Stock Market Volatility

As anyone following the markets has seen, they’ve been jumping around the last while, mostly moving downwards. The stocks I bought are down ~$1,600 (~4%) from when I bought. My father has his sympathetic face on when I talked to him about this, but I’m happy and wish they’d dropped further.

With real estate or stocks, the only time the price really matters is when you’re buying or you’re selling. If you’re buying, low prices are good. If you’re selling, they’re bad. With real estate I buy for the income stream of rent. With stocks I’ve been buying for the income stream of dividends. When I start bulking up my RRSP, one strategy I’m looking at is index funds, which I’ll buy in order to sell after I’m 65.

In “Four Pillars” Bernstein (or it *might* be random walk – the problem with reading a bunch of personal finance books right after another is that they blur together) repeats a few times that a market crash is great for a young person and bad for an old person. A booming market is the reverse.

Ben Stein wrote an interesting article about how massive an over-reaction to the sub-prime problems the current downturn is and how he feels this is a massive buying opportunity (after reading the article I was wishing I had more cash to put into the market – I really need to get working again 😉 ).

Since the stock market is a “secondary market” (people buying and selling ownership of companies, with the money and ownership involved not really affecting the companies in any significant way), the income stream (dividends) aren’t affected by the stock price. With a lower price, the dividend yield increases, and the income stream becomes more affordable. A massive crash would be the same thing on a larger scale. Bring it on!