I guess most individual investors won’t remember February 2018 in a very positive way. The global stock market downturn has hardly left anyone untouched. And it also hasn’t failed to leave its mark on me. Overall, my own portfolio is down by more than €3,500 ($4,200).
When Mr. Market neutralizes your dividend income
A closer look reveals that the depreciation in February was even higher than my total annual dividend income. I may aim for a passive income of €3,000 ($3,600) in 2018. However, “Mr. Market” has somehow managed to neutralize my anticipated annual income stream within just a month.
If I only bought shares based on my gut feeling, I would probably have gotten weak and left the market at a significant markdown. However, over the years, I’ve developed an investment strategy that fits perfect to my needs and lets me sleep rather well at night even during turbulent stock market periods.
What I basically do is, that I only invest in two cases. Either an ETF purchase is due according to my value averaging strategy, or my valuation model gives me a buy signal for a particular stock. Otherwise, I simply do nothing and put any excess cash I earn on an ordinary savings account.
Thanks to this simple investment strategy, I don’t let myself get worked up about painful losses anymore. I just wait for one of my two investment tools to give me specific instructions. By doing that, my emotions can be left out, regardless of the prevailing conditions at the stock market.
Even Mr. Market makes mistakes sometimes
Of course, I would have liked to have a better timing with regard to my last two purchases, as the shares of Southern Co and Japan Tobacco are currently trading between 10% and 20% below my entry prices.
I can’t deny that such losses hurt. However, I still have no reason to doubt my entire investment strategy. “Mr. Market” may be offering a company’s shares at even lower prices than before. But that doesn’t automatically mean, that those company’s business prospects have deteriorated, too.
How to capitalize on Mr. Market’s irrational behavior
In addition, every market correction also offers new opportunities. Especially investors like me, who are still in their accumulation phase, can find great entry opportunities thanks to falling stock prices. In any case, one’s own watchlist can be implemented in a much more cost-effectively matter than before.
For an extended period, the stock market only knew one direction. Therefore, I find it very soothing that “Mr. Market” is now finally presenting himself from his depressive side again.
So instead of moaning about the depreciation of any existing positions, I prefer to look on the bright side of life and think of all the high-quality companies whose shares have finally returned to entry-level prices.