Tuesday, March 24, 2020

Carnage!

On 19 February 2020, the S&P 500 closed at a record high of 3,386.15. Today, just more than a month later, the index closed some 33.9% lower at 2,237.40!

This is the fastest 30%+ sell-off ever, exceeding the pace of declines during the Great Depression. It took just 20 trading days for the Dow Jones Industrial Average to enter bear market territory and just 22 trading days for the S&P 500 to fall 30%.

My DivGro portfolio suffered badly from this carnage and all my capital gains are gone! If it were not for the nearly $100k in dividends I've collected since 2013, DivGro would have been underwater!


The adjacent 6-month chart certainly paints an ugly picture!

On 20 February 2020, the White House issued a vigorous defense of the Trump administration’s economic agenda, taking credit for changing the trajectory of the nation’s record expansion, while taking aim at the Obama administration’s record.

The irony of this report coming out just one day after all-time market highs shouts to the heavens!

"How's your 401(k)?" is a question Trump liked to ask at campaign-style rallies and fundraisers. I bet he won't be asking that question again, soon!

The entire Trump stock market rally is gone!

How DivGro Faired


As mentioned earlier, my DivGro portfolio suffered badly. Below is a chart that shows the percentage price drops of stocks in my portfolio. Notice that about half my DivGro stocks fell less and about half fell more than the S&P 500.

Note that one of my holdings, Gilead Sciences (GILD) bucked the trend and is the only position with gains since 19 February! Interestingly, the arithmetic average decrease of my DivGro stocks is 33.9%, which is exactly the same as the decrease experienced by the S&P 500 over the same period. Howver, when considering a weighted average (by position size), my portfolio faired slightly better at -33.6%. 

Why Dividend Growth Investing Matters


Before signing off, let me share some better-looking charts, mainly as a reminder of why I'm a Dividend Growth Investor.
The chart on the left shows annual dividends received since 2013, while the graphic on the right shows projected annual dividends of $26,457 and a chart showing how that amount has grown over the years. It is no accident that the charts look similar... the one on the right is the "promise", while the one on the left is the reality.

Unless the companies that pay me dividends decide to cut those dividends, I'll be collecting $26,457 every year in perpetuity! That averages about $2,200 every month, whether my DivGro portfolio looks like the one I had on 19 February 2020, or it looks like the one of today after the 33.5% cut since 19 February.

And, to conclude with a silver lining... stocks are really cheap now and I'll be "buying" more projected annual dividends in the near future!

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4 comments :

  1. I love your blog. Regular lurker :)

    Now, how do you feel about holding cash? I want to invest, but in what? So many worries. Deflation (people will buy less, because buying power goes down with expected job losses.)
    Inflation... 7 trillion pumped into the market, basically almost doubled the USD amount.

    So do I protect against inflation with TIPS or Gold/ or deflation, keep cash. Have you thought about that?

    ReplyDelete
    Replies
    1. Hi, Sebastian -- thanks for commenting and for your kind words.

      Holding cash is not bad, but at some point one will need to deploy it more productively. Inflation, which probably will come due to the stimulus, will eat away at cash relentlessly.

      For me, as a DGI still generating active income and several (though less than 10 years) from retirement, I want to continue building a growing dividend income stream. That means continuing to redeploy dividend income to buy more shares in order to compound.

      The good news is, I can now buy more shares for the same dollars than just a month or so ago. But I'm careful, as we are in a bear market now. So I'm focusing on quality more than ever before.

      Delete
  2. So all this work and you could have just invested in an index fund such as VTI and do the same, without hours or even months of stock picking work and study...interesting !
    J.L.Collins also says that and I'm beginning to believe him and go towards that paths. Thanks for the insights divgro.

    ReplyDelete
    Replies
    1. OK -- to each his own, I guess.

      Did you read this article and notice that I would have been underwater if it were not for nearly $100,000 in dividends I received since 2013? While VTI pays dividends (https://marketchameleon.com/Overview/VTI/Dividends/), it doesn't come close to DivGro's yield. Plus, VTI's dividends go up and down, while DivGro's dividends continue to grow over time.

      In my mind, there's absolutely no comparison. Besides, I like what I'm doing.

      Delete

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