Seth Klarman in his book Margin of Safety, introduces us to a concept that few understand: a declining stock price can increase your long-term returns. Let’s say you buy Company X at a price of $10 and a dividend yield of 5%. If next year the price drops to $5 while the fundamentals stay intact and you reinvest your dividend at that low price, your ultimate returns are much higher than if the stock price would have remained stable.
