Tuesday, October 31, 2023

Market Corrections Are A Healthy Part Of The Market

We have all heard that trees don't grow to the sky, but that seems to be what is happens in a bull market. When investors see their portfolio dramatically increase in value, it leaves them with a sense of accomplishment. However, if you are an investor in dividend growth stocks, a higher portfolio may not be in your best interest.

Consider the following...

Higher Values, Lower Yields

One of my favorite comments from the unenlightened is, 'How could you buy XYZ stock? Its price has been flat for over 10 years!' If a company has increasing earnings, cash flow and dividends for 10 years, and there is nothing fundamentally wrong with the company, I am ecstatic if the stock price is flat.

When this occurs the shares purchased today will have a significantly higher initial yield than the ones purchased 10 years ago. Conversely, when share price appreciates at a higher rate than than the dividend grows, the current yield drops.

As a dividend growth investor, the one thing that will generate more income and increase our wealth is the ability to buy undervalued blue-chip stocks.

Chaos Can Bring Opportunity

Stocks are rarely fairly priced. On any given day, the market is driven by emotion (either fear or greed), but over the long-term it will trend toward a fair mean.

Knowing this, allows us to overcome the emotional hurdle of buying when the market appears to be a total melt-down. The more perceived chaos and fear in the market, the greater our potential opportunity.

A market correction will drive value.


A correction is not something to be feared, but is necessary for and will benefit those with a long-term view. Fearful investors will sell their blue-chip stocks to someone in a down market, and when the chaos occurs I plan on being at the front of the buying line.

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