Warren Buffett is recognized as one of the greatest long-term investors of all time. Buffett has said many things about buying and holding stocks for the long run, but this is one of my favourite quotes from him: our favorite holding period is forever.
How long should you and I hold a stock?
Buffett answered this question by saying if you don’t feel comfortable owning a stock for 10 years you probably shouldn’t own it for 10 minutes. Sage advice. ‘m trying to follow that advice as much as I can. For most part, unless my companies change direction dramatically and as long as they pay dividends, I’m holding them. In some cases, I’m buying more of them automatically via dividend reinvestment plans (DRIPs).
How has this strategy worked out for me over the last few years? Not bad actually. My 28 Canadian companies are on target to pay out just over $6,850 in dividend income this year (an increase of $80 over last month) but I suspect the income might be more since I reinvest dividends often and I will likely make more contributions to our TFSA before December while other monies go towards lump sum mortgage payments.
Our dividend income is a critical component of our retirement plan so we can’t spend the dividends today. Instead, it must be reinvested or at very least saved so we can buy new companies if equity markets decide to retreat a bit. I can’t predict when markets might slide (I really have no clue if and when they will do) but I’m cheering for falling markets since this investor likes to buy stock(s) at cheaper prices than today. I don’t always get my way but once in a while my wish comes true. Thinking about this wish reminded me of an article by Andrew Hallam, author of Millionaire Teacher who wrote this in the Globe and Mail about falling markets:
The notion that bad markets are good opportunities is a tough thing for inexperienced investors to get their heads around. They are often happy when markets rise. But as Warren Buffett likes to point out, this makes as much sense as celebrating the rising costs of groceries.
Hopefully many years into the future Andrew I’ll be celebrating the fruits of my labour after doing a few things very well: holding blue-chip companies that pay dividends as close to forever as I can.
Friends of My Own Advisor, can this strategy work out for me in the long run? What should I be mindful of with my dividend income strategy?