CWS Market Review – October 5, 2021

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The stock market bounced back today after another difficult Monday. Daily volatility has increased markedly recently. Consider that in all of June, July and August, the S&P 500 had seven days when it moved up or down by more than 1%. Today it happened for the fourth day in a row and for the seventh time in the last 12 sessions.

So what’s got everyone so jumpy? We can round up the usual suspects. For example, this is the historically tough time of year for stocks. September is the worst month and October is the most volatile. We also have another debt ceiling debate. Of course, there are worries about the Fed tapering soon. On top of that, the Q3 earnings will begin in a few weeks. There are also increased tensions between China and Taiwan. China has been repeatedly violating Taiwanese airspace.

If you had a rough day, consider that Mark Zuckerberg lost about $6 billion yesterday. Don’t feel too bad for him. The Zuck made back about $2 billion of that today.

To be honest, volatility has returned to normal. The unusual period isn’t now. Instead, it was the extremely calm market we had this summer. Through September, the S&P 500 hit 54 new highs this year. That trails only 1995.

Dividends Are Back

Another sign of the market returning to normal is the growth of dividends. I’ve been very happy to see this. We just got the Q3 numbers, and the companies in the S&P 500 paid out $15.36 per share in dividends. (I should explain that that’s the index-adjusted number. Roughly, every one point in the S&P 500 is worth about $8.5 billion.)

The good news about that $15.36 per share number is that it’s a 10% increase over last year’s Q3. That comes after three quarters of dividends being cut and two more quarters of very slight increases to dividends. Very close to being flat. The S&P 500 finally eclipsed its previous dividend record of $15.32 per share from the first quarter of 2020.

Here’s a chart showing the growth of dividends per share of the S&P 500:

Once the pandemic started, many companies slashed their dividends. They wanted to make sure they had enough cash to ride out the lockdowns. Disney (DIS), for example, stopped paying its semi-annual dividend. We’d better get used to it. The CEO recently said the dividend won’t be coming back anytime soon.

But many companies are paying dividends again. Ross Stores (ROST) is a good example. The deep-discounter stopped paying its 21.5-cent dividend in March 2020. It restored it a year later. The company has gone on to pay more dividends in June and September. This is a good sign of confidence from the company.

This is also a good reason why it can be dangerous to follow a single indicator like dividend yields. In unusual circumstances, the dividend can give you a false reading. This is a subject I talk about a lot. The stock market’s overall dividend yield has plunged due to fewer dividends. This has happened as the market has rallied. That means that if you viewed lower yields as a signal of a pricey market, you would have missed out on some very nice gains. The overreliance on numbers can lead you astray.

Chistine Benz has a smart piece at Morningstar on what she calls the tyranny of what can be quantified. This is so true. Just because we can measure something, we deem it important. That’s not always the case. Oftentimes, it’s things we can’t so easily measure that are the most important. With investing, that can mean things like reputation or management’s effectiveness.

There’s a story that during the Vietnam War, Robert McNamara devised a massive system for measuring the success of the war based on data. McNamara’s team collected mountains of data. One of his aides remarked that it lacked one crucial data point, the feelings of the Vietnamese people.

I like dividends a lot, and it’s important to find companies that pay out solid dividends. One reason is that dividends don’t lie. One of the disturbing things you learn when you delve into corporate accounting is how much leeway companies are allowed when fixing their books. For example, a term like “cash flow” can mean lots of different things. But dividends are a check right from the company, so there’s no funny business going on.

I knew one person who liked to value companies based on a multiple of how much they paid in taxes. That’s based on a similar idea. If the company is admitting to a tax bill of that size, you can be sure they earned it and it’s not the result of funny accounting.

Also with dividends, there’s an implied promise that the company will at least do its best to maintain that dividend payment into the future. Of course, there’s no guarantee, but most companies at least try. Cutting your dividend is certainly not against the law, but it doesn’t look good.

I also like companies with long streaks of increasing their dividends each year. When a company in the S&P 500 has increased its dividend for 25 or more years, it’s known as a Dividend Aristocrat. Again, we have to look out for companies that only do token increases to keep their streaks alive.

Two websites that are invaluable for dividend investors are Dividend Value Builder and Dividend Growth Investor. I like that Dividend Value Builder also keeps takes on stocks not in the S&P 500 that have raised their dividend for 25 or more years.

Here’s a list of the longest dividend raisers:


Source: Dividend Value Builder

One stock on this list that grabs my attention is 3M (MMM). For years, this has been a great company. Blue chips don’t get much bluer than 3M. It’s beaten the market and consistently increased its dividend. Recently, however, the stock has lagged badly.

The company is a diversified industrial giant that has its hands in just about everything. Over the last four years, the S&P 500 Total Return Index has gained 83.25%. By contrast, 3M has lost 6.93%. Wall Street analysts hate the stock. 3M’s earnings peaked in 2018 and its profits fell in 2019 and again last year. So far this year, profits are running well ahead of last year, but it looks like 3M will still fall short of its 2018 peak.

When a well-run outfit sees its stock lag, I take notice. The problem 3M faces is lawsuits regarding the environmental damage resulting from chemicals it used to use. We don’t know what the eventual legal liabilities will be, but it won’t be small. There’s also a lawsuit regarding 3M’s earplugs for the military.

This is a difficult issue for an investor because a a new shareholder of today inherits the problems of the company’s past. I want nothing to do with environmental damage, but I recognize that’s not what 3M is today. At some point, 3M will be a big bargain, but we’re not quite there yet. I’m still keeping an eye on this one.

Older Male Investors Tend to Panic Sell More Often

I have bad news for the older guys out there. It turns out that you’re not so good at keeping cool during a market panic. Researchers at MIT found:

Investors who are male, over the age of 45, married or consider themselves as having “excellent investment experience” are more likely to “freak out” and dump their portfolio during a downturn, according to a paper published last month that analyzed more than 600,000 brokerage accounts.

The researchers say their work can be used to create predictive models, which would help identify individuals at risk of panic selling.

“Financial advisors have long advised their clients to stay calm and weather any passing financial storm in their portfolios,” wrote Daniel Elkind, Kathryn Kaminski, Andrew Lo and colleagues. “Despite this, a percentage of investors tend to freak out and sell off a large portion of their risky assets.”

I can’t say I’m surprised. If it didn’t already have a name, I would call testosterone, “bad investor juice.”

I can’t be too hard on the guys. During a market panic, it’s very hard to do nothing. The urge to pull the plug can be overwhelming. The researchers also found that investors with less than $20,000 in their portfolios were quick to liquidate the whole thing.

The fact is that the pain of losses weighs far more heavily on our psyches than the pleasure of winning does.

James O’Shaughnessy told me of a study that Fidelity did years ago of its clients. The firm wanted to see which investors did the best. Was it older investors or younger ones? Large portfolio investors or smaller ones? Men or women?

It turns out that the best investors among Fidelity’s clientele was an interesting group. It was people who had forgotten they had Fidelity accounts.

To quote the great Jesse Livermore:

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I’ve known many men who were right at exactly the right time, and began buying or selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine–that is, they made no real money out of it. Men who can both be right and sit tight are uncommon.”

I’ll have more for you in the next issue of CWS Market Review.

– Eddy

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Posted by on October 5th, 2021 at 8:11 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.