Dabble in Dividends

At times, it does seem like the world is ending. Tuesday was one such day as the market continued the steep selloff of the last month or so. Reading the earnings releases during the day was deeply depressing. Almost no one had a good quarter, and it seemed everyone was taking down forecasts for the fourth quarter.

Retail is a total disaster as far as earnings go. We see retail sales figures on Friday, and based on what we have seen so far, they will likely be worse than expected. There may be a bright spot from Wal-Mart (WMT - commentary - Cramer's Take) and some of the other discounters, but most stores are having a very tough time right now. All of this is reflected in stock prices, and we appear to be on the way to testing last month's lows in the stock market.

I have made it no secret that I have been buying stocks in recent weeks. In fact, I purchased stock in more companies in this short period of time than I have ever done in my 20-plus-year career.

I have been equally vocal about the need for a cautious approach. I am moving in much smaller increments than usual. I always assume that anything I buy will go down right after I get confirmation of the trade, so I tend to average into my positions. I am also aggressively selling calls against all of the optionable stocks, and I am long an inverse ETF to protect against adverse market-related moves.

I know that the economy will improve some day, but I cannot claim that I have any idea as to when. While I want to take advantage of the incredibly cheap stocks I am seeing, I also want to be careful. Government moves have changed the rules, and we are very much in unchartered waters. The trick right now is not to sink before you get the cargo of cheap stocks to your destination.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.