIC, you think about how much interest it will pay right? Was it the same when you purchased your common stock? Did you buy your stocks for the income? The income from your portfolio is still growing, isn't it? In fact, the income on most of our stocks is up. Study the final 1999 and five year dividend growth data on the last page of my December report: fourteen of our companies increased their dividend in 1999. Think about the terrific dividend increases in bank dividends in recent years. There's no increase on GIC or bond interest. Price decreases on a few stocks have hit the front pages: this is no reason to be overly concerned. Some prices are down a few dollars: it's temporary. Prices got a bit out of line for a while. With dividend increases, they'll rise again. The strategy is working: dividends, in the aggregate, are growing.
Would it help to hear that the same thing is happening to Warren Buffet. The last time I looked, and you should never look at stock prices daily, Berkshire Hathaway was down to around $54,000 a share from a high of $84,000. A few of Mr Buffet's stalwarts, Coke and Gillette, for instance, are out of favour. Some are now saying Mr. Buffett has lost his touch: they don't understand. I'd love to know the yield on the original cost of his shares. (As I re-read this page and edit it slightly on November 25 2007, Berkshire's price per shares is $137,000)
In the overall scheme of things, a decrease in TransCanada's dividend from .28 to .20 quarterly is just a blip. So is the
regulatory decision regarding TransAlta. These are but little bumps in the road: there is no need to change highways.
Think positively. Consider how well your BCE is doing...well over $100 post-split. Or figure out your total 1999
dividend income and see how much higher it was than your dividend income in 1998. Common stocks put more money
into your pocket than bonds. "Only if you want to cash out do you care what the market is paying for stocks" And, except
perhaps for BCE, we do not want to cash out now. We own good solid companies. Eventually they will garner returns
well worth the wait. This is mettle testing time.
John Neff on Investing
If you are having trouble "keeping the faith", pick up the excellent new book John Neff on Investing or, while still in the
book store, read the Prologue. It's about Citibank (ticker: C.) In 1991, Windsor fund, which John Neff managed, (Neff
has been my investment hero for decades.) owned 23 million shares of Citibank. "With an average price of $33 a share
and a going price of $14 a share, we bought more shares." John Neff said. "The price continued to decline as 1991
wound down, and the media lambasted Citi on a regular basis." The price slid to nearly $8 a share. "...we kept the faith. I
never really came to the point of thinking of selling the shares before earning a satisfactory return. Even after the
bloodletting, we figured the company's franchise was largely intact. With steep reductions in costs, the path toward
stronger earnings looked clear to us." Neff's stake was profitable before calender year-end 1992 "and Windor's neck-out
stance eventually garnered returns well worth the wait." Neff goes on in the Prologue and talks about fortitude be
necessary. I reckon it's good advice.
Dow 36,000 by James Glassman and Kevin Hassett, 1999 Times Business Random House
Here is another quotation from Dow 36,000. There's a book report on Dow 36,000 on this site and I had a one page
comment about this interesting new theory in my December 1998 report
"If you buy shares today, you are buying a stream of cash that has the same value to you--no matter what others decide to pay for stocks later. That stream of cash is extremely generous. Only if you want to cash out, do you care what the market is paying for stocks. If you are in for the long haul, and if dividends--and the flow of cash in general--continue to rise at historic rates, then you can ignore prices and enjoy a delicious retirement..."