We are going to look at the history of yields, market drawdowns, commodities, debt, China's economy, and Presidential conspiracy theories.
Dividend Cafe provides market perspective rooted in first principles, not the fads of the day. Authored by our Managing Partner, David Bahnsen, it covers a wide array of topics, it doesn’t try to do what it cannot do, and it strives to offer needed perspective not readily available in most financial commentary.
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We are going to look at the history of yields, market drawdowns, commodities, debt, China's economy, and Presidential conspiracy theories.
Question:
“If there is a cycle whereby decade by decade value outperforms growth, then vice versa, why wouldn’t the Bahnsen group move funds from value stocks into growth stocks as each decade unfolds? Why stay locked into dividend stocks?”
~Ted K.
Answer:
We don’t agree that dividend stocks are not growth stocks. And we don’t agree that dividends ever become less valuable. Withdrawers can’t eat growth. We don’t agree that the timing of each decade’s start and end is knowable. If one missed the end of the 90’s growth stint into the 2000’s value stint they were already down 40% or worse. We don’t agree that the classifications of “growth” and “value” are appropriate or even coherent. Ultimately, the mechanics and investment merits of dividend growth stocks make this strategy vastly superior to market timing of “growth” vs. “value” with the intent of capturing the best of all worlds. It is fundamentally a different objective all together.
David L. Bahnsen – April 30, 2024
Question:
“Do you ever see or have an idea when the TBG investing model would not work due to size? I’m thinking about Fidelity Magellan in 2000 or Berkshire Hathaway today. Warren Buffet admits it’s very difficult to invest these days due to the size of the fund.”
~Steve S.
Answer:
All asset classes have SOME level of diminishing returns capacity constraint but for highly liquid large cap equity it is well into the tens of billions – an impossible feat for an independent private wealth management firm like ours. We have about $3.1bn of our $5.5bn in dividend growth now, and I would say from an asset management standpoint it would not be problematic to see that number 10x what it is today. We are solely focused on making sure we constantly have the resources and capacity to properly serve RELATIONSHIPS. The asset management side is the easier part in terms of capacity just based on the size, depth, and liquidity of the markets we invest in.
David L. Bahnsen – April 30, 2024
Question:
“Could you say a little about asset allocation for the retirement years? Specifically, how do you treat social security, pension and similar payments? Can these be viewed as a proxy for fixed income, thereby allowing more room for equities in your asset allocation for your investment portfolio?”
~ Sarah E.
Answer:
I understand the concept you are describing, but the issue really comes down to vocabulary. When we talk about “asset allocation,” we are talking about assets being allocated, and social security and pension payments are not assets. We generally view the role of portfolio management to be about managing a portfolio, so we do not pretend things outside the portfolio are part of it. And yet, what the allocation should be is, itself, a by-product of a big picture (a plan) and that plan factors in all circumstances. As a general rule, we run low on Fixed Income for a lot of reasons. But it is not because we view other income sources as a proxy in the portfolio, because they are not. Each scenario is very carefully customized for each client’s situation.
David L. Bahnsen – April 29, 2024
Question:
I was hoping in a future missive, you’d share your investing advice, approach, etc., for people earlier in their careers and in the early stages of their wealth-accumulating phase (mid 20’s – early 30s).
~Chris
Answer:
The most valuable piece of advice I can offer to younger wealth accumulators is to budget fiercely, always spend less than you make, and save and invest the difference. That may sound simplistic, and it’s hardest to do when you’re early in your career when money is tight, but building that good habit as early on in your career will set the stage for building wealth over your entire lifetime. Avoid the use of high-interest-rate debt like credit cards. Tax-efficient savings tools like funding your 401K at work and/or IRA/Roth IRAs and investing those balances in stocks will allow you to compound those good savings habits into meaningful wealth. Defining and setting goals like retirement and funding your first home purchase and using financial planning software or even simple online tools early on can help you see the path in front of you and stick to the discipline it will take the achieve them.
Brian T. Szytel – April 25, 2024
In September of 2008 the world’s financial markets were brought to their knees by a debt bubble, the likes of which we had never previously seen. The turmoil in financial markets was severe and Wall Street banks were falling by the wayside daily. In this time period, David Bahnsen was working as a Managing Director at Morgan Stanley, responsible for the well-being of his clients. As their anxiety of clients intensified, David began writing a periodic bulletin to them. One bulletin became another, and then another, and all of a sudden, a weekly bulletin was organically born! Well after markets pulled out of the abyss of 2008, the weekly edition continued, evolving into something far more positive than its September of 2008 origins. This commentary distributed by simple email with an ever-growing following morphed into the Dividend Cafe when David and his team launched their own practice in early 2015.
Today, Dividend Cafe is still attempting to do what it was doing in the fall of 2008 – offering truthful perspective that may not be easily found elsewhere. The topics will vary from our dividend growth philosophy, to bedrock investing principles, to the challenges of interventionist monetary policy, to anything else that inspires David in a given week. The underlying objective is the same now as it was when we began – to build trust by telling the truth, not what people want to hear.
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