With the Dow Jones Industrial Average (NYSE: DIA) down for the last quarter and six months of market action, it can be difficult to remain positive about stocks (chart below). The performance of the Standard & Poor’s 500 Index (NYSE: SPY) makes it even more challeng to be bullish. But as Warren Buffett, Shelby Davis, and other great investors have pointed out, time and time again, investors should always buy stocks, “When they have the money!”
The main reason for this is growth.
Economies seek to expand. That is the nature of all of create and run the many and varied businesses that make up a modern economy. That is especially true for those firms that are publicly traded. Buying stocks allows for investors to profit from the natural growth of an economy.
In addition to growth, there is the income from investing in stocks.
This is primarily in the form of dividend income. Not every stock pays a dividend. But many do. Some can be quite higher. BP PLC (NYSE: BP), the major oil and natural gas company, pays a dividend of over 5 percent. In a low interest rate environment such as today, a dividend like that easily tops bank deposits and bonds. It also pays for investors to wait for growth to happen.
Money can be made from inefficiencies in the stock market.
As great as the Dow Jones Industrial Average and the Standard & Poor’s 500 Index are, there are still inefficiencies. That allows for value investors like Warren Buffett to make billions when other investors buy into the stocks he did at a discount. If the stock pays a dividend, value investors are paid to wait for the financial exchanges to fully value the company.
When the Dow Jones Industrial Average and Standard & Poor’s 500 are down like now, growth, value, and income investors can buy at a discount!