Why I’m Not Concerned About a Potential Market Crash

The volatility we’ve been experiencing in 2022 has been off the charts. I’ve been investing for more than a decade now. And to be totally honest, I’ve never seen anything like this before.

I’ve seen plenty of volatility. Plenty of huge drops. But these wild intraday swings that are kind of a protracted trend? Very odd.

And with inflation running red hot, the Federal Reserve about to embark on a tightening campaign, and geopolitics running amok, rumors of a severe market crash are swirling.

Should you be concerned? If you’re a long-term dividend growth investor like me, I don’t think so. In fact, I’m not only not worried… I’m excited.

Today, I want to give you three reasons why I’m excited, not worried, about all of the volatility going on. Ready? Let’s dig in.

The first reason I’m not worried is because I don’t see the current high rate of inflation as something that will persist forever, nor is it this big, bad boogeyman that it’s oftentimes made out to be.

Inflation is like the rising tide lifting all boats.

What do I mean by that? I mean, everything goes up. Inflation doesn’t discriminate. It affects everything. Wages are going up. Input costs are rising. So on and so forth. And how do companies respond to this? Well, they pass on higher costs by raising the prices of their products and/or services.

These higher prices are then absorbed by the economy.

That’s because of those aforementioned higher wages. Let’s use Coca-Cola (KO) as a quick example. If their input costs go up and their workers get paid more money, they then have to raise the price of their products. And companies that have pricing power are able to do this.

Higher prices are then absorbed by consumers with fatter wallets who are more amenable to higher prices because of their higher wages. It’s not like those wages are going up in a vacuum. Wages are going up along with everything else, so the higher wages are simply offsetting the higher prices across the board.

And what does that mean?

That means a higher revenue and profit base for many companies across the board. And for the companies I make videos on and personally invest in – world-class enterprises that pay reliable, rising dividends – that also means they’re now able to pay out even bigger dividends. Inflation isn’t something that just means input costs are rising.

It means everything is going up, including the dividends I live off of. And that is music to my ears.

I’ve actually covered this entire concept with more depth in another video not long ago, so make sure to check that out. Going back to Coca-Cola again real quick, a bottle of Coke used to cost a nickel back in the 50s. Nowadays? Much, much more than a nickel. And it’ll cost even more in 20 years than it does now. Of course, wages are also much, much higher than they were in the 50s. And they’ll be higher in 20 years than they are now. On and on it goes.

Now, we don’t want raging, out-of-control inflation. But I don’t think that’s going to happen.

There has been a confluence of very unique and rare factors over the last two years. A once-in-a-century pandemic comes to mind pretty quickly. This shut down supply chains and demand. Then when stimulus flooded the economy at the same time as rolling re-openings, demand surged even while supply didn’t.

This caused kinks in the system. Once supply chains normalize and things settle down, that’ll go a long way toward reducing inflationary pressure. And then there’s the fact that the US Federal Reserve is planning on raising rates this year, which will also curb demand and combat inflation.

The market isn’t taking this news well, because that’s reducing liquidity… but that brings me to my second reason.

The market is absolutely hammering the speculative stuff that relied on liquidity.

Easy money for years has led to speculation and excess in pockets. With the pulling back of liquidity, you can see the air coming out of a lot of bubbles out there. We’ve seen a lot of stuff drop by 50% or more over the last few months or so. But here’s the thing.

I don’t make videos on bubble stuff. I don’t invest in bubbles.

And while even some high-quality dividend growth stocks are seeing some collateral damage, my own portfolio has barely budged this year. My investments have mostly sidestepped this because they never saw the speculation in the first place. Who’s going to speculate on, say, PepsiCo (PEP)? Nobody. It’s just not the kind of business that would invite speculation. I think the people who should be worried about the new paradigm are speculators, plain and simple.

I’m talking about SPACs, NFTs, a lot of the crypto stuff, unprofitable “innovation” stocks at sky-high valuations, etc.

I don’t touch this stuff. Instead, every single video I make, and every single investment I personally commit to, is in the high-quality dividend growth investing space. I put my capital to work with truly wonderful businesses that are able to routinely increase their revenue, profits, and dividends through thick and thin – including inflationary environments. I’m talking about the likes of Johnson & Johnson (JNJ).

This company increased its dividend for 59 consecutive years.

How were they able to do that? Well, this multidecade dividend growth track record has been funded by reliable, rising profit over that same time. There’s no speculation here. It’s a healthcare conglomerate providing the world with the pharmaceuticals, medical devices, and consumer products it demands.

And as the world grows larger, older, and wealthier, it’s able to charge more money for these products, which is all part of the virtuous cycle I’m talking about here. Johnson & Johnson’s stock is down a negligible 2% this year. If 2% concerns you, in a market down 8% over that same time frame, you shouldn’t be in stocks at all.

These companies have already seen it all.

The current inflation talk? Yeah, nothing new for Johnson & Johnson, which saw the legendary, double-digit inflation of the late 70s. What did Johnson & Johnson do when inflation was over 10% per year?  They kept increasing their dividend. Geopolitical events?

Johnson & Johnson has seen full-blown wars – and even this didn’t stop the dividend growth train. Rising rates? Johnson & Johnson saw Paul Volcker raise the federal funds rate up to 20%! So, yeah, Johnson & Johnson is basically yawning right now.

My third reason is this: If you’re young and still actively accumulating stocks, you should always wish to pay lower prices for those stocks.

Wishing to pay higher prices on stocks is like wishing to pay higher prices on groceries.

If you’re young and still accumulating investments, you’re a “forced buyer” of stocks. It’s kind of like how you’re a “forced buyer” of food – if you want to continue surviving, that is. Young people are going to be investing in businesses if they want to grow their wealth over the long run. There’s almost no way around it. And why wouldn’t you want deals on your shares of these businesses? Why would you want to pay higher prices for the same exact stocks? It’s silly.

I’m not even 40 years old yet. I’ll likely be still accumulating shares for at least another 20 years.

And let me tell you, I’d much rather pay less than more for those shares. Let’s say that shares in McDonald’s (MCD) fall by 5% tomorrow on no news whatsoever. Just general market volatility bringing the stock down. Keep something in mind. It’s the same stock in the same business selling the same food to the same people. Nothing changes about the business or its value overnight. Only the price of the stock changes on that particular day.

Price is what you pay. But value is what you get.

And if you can properly separate price from value, remember that stocks are slices of ownership in real businesses, and focus on the long term, you’re going to be able to take advantage of that short-term volatility and do well over time. Look, at the end of the day, I’m a business investor. I’m not a stock trader. Stocks are highly volatile from day to day, but the underlying businesses are typically not volatile at all in terms of their operational results.

And this lack of business volatility translates to a lack of dividend volatility.

Stocks go up and down every day, but dividends do not. Dividends tend to not move often at all, actually. And when they do move, it’s usually only in one direction: up. Dividends bypass the market altogether. They’re declared by a board of directors, then paid out from a business to its shareholders directly.

On any given day, stocks are affected by collective human reactions. And human beings can be very emotional and irrational. Dividends, on the other hand, are funded by business operations. No emotion involved. Just cash.

All else equal, lower prices result in higher yields.

Like I always say, short-term volatility is a long-term opportunity. Lower prices resulting in higher yields, all else equal, is a perfect example of why that is. If your goal is to achieve financial freedom and live off of your passive dividend income, and I assume it is, lower prices and the associated higher yields gets you to your goal that much faster. You’re able to buy more shares with the same amount of capital, which gives your dividend income a boost. Lower prices are a gift. And I’m always all too happy to receive these gifts with open arms.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.