The Rising Dividend Story -- The End of the BIG Trend

As I said last time, the crushing of my BIG Trend investment strategy didn’t knock me off balance as much as it put me into slow motion. It was as though everything around me moved in the frames of a filmstrip. I’m not saying I didn’t feel anxiety or worry. I did; but it did not bother me that I didn't know what I was going to do next. That was because I knew that I was going to sit tight until the storm blew over. If any companies were going to weather Black Monday, the companies we owned would. After all, they were still big, growing, industry leaders; and by the end of the day, they would be 23% cheaper. Their rising price trends were devastated, but they were not going to just dry up and blow away. The phone calls poured in that morning, and didn’t relent the entire day. I spoke with nearly every client I served. Sometimes, up to four calls waited at one time. I was running so far behind because every time I hung up the phone it rang again. I ended my last call of the day around midnight. Surprisingly, people remained relatively calm, considering the circumstances, and agreed with my decision not to sell into the crash. As I spoke with each person, a type of “Black-Monday talking points” started to emerge in my mind. I was convinced from watching the action of the market that the collapse was, at least in some way, a structural problem. The normal interaction between buyers and sellers was corrupted. I believed this because of the wild swings in stock prices. As an example, on Black Monday, General Electric opened 15% lower than its previous close. It then retraced the entire loss, before falling again by 25%, a swing of over 50% for the day. GE was a one hundred-year old company that produced a wide range of products that people all over the world used everyday. There was no way the fortunes of this company could change that much in a day. As I thought about it, GE’s price swing for the day was wider than it was in a normal year. The talking points went on to explain that our portfolios were full of “essential services”: companies such as banks, food and beverage, health-care, energy, transportation, and utilities. I explained that no one knew what these companies would sell for in the coming days and months, but their existence was not in danger. Indeed, because they had strong balance sheets and were already the leaders in their industries, there was good reason to believe that their businesses would improve. I concluded by saying that it was important to remember that we own companies and not stocks. Lastly, the economy was strong going into Black Monday, and it was inconceivable that it could fall apart in a short time. No one listened to the talking points more than I did. My “Price Trend” philosophy was dying with each additional 100 point fall in the Dow. Yet, it was becoming clear to me that the violent action of the market was only marginally connected to the underlying values of most companies. I realized that while the “Trend” part of BIG Trend investing was dead, the BIG part was going to save the day because big companies that were industry leaders and growing were holding up much better than small and highly leveraged companies. While this was good news, I was careful not to offer anyone false hope to the people I was speaking to. I tried to explain to everyone that the crash was going to take a long time to fix. Indeed, it took almost two years. On Black Monday, in the midst of the demise of what I thought I knew about investment strategy, almost outside the realm of my consciousness, a new investment strategy was beginning to take shape in me. On that day, The Rising Dividend strategy was set in motion by way of three phone calls I received. Each one was surprising, and each one went against the grain of the day’s events. In the end, each one helped me see a way out of the wreckage of Black Monday by presenting an opportunity and asking me to consider it from a different perspective. Next time: The Three Calls