It is times like this when the markets are falling almost on a daily basis that I remind myself of why I invest. I invest for the following reasons.

• The main reason is to provide an income stream; usually in the form of dividends. I also tried covered call writing, but this is too much of a hassle and I don’t seem to have any talent for the short term market timing that would eke out an extra return. The philosophy here is one of positive income streams. I generally favor equity over debt. I try to pick companies that have a history of putting out a steady stream of increasing dividends and that preferably will be able to continue on that track in the future. Dividends are more determined by management than they are by the vagaries of the market.
• A secondary reason is ownership. Despite what I say about not owning too many things, it is not entirely true. I like acquiring ownership of things AS LONG AS they are somewhere else and I don’t have to carry them around. Stuff you “carry “around such as a houses, cars, wardrobes, tools, furniture, … tends to restrict you and eventually owns you. Capital assets are different. For instance, I like to imagine by virtue of one of my positions that I own one of those delivery trucks that bring people stuff. Similarly I own pieces of other businesses. That is the way I prefer to collect stuff. I don’t need to feel it, simply knowing that it exists somewhere is sufficient. Of course I want it cheap, and if it gets too expensive, I sell it again.

I admit it is fun to watch the market and calculate net worth, etc. But, it is much more fun to watch the numbers when the market is going up than when it goes down. It is nice when the market is trending upwards, but that usually just sets it up for an eventual downturn. When the market goes down I try to remind myself – hard as it is – that my income stream is the same and that I bought the assets on a discount. In addition, downturns usually means that more things appear on the buy list. While the loss of portfolio value is comparable to the rest of the market, I am not so dependent on it as more traditional investment strategies that often depend on appreciation (the greater fool strategy). Therefore I tend to sleep better despite currently eroding hundreds of dollars on a daily basis.

This article is sponsored by Kevin of MyDividendStocks.com. For more information on investing in dividend stocks and building Passive Income, please visit his site.

Originally posted 2008-01-23 07:39:38.