The Best Investment Strategy for Fear or Greed
How do you all feel about the markets right now? Seriously, drop a comment below. Are you feeling greedy and buying, or fearful and selling?
That’s how we talk about the markets in broad terms. Buying or selling, bullish or bearish, greedy or fearful. I tend to always be bullish on high-quality dividend stocks. But we know the opportunities vary by sector depending on what the overall market “vibes” are.
Part of my strategy to get “above average” yields requires us to look for undervalued shares. Monitoring the pulse of the overall market helps point us in the right direction. This means I continually consume data to get a feel for investor sentiment and how its moving different areas of the market.
In the last two years, accurately gauging the mood of investors has been the hardest in my 15 years in the market. I have watched the markets act less and less rationally. The current market climate is a great example.
Surviving A Split Personality Market
Despite a choppy November, the big three market indexes are all just a few percentage points off their record highs. The Dow Jones Industrial Average (DJIA) and the Nasdaq are up 12.5% and 21.2%, respectively, year to date. The most commonly cited measure of market health, the S&P 500, is up 16.7%.
Again, these above-average numbers are after a third-quarter earnings season that didn’t impress investors overall. Many companies met their guidance and analyst expectations only to be met with a slide in share prices. But it was just a blip in what has been a bullish year.
The CNN Fear & Greed Index tells a different story.
It has been in the fear or extreme fear levels for about half of the year. Its latest run of fear started back on October 10. Five of its seven components are currently showing extreme fear. The two showing neutral: S&P 500 market momentum and the VIX (which is implied volatility of the S&P 500). Without the positive pull of the market, this indicator would be even lower.
So, what’s the smart investing move?
It All Comes Back to Dividends
When investors are greedy, I’m extra greedy. I want my share price gains and I want to collect my dividends, too. When markets are rising, my dividends let me have both. When it’s time to pocket my gains, I’ll have profited just like other investors. Until I sell, I have my quarterly dividends to spend as I please. I’m getting paid while I wait for my gains.
Remember where dividends come from. Companies have limited options on what to do with their profits. They can keep it as cash for a rainy day, reinvest it back into the business, or pay it out to the “owners” as a dividend. I want to be rewarded for being along for the ride with the management team.
If investors are fearful, I also want to own companies that pay a dividend. High-quality dividend payers will continue to issue their quarterly checks no matter what’s going on in the market. Companies that can reward shareholders are generally more stable. After plowing profits back into the business for growth, they still have money left over.
Our strategy will continue to work whether the market remains bullish or investors hit the “bearish” switch. Stick with your dividends. It’s a tried-and-true long-term plan.
I know for many of us it’s hard to be patient and wait for the right time to make the right move. But right now, we don’t want to overreact in either direction. We need to continue to collect our dividends as we watch for opportunities.
Sure, take any gains off the table on stocks you’re not 100% sure you want to keep holding. Look for price drops on your watchlist companies to lock in a great entry price and higher yield.
And continue to build your watchlist. Stay calm and rational and you’ll be ready for whichever direction the market heads in 2026.
For more income, now and in the future,
Kelly Green
Kelly Green
Permanlink:
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is there a list of stocks you have recommended available?
The market seems lost at the moment. Many high fliers have paused with some pulling back significantly. AI spend is in a bubble but equities are mostly not. Should the spending stop, a stock crash will certainly happen.
Many dividend paying companies are at 5+ year lows with very high yields. Tariffs have hurt their profitability while most Americans can't afford higher prices. Increased automation is coming for many of these businesses. Others will be taken private or bought out/merged with competitors. Certainly some are value traps and there is risk of further harm by the current administration.
REITs are either bargains or have another big leg down when real estate crashes. No big home and commercial price declines and REITs will eventually offer capital gains.
Stocks are at an inflection point. Either they take another run creating the bubble so many are worried about or they deflate because of overall economic concerns. Most likely rate decreases will give stocks another big run through about mid 2026.
