It is really quite simple if systematically invest during the good times and the bad. Easy to say, and do, when things are going well, but many people have a hard time buying into a market that has been declining for an extended period of time. To the contrary, many investors sell their positions and move to cash when things look bad. Then move back into equities once they rise for a period of time. Sell at the bottom and buy at the top is not how to make money in the market.
Many observers point to March 2009, when the S&P hit its low, as the bottom of the financial crisis. If you were following a disciplined approach and bought that month, you most likely are sitting on some incredible gains. Consider the stocks I purchased in March 2009:
The Coca-Cola Company (KO)
- March 2009 Price: $19.845 (split adjusted)
- Recent Price: $43.05 up 119.20%
- Current Yield: 3.0%
- Yield-on-cost: 6.6%
3M Co. (MMM)
- March 2009 Price: $47.88
- Recent Price: $157.33 up 228.6%
- Current Yield: 2.6%
- Yield-on-cost: 8.6%
Wal-Mart Stores Inc. (WMT)
- March 2009 Price: $48.42
- Recent Price: $60.50 up 24.9%
- Current Yield: 3.3%
- Yield-on-cost: 4.0%
Buying at the bottom is great, but buying near the bottom isn't bad either. Consider these stocks that I picked up in April 2009:
Chevron Corp. (CVX)
- April 2009 Price: $68.97
- Recent Price: $87.17 up 26.4%
- Current Yield: 4.8%
- Yield-on-cost: 6.2%
McDonald's Corp. (MCD)
- April 2009 Price: $55.09
- Recent Price: $116.30 up 111.1%
- Current Yield: 3.1%
- Yield-on-cost: 6.4%
Granted, the technique works the other way also, in that systematically investing each month will guarantee you will buy at market highs (note I didn't say at the top). Comfort can be taken in that every protracted downturn will eventually produce an absolute bottom (i.e. a point that will never be touched again). However, throughout history highs have constantly been exceeded. Thus, there are no true tops, only recent highs. Any long-term dividend investor will tell you that the yields are better at the bottom, so forgive me for smiling the next time the market crashes.
Full Disclosure: Long KO, MMM, WMT, CVX, MCD in my Dividend Growth portfolio. See a list of all my dividend growth holdings here.
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