You are currently viewing Stock prices have dropped.  What is the moral of this story? – by David Stanley

Stock prices have dropped. What is the moral of this story? – by David Stanley

There was once a Countryman who possessed the most wonderful Goose you can imagine, for every day when he visited the nest, the Goose had laid a beautiful, glittering, golden egg. The Countryman took the eggs to market and soon began to get rich. But it was not long before he grew impatient with the Goose because she gave him only a single golden egg a day. He was not getting rich fast enough. Then one day, after he had finished counting his money, the idea came to him that he could get all the golden eggs at once by killing the Goose and cutting it open. But when the deed was done, not a single golden egg did he find, and his precious Goose was dead. ~Aesop

Some would say that the moral of “The Goose That Laid the Golden Eggs” is that ‘greed is bad’, but I disagree. To me the moral is ‘Why sell something that is working well for you for a price that is less than what it is worth’, or, ‘the short-sighted destruction of a valuable resource is unprofitable.’ 

We can apply this to the current slump in stock prices. As I write (early on Jan. 25, 2022) the TSX is down 3.7% YTD and the S&P 500 is down 7.4% YTD. Hardly enough to get excited about in my opinion. But, of course, journalists must fill up space so the headlines read: ‘Stock prices fall!’, Stock market plunge!’, ‘Stock indices tumble!’, and the ever-popular ‘Stock market crash in the offing!’, etc. 

Maybe it is a good time to reflect on why we bought dividend stocks in the first place. The reason was to acquire a financial instrument that will continue to generate cash dividends far into the future, dividends that, for most of us, will be taxed at a lower rate than capital gains, and whose yearly increase will keep pace with, or excel inflation, the biggest bugaboo retirees have to face. 

It’s also worth noting that dividend portfolios rarely go down as much as the market as a whole since the dividends act as a ‘pillow’ under the stock price; as the price goes down the dividend yield goes up (assuming a constant dividend) to a point where investors feel compelled to purchase these bargains.

But even if the price of our asset goes down is that a reason to sell? Has the dividend stream been reduced? If I wake up one morning to find that the price of my house has gone down 5% do I run out and put it on the market? Well, no I don’t — that would be foolish. And so would selling your dividend shares. 

Rather, concentrate on the things you can control; Should I buy more? Are my RRIF and TFSA fully funded? Has that company that I have been watching for a long time finally come down to a price that reflects a good value?

Don’t let the nattering nabobs of negativism control your investments!

  • David

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This Post Has 5 Comments

  1. C. Messinger

    Thanks David,
    Yes, I bought some more ALA today. My Y at ACB is 6.17%. I think the ETF’s have hyped up volatility and dividend investors can take advantage of that.

  2. sil

    “Don’t let the nattering nabobs of negativism control your investments!”

    Excellent advice that sums it all up.

    What might we expect from blue-chip dividend stocks with the coming interest rate hikes? Any opinion?

  3. Benj

    as always Matt sage advice in a time when people get jittery and as always hodl and follow your game plan