Market Drama: More Pain Likely Coming, But No Need to Panic

Over the weekend, I wrote a couple of articles on How to Review Your Portfolio in a Falling Market. One of them specifically talked about reviewing and managing your dividend portfolio. I thought of writing these articles because indices had broken major supports last week.

However, the Monday action was still very hard to stomach…well, it would have been if you were awake when the market opened. Take a look at the charts below regarding iShares S&P/TSX 60 Index Fund (TSX:XIU), SPDR S&P 500 ETF Trust (NYSEARCA:SPY), and Dow Jones Industrial Average (INDEXDJX:.DJI).

The Dow fell as much as 1000 points when the market opened. At the end of the day, it recovered about half of the losses. This is even more drama than the most dramatic drama or movie.

XIU action

If an investor were cautious enough they would have loaded off some shares in mid August when death crosses formed in the different indices and stocks. If you didn’t, it maybe too late to do so now because you might have to sell at a loss.

SPY action

However, if you are holding onto quality businesses, such as Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Fortis Inc (TSX:FTS), there’s really no need to sell the shares. They are still great businesses generating healthy cash flows to pay rising dividends.

Dow Jones Industrial Average action

Admit it. We just feel bad that we bought at a higher price, and we wish we had entered now. (At least I do.) But there are no regrets. Anytime, we make decisions to buy, hold, or sell, we have to accept the results for better or for worse.

Personally, I’m mostly a buy and hold investor who intend to build a quality portfolio for at least a decade. Long-term investors should cheer for market corrections because it would mean costing less to buy shares and getting more value and a higher yield and income.

Going forward, there might be short-term bounces, but there’s likely more downside than up. Still, as stocks become more attractive, the best thing investors can do for themselves is to buy at their desired yields from their watch list of stocks.

Yes, now is the time to take out that watch list that may have been collecting dust, reassess each company to see if it belongs there, and re-set the buy zones. The buy zones could be based on valuation metrics such as P/E, P/B, P/S, or P/CFL. It could also base on yield ranges that you desire. And of course, you can combine them along with some technical analysis.

For example, I require Bank of Nova Scotia to have a 4.5% yield before I buy shares. On August 24, it hit an amazing 5.2% yield. So, if I were awake and had the cash, I would take a bite for that juicy yield. I set that minimum yield ahead of time, so I’m not jumping in blindly because the market was going down.

Further, if the whole market is tanking, it generally means there are some economic issues or negative sentiment that’s affecting the whole market and not company-specific issues.

So, look for quality dividend companies, and average into positions. If you’re super careful, you would wait till the market actually finishes falling (that is it shows a meaningful 7-10% bounce) before considering averaging in. However, we all know it’s impossible to catch the bottom. Be careful out there!

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Disclosure: At the time of writing, I am long BNS.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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2 thoughts on “Market Drama: More Pain Likely Coming, But No Need to Panic

  1. Dividend Freedom

    Great article!

    I totally agree, there might be short-term turmoil, but looking at the long-term this is only a bump on the road and an opertunity to load up in high quality companies.

    Thanks for a nice post.

    Regards
    Dividend Freedom

    1. Passive Income Earner Post author

      Hi Dividend Freedom, thanks for your comment. The hard part is coming up with the cash to buy when opportunities come along!

      Cheers,
      Passive Income Earner

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