Dividend investing advocate sells everything
Looking for signs of a bottom? How about when the author of a book championing buy-and-hold dividend investing throws in the towel and sells everything he has in his retirement income portfolio?
Derek Foster – who retired several years ago at age 34 to live off his investments – has done just that. The author of the self-published “Stop Working, Here’s How You Can” apparently sold everything last month and moved into cash.
Spooked by the market’s steep decline, he now believes there’s more pain to come and doesn’t think we’re close to a bottom. He’s waiting for the lower prices that he believes will bring single-digit market P/E ratios and a 6% dividend yield on the Dow.
To be fair, he apparently does plan on getting back into the market if/when it meets those criteria. Until then he isn’t staying entirely out of the market – he’s selling puts on companies he wouldn’t mind owning at lower prices in order to generate income. (Assuming these are cash-secured puts, this is actually a more conservative strategy than buying the stocks outright.)
Still, this all-or-nothing approach to investing is bound to be problematic. Hopefully, when all is said and done, Foster will manage to avoid what Jeremy Grantham refers to as “terminal paralysis:”
As this crisis climaxes, formerly reasonable people will start to predict the end of the world, armed with plenty of terrifying and accurate data that will serve to reinforce the wisdom of your caution. Every decline will enhance the beauty of cash until, as some of us experienced in 1974, ‘terminal paralysis’ sets in … So almost everyone is watching and waiting with their inertia beginning to set like concrete. Typically, those with a lot of cash will miss a very large chunk of the market recovery.
Related posts:
‘Perma-bear’ Grantham: “It’s time to buy”
Shiller: The market hasn’t been this cheap in decades
