Share Prices? We Don’t Care
Some investors don't care about share prices. Let me explain.
I was playing golf with a few retirees.
Post their annihilation, as usual with this demographic, our bar chatter turned to the hot topic of franking credits and how long they would last before the government adds superannuation to their list of assets to be bled for cash on top of housing. As the conversation developed, I made an interesting observation that my retiree golfing buddies were far more interested in the income from shares rather than the share prices themselves. Out came this immortal line:
"Marcus, I don't care about share prices, the kids are going to get those".
And they all nodded.
It turns out that there is a large chunk of retiree investors who don’t care about the capital value of the shares they hold because they are focused on living off the income and the franking credits. To this group, income is life, as Bill Shorten found out. It lost him an easy election win. So, here we are preaching about which shares to buy and sell, whilst some investors, and there are a lot of them, are still playing 'Set & Forget' and succeeding at it. No wonder "10 Dividend Stocks You Have to Own" is still the most popular clickbait headline in the stock market space. It's all you really need to know to 'Set & Forget'. To enjoy a life of undisturbed sleep. A life of waking up and not caring what the Dow Jones did. But it's not for everyone. Not everyone possesses the traits of the 'Set & Forget' income-focused investor.
And here they are. The first one is the most important:
They are rich.
To turn a blind eye to the stock market and share prices, income investors have to be rich. They need to have enough money invested in stocks so that they can live off the income alone and not care about the share price. If you don’t need the capital to fund your lifestyle, you don’t have to worry about share price, just as long as the dividends are not cut and continue to be paid. The trick is to buy stocks in mature, generally large, reliable companies that will keep paying out in the long term. If you can find those, who cares what the share price is today?
They reinvest. They compound.
They see their investment asset, their nest egg, as something that grows, not shrinks. They sign up for every DRP they can.
They are on a budget.
They have planned their living and their spending. They have set their expectations and the expectations of their dependents. They do not see the capital gains in a good year as a bonus they can spend. They know there are bad years, too. Capital gains are insurance, and the nest egg is their legacy.
They are generally not interested in the market.
They don't want to watch the stock market, make decisions about the stock market, worry about the stock market. There is tremendous value in avoiding stress – retiree investors have worked that out. They are only interested in milking the share market for income.
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They are genuine investors.
They invest long-term, not short-term. They 'set and forget', and are disciples of the 'it’ll be all right in the end' mantra which, despite criticism for its head-in-the-sand approach, can work. There is something to be said for identifying long-term quality stocks and sticking with them through thick and thin. It is a lot less stressful. (My humble advice is to learn to sell occasionally. There are always weeds. Your results can also be improved, not by stock picking, but by stock culling).
They are not traders.
Enough said. They are not interested or tempted by the prospect of short-term gains. They have been there, done that, it is disturbing, and they have not made progress in the long-term doing it in the short-term. A lot of fuss about nothing. A game for the inexperienced.
They are generally holding stocks in super in a tax-free environment.
They have no capital gains tax, but they also get no benefit from capital losses. So, there is no pressure/benefit of selling loss-making stocks to offset capital gains. They get the full benefit of any capital gain, and any income and franking.
They focus on franking credits.
Retiree investors living off stock-market income are very interested in the cash refund of franking credits. The equation (their lives) would change dramatically if they disappeared. Not worrying about share prices sounds great, but it is only for people who are financially comfortable already, have enough capital to generate an income that meets their annual requirements, and can turn a blind eye to the regular 5%, 10%, and even 30% stock market corrections. To retiree investors, stock market disasters are simply stock market opportunities. A crash? Bring it on. We'll just buy more.
If this isn't you, you're either passionate about the stock market and love it as a hobby,
or you aren't rich enough not to care about share prices. In which case your job is to make money, not invest money.
More about the author – Marcus Padley
is a highly-recognised stockbroker and business media personality. He founded the
Marcus Today Stock Market Newsletter in 1998. Over the years, the business has built a community of like-minded investors who want to survive and thrive in the stock market. This is achieved through a combination of daily stock market education, ideas and activities.
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