When to Panic and Stop Investing in Stocks

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When to Panic and Stop Investing in Stocks

Posted by ObliviousInvestor 1245 days ago, popular 1244 days ago (http://www.obliviousinvestor.com)
Category: Stocks | Tags: dividend yield panic sell

In short: Even if the market goes far lower than anybody expects, dividend yield alone will make stocks an attractive investment.

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wangarific 1244 days ago

This logic fails in one respect, companies often cut dividend yields too. The problems that causedthe stock price to fall often force companies to cut dividends too.

ultrageek 1244 days ago

Unless I'm missing something, a market drop to 1/4 it's current price is a 75% decline, not an 85% decline.

And i agree with wangarific: dividend payouts do drop. However, unless they drop proportionally to a stock drop, then the yield will still go up. Don't forget that stock price often drops the day after a dividend gets paid out.

Snouty 1244 days ago

While I agree with the article, the difficulty is that when dividends get absurdly high it's usually for a reason. The UK market in the 1970s saw companies on low single digit PEs and high double-digit yields. What people forget is that the country was being bailed out by the IMF and there were strikes crippling the country. Even the morgues were full due to strikes. People genuinely feared a socialist revolution which would have destroyed stock market value. Looks absurd in retrospect, but such things have happened in other countries... Difficult to see where else your money would be better in such circumstances though, except perhaps in a modest property far from the political front line...

ObliviousInvestor 1244 days ago

@Wangarific: You're absolutely right: dividends can drop as well. The odd thing is, however, that they typically don't (even when things are looking terrible for the economy). See this article aswathdamodaran.blogspot.com/2008/12/sticky-dividends.html for some data.

@Ultrageek: When I wrote the article, the S&P was down 40% so far for the year, meaning its current value was 60% of what it had been at the beginning of the year. 1/4 of that is 15% (or 85% decline). So that's where I got the figure from. Of course, depending upon how the market is doing when you read the article, the figure may not be completely accurate.

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