Companies will take advantage of low interest rates and tax incentives to automate factories and reduce employment. As layoffs and unemployment spike mid 2026, the market will lose momentum and AI investment will stall. Technology will get crushed once AI spend stalls. Dividend companies producing staples should thrive as automation improves margins. Others depending on consumer spending will struggle to maintain sales as unemployment rises. Automation will help protect margins but may not offer the upside that typically comes with lower production costs.
I am not greedy at the present time, and look forward to taking some gains in the next few months. I can’t say that I am short term fearful either, since I plan on moving some of the proceeds into high quality dividend stocks. I am more concerned about the intermediate to long term market.
I trust that Lee understands that some of his "dividends" may actually only be "return of capital". I also hope he understands that investments paying 9%+ dividends are likely risky investments that will run into trouble in the not-too-distant future.
Have been shifting liquid assets (money market funds) over the past few years into dividend holdings. Currently averaging about 10% on dividends. Constantly looking for lower entry points. I then feel good when I pick up extra points through capital appreciation, but, those rises are often reversed, which at least leaves me with the heightened yield I aspired to in the first place. I am always hesitant to sell my divi holdings that have appreciated, which negates my gains. Still, I feel pretty good about a fairly constant 10%+ just from dividends. Have done pretty well with TRIN, AGNC, NLY at the higher end, while shooting for a higher low base in stocks like VZ, MO and some CEFs and ETFs. I also like PFFA, which provides over 9% and stays at a fairly stable share price. Had been DRIPing, but now we take divi's in cash and we choose where and when to redeploy. Oh, and am pretty happy with the return on PLTR and NVDA. One of my best performers in the past year has been INSM, which I held for twenty long years and am just now being rewarded for my loyalty. As wife and I are now 70, we are focusing more on the income than the home runs (although the home runs do add a spark to my existence!) Also, quantum, eVTOL, and robotics have intrigued me (IONQ, ACHR, JOBY).
Interesting that you talk about your 15 years in the market.
Having been an investment advisor and investor for north of 50 years, I may have a slightly longer perspective.
In the late 90's, I was advising clients to be very careful of stocks entering the stratophere. It became so tiring being wrong that I finally moved to a different business. As it turned out, I wasn't wrong, only early.
I would caution tht we are in a similar place.
John
Not super positive about the market
I farm and the tarrifs are killing us and creating inflation on the rest of the economy
Traders have moved huge sums of money out of low beta defensive stocks into high beta stocks. A market top may have already formed, and a market correction will likely occur when traders become afraid and move money back to the safer defensive stocks. Consider the following when you evaluate the efficacy of your dividend strategy:
I would like to give all investment letter writers and asset managers what I refer to as the “Schwab Asset Allocator Aptitude Test”. Schwab calls it the” Risk vs. Return” chart. The participant should target a risk level about one-half of a typical equity index volatility. The Schwab “Moderately Conservative” risk level is a good target. This requires one to engage multiple asset classes with low or negative correlations. The participant may use low correlated asset classes that are available as ETFs or private alternatives or create new asset classes himself. Two asset classes that are highly negatively correlated are sufficient. An example of this is a long/short fund. At least three low correlated asset classes are required. The more balls (asset classes) that a juggler (asset manager) tries to juggle (employ) the quicker his performance can be evaluated. Learn the truth about yourself.
I am curious about lack of coverage/comment on Big Blue’s performance over the past 12-18 months. It has paid uninterupted dividends and significantly outpaced the indexes. I have held/purchased and sold only to gift IBM since 1961.
I think we are in a bubble and I expect the shoe to drop soon. Just how soon, I don't know.
In this past I have accurately called bubbles, but I've learned that I'm early in my calls. Patience is the hard part.
My last two trades were selling positions on 12/1/2025 (two days ago).
I've been moving my funds to FDIC insured CD's in hopes to preserve capital when the market tanks. I've been doing this for about 6 months. It is painful watching the market go up as I sit on the sidelines, but ce la vie.
Fortunately, I own GLD and some physical gold and its rise has made it easier to wait.
I hope this helps. I enjoy what you write and love the interaction sessions (but sometimes can't attend). I also love your travels to see what is really happening. It is probably too cold for the Motorcycle now, but hopefully you will be back at ti soon.
Ryan