Well, the stock market is down again. The S&P 500 is down again by over 2.1%. This week has been a hard week for the market. With the market going down big again, I couldn’t help myself, so I bought a new stock.
Well, the world seems to be in shock right now. A lot of indicators are saying the Earth might be slowing down. In fact, the earth’s rotation is slowing down by about 20 millionths of a second every year. But that is not what we are talking about. We are talking about the world’s markets. The stock market is down about 8% so far this year.
So we are going to pick a trend that will eventually help us. Right now, interest rates are very low. The Fed hike interest rates by 25 basis points (0.25%). While this is a small amount, it is the start of a future trend. While slowing economies usually mean lower interest rates, there is not much more room to go down. While going negative is possible, that seems unlikely. Even if it takes 3 more years to go up to up to normal rates, we are in it for the long-term. And banks are making money now. They make more money when interest rates go up, because they get charge people more money. That is a positive trend, at least for the banks.
One of the biggest names in holding stock for the long-term is Warren Buffet. One of his quotes is “Our favorite holding period is forever.” The company he runs is Berkshire Hathaway. Currently, Berkshire Hathaway own over 9% of the stock in Wells Fargo (WFC). Now we could do a bunch of research, compare the best banks, and see which one is best. Or we can just piggy back off of his research and just use his pick. The benefit of a holder like Warren Buffet is that I don’t have to worry about him trading in and out of the stock to try to make an extra $10 or even $100 million. I assume he wants to hold it for the next 20 years to make $40 billion. I based that on them owning $24 billion in stock doubling with a stable dividend. While my amount will be much smaller, I still want to make money. And this might surprise you, but I do not know him. So he could buy more, sell it all tomorrow, or anything else. But I like my odds.
Now we should not just blindly buy everything he owns. Wells Fargo (WFC) has a PE of 12 and a dividend yield of 3%, which is good. With our expectation of rising interest rates to increase future profits, Wells Fargo (WFC) can increase their future dividend payments. What about the market being down? It can be great news for a dividend growth investor. The stock was at $58 in July 2015 and we were able to buy it at less than $50 per share. So I got an $8/share discount or about 15%. While the stock can certainly go lower, as long as I get my dividend for the next 20 years, I am less worried about it.
On 1/15/16, we bought 5 shares for $252.75 including commission. This will add $7.50 a year to our dividends. By buying our first bank, we have further increased our diversification. While this hasn’t made us rich yet, we are well on our way.