Now, if you’ve read one of the recent posts by Ms.K, the title of this post might seem confusing. So are the SippingCoconuts happy with the recent market movements or not???
It is complicated…
Because we’re working towards financial independence, we’re looking to invest our surplus capital in businesses and what’s most important is the cash flow that the business generates, not whether the share price continues to go up indefinitely.
The math is simple, assume yesterday you can buy an investment that yields a cash flow of $4k for $100k. If today you can purchase the same investment (with the exact same prospects) for $80k, you pay less for the same amount of cash flow!
(Very simplistic assumptions, looking only at the dividend yield of a single investment across time and ignoring retained earnings and even other alternative investment options)
From the angle of buying passive cash flows till it’s sufficient to sustain your life expenses, buying the cash flows cheap is a good deal as it actually brings you to retirement faster! Each dollar invested buys you a higher expected future return when markets are down!
Therefore, while the declining stock market is affecting the value of our portfolio, it is actually a good time to start deploying some of that cash that’s been sitting around losing value to inflation. It will be put to good use and earn some juicy yields.
That’s the reason behind the initial down feeling we experience when markets first crash, followed by the feelings of delight when we see what discounts we can get in the stock market today.
Because the markets could go down further, I’m staging out the deployment of cash rather than go all in at this level. I have also deployed more funds towards more special situation type investments that have lower correlations with the general market direction.
Safe investing everyone!
P/s: Apologies for the long break in posting but I’ve been busy with work and we’re finally on a break (yes…again) that gives me time to catch up with penning down my thoughts.
