We have been experiencing some significant market volatility this month thanks to a number of issues including China intentionally devaluing their currency, the fear of an impending Fed rate hike, and commodity prices continuing to plummet . Investors have had an easy time the past 6 years during the market’s bull run but now there is a fear that bull has lost steam and the bear is returning. This week in particular there has been a lot of overreaction to news pushing stocks lower and lower. So what does this mean for our Portfolio?
Although our Portfolio has seen prices drop it has still fared well vs the overall market. Part of the reason for this is because we focus on low beta stocks in our Portfolio. Low beta stocks typically have less volatility compared to the overall market. Most importantly though we need to remember the focus of our Portfolio is on producing safe and increasing dividend income. As long as the underlying fundamentals of our stocks are intact and the dividend paying ability is not affected then price fluctuations can ultimately be ignored. The dividend payments we receive are real returns that are realized the moment they are paid where as price fluctuations are virtual gains or losses until the stock is actually sold.
We are confident our Portfolio’s dividends are safe in the current market and our income stream will continue to rise through dividend increases. In times like these we like to remember the advice of Warren Buffett. “Be fearful when others are greedy and greedy when others are fearful.”