Many investors would cringe if they woke up one morning to find that the S&P500 was down 3-4%. On several occasions during the 2008-2009 bear market, the S&P500 was down more than 5%. These kinds of down days were almost considered normal at the time in fact. However, if you have a long time-horizon and the poise to maintain composure while everyone else panics, these stock market drops should be exciting to you!
The next time the stock market takes a crushing blow or experiences a bear market, you should look at it as a long-term buying opportunity for solid companies with strong dividends. For example, if you had bought shares of Microsoft at around $20 during the 2008-2009 bear market crash, you would have made a fantastic purchase! It would have been a very hard trigger to pull though. The market was going nowhere but down at the start of January 2009. In fact, Microsoft would trade down to as low as $14.87 in March of 2009. That is more than a 25% decline. More than ten years later though, you have made an 1100% gain on your shares of MSFT, and at today’s dividend payout of $2.24 per share, you would be earning a yield of 0.99% on your shares. Someone made this exact play probably, and they have benefited tremendously because they had the composure to seek out good companies and take a risk on something they thought would rebound in the long term.
I have a friend who purchased shares of Apple around a split-adjusted price of $3.48 in December of 2008. At the time I thought to myself it might be a better investment if it had a dividend, so I decided to put my money elsewhere (AAPL did not have a dividend in 2008 like it does now). I have had success with my investment but not to the extent that Apple has performed. Today it sits at around $125. My friend sold out of the position at $100. That is a 2800% return on his money. Ladies and gentlemen, that is the kind of rally that people retire on! I cannot emphasize enough how important it is to take advantage of prices when great companies get pummeled along with the general market!
There are many examples of great stocks that could have been bought at generationally low discounts back in 2009. Those kinds of prices are unlikely to present themselves again; however, there will always be opportunities to be had during stock market drops. Identify them and take advantage of them! Warren Buffett has said “Be greedy when others are fearful and fearful when others are greedy.” What he means is buy the panic and sell the euphoria. Investment return is all about what price you pay for an asset. You can and will make money by buying good companies with dividends at short term market tops, but you can increase your return by finding cheaper entry points when the opportunities present themselves.
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