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I didn’t buy in order to sell.

Do you care what the current market value of your TV is? What about the market value of the shirt you’re wearing right now? Or the market value of your cell phone?

Of course you don’t care. Why? Because you didn’t buy them with the intention of selling them. You bought them with the intention of using them.

What about your home?

Many people make the same argument about your home: Don’t buy it with the intention of selling it. Instead, buy a home that you could reasonably see yourself living in until the day you die. That way, you don’t have to worry about fluctuations in its market value. Such fluctuations simply won’t concern you, so you can ignore them entirely.

What about your stocks?

What if you were to take the same approach to buying stocks? Buy them without the intention of selling them. Ever. Instead, plan on holding them exclusively to take advantage of the dividends they provide. It would certainly free up your mind a bit, wouldn’t it? You wouldn’t have to worry about giant drops in the market. (Granted, you’d have to worry about declines in dividend payouts, but those are less frequent and far less severe.)

In fact, for generations, this is exactly what investors did. They bought stocks with the intention of relying exclusively upon the dividends for their return. They had no intention of ever tapping into their capital by selling shares. It was seen as a strict no-no.

Unfortunately, a literal application this strategy isn’t as practical now as it was several decades ago when dividend payout ratios were much greater. Today–with a dividend yield of 3% being seen as high–investors are forced to rely (at least in part) upon their stocks appreciating in price.

However, I think it’s still a great attitude to have when thinking about your investments. Don’t worry so much about their current market value. Focus instead upon the fact that you own companies. And those companies make money. (Most of them, anyway.) And over a long enough period of time, your earnings are tied to their earnings–not to short term fluctuations in the market.

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Comments

  1. Hi Russ. I’ve always loved that quote as well. Thanks for bringing it up. 🙂

    And I’m right there with you in terms of investing in funds rather than individual stocks. And like you said, the principle holds true there as well.

  2. Great post, Mike.

    It reminds me of a great Buffett quote, “If you understand how the company works, and you wish to purchase stock in it, imagine this scenario: As soon as you purchase the stock, the stock market closes for 5 years. This means that you will not be able to sell the stock for 5 years. If you are still comfortable with the purchase, then it is a good investment. If not, don’t buy it.”

    I feel more comfortable with diversified, low-cost funds than with individual stocks, but the principle is the same.

  3. The main reason people are so obsessed with the value of their investments is that their value is updated on a second-by-second basis, in a very obvious and in-your-face way (unlike TVs, shirts, cell phones). This makes it much harder to ignore fluctuations (or gigantic drops) in value.

  4. Hi Dave.

    That’s a great point. That does make it a lot harder to ignore fluctuations. It appears that second-by-second information (while wonderful in many cases) doesn’t come without a cost.

  5. Great point Dave. However, I don’t buy a TV to make money off of it, which is the very reason why one buys stocks.

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