Polliesdividend

A new bubble?

Lets take a trip down memory lane. About 15 years ago the newspapers were full of articles about investing. And particular about investing in Tech-stocks. The general tenor in all these articles was, you would be stupid not to invest in these stocks. Every newspaper, magazine or financial tv-show screamed this message!

A lot of people bought these stocks and dreamed about retiring early, quitting their job etc. And then, we now all know, the tech-bubble bursted! A lot of people lost almost all their savings or pension.

What did I do during this bubble? I just started working and was saving about 15% of my income. But because I just started, this was not a big amount every month. I had some mutual funds. One of these funds was a tech fund. When it went down, I sold with a lost of approx. 8%. It was my first actual lost. And it felt bad! Luckily my overall portfolio did not lose much of my precious saving. This was due to the fact that I had a diverse portfolio.

A that time I just read The Intelligent Investor. One of the lessons I learned from this book was that when the newspapers start talking about investing and/or on every birthday party all people talk about was investing; it is time to watch out. These are the first signs of an overvalued market.

Now lets take a big leap back to the future. Today the interest rates here in Europe are very low. Some countries even have negative interest rates. Due to these rates, dividend stocks are very popular. Newspapers are full of articles about dividend investing. Not only in Europe, also in the States there is much interest nowadays in dividend stocks.

If we take a look at stocks today and put them in a historical perspective, then it is save to say that the market in general is overvalued. But with these interest rates it is not very strange. Because people always will seek opportunities to make some money. So it is not a surprise that dividend stocks are hot.

If we put the two points together from this article, I start wondering if we have a dividend bubble? What do you think? Do we have a dividend bubble?

Cheers,

Pollie

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6 thoughts on “A new bubble?

  1. My-Dividends.com

    Hi Pollie,
    its very interesting at the moment. But take a look back – dividends were paid every time. Now, as interests are down, all are talking about dividend investments as alternative. Anyway, good companies will pay dividends in five years, in ten years and twenty years. If the people are still interested into dividends in few years, I don’t care. As long as our capital is invested in different industries, I cannot see a bubble. You’re right, market is overvalued. But for example, If I can invest in PG/JNJ/MCD/KO – the yield will be approx. 2,5-3,5% in this overvalued market, but its still more as the yield on a interest account. Cheers Patrick

  2. roadmap2retire

    A dividend bubble? Im not sure about that…there is definitely some extra increase in asset prices with ppl buying up dividend stocks to find income now that the bonds arent yielding much. Yes, once the rates rise – ppl will eventually return to bonds and there will likely be a bit of a correction in the dividend stocks, but I dont think long term dividend investors need to worry and liquidate everything. Looking for decent value and averaging in is the best course of action imo. Also, diversify diversify diversify – across equity sectors, geographically and asset classes. Thats the only way to protect your assets.

    R2R

    1. polliesdividend Post author

      Diversify, that is the way to go!
      I agree with you. I only wrote this post just for the fun of opening ones mind. Try to look at things the other way. Think out of the box.

      You are right. Looking for decent value and averaging in is the best course of action.
      And i do not think that taking you gains by selling stocks is the way to go.
      As a DGI you need to do some homework and there are always great buys!

      Thanks for stopping by, and taking the time to write a comment!

      Cheers,

      Pollie

  3. DivGuy

    Good question! But don’t really apply in my point of view! Most dividend investors are aiming to hold their stocks for years and years again. Don’t think fades or interests rates will have much impact in 20 years.

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