Dear Valued Clients and Friends,
In our Thanksgiving edition of Dividend Cafe a couple of weeks ago, I made reference to the gratitude I have for my late father and his impact on me as a financial professional. Because he was a theologian, philosopher, and pastor, this can seem counterintuitive to people, and I get why (not that I would have gratitude for my dad, but that I specifically connect it to his impact on me as a finance guy). Yesterday, December 11, was the 30th anniversary of his passing. In today’s Dividend Cafe, if you will bear with me, I want to unpack what I really mean when I speak of my late father’s contribution to my career. I promise there is an investment and finance lesson in this.
There has been a lot of reflection and remembrance this week, and I appreciate you allowing me to use the Dividend Cafe to extend some of that. But I do think this Dividend Cafe transcends my own biographical or personal reflections. Yes, there is some of that, and I hope hearing some of my own story doesn’t bother you that much. But my intent is to communicate some understanding of the role the events of thirty years ago played in how The Bahnsen Group came to be, and perhaps more importantly, how my father’s legacy impacted my actual investment philosophy.
Let’s jump into the Dividend Cafe …
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Some Biography
My dad had his first open heart surgery in November of 1978, when I was four years old. He had a genetic defect in his aorta valve, discovered when he was in college. Things broke down to the point of needing to replace the valve when he was thirty years old, at which time they put in a pig valve (which was cutting-edge at the time). That pig valve deteriorated over the next nine years, and in the 1987/88 school year (I was now a teenager starting high school) he had his second open heart surgery, replacing the first pig valve with a second pig valve. In late 1995, his medical team determined that the valve again had deteriorated, and he was in urgent need of a third open-heart surgery. Though they were very optimistic about the prospects for the surgery, it was something they were quite concerned about, and scheduled it for just weeks after the late 1995 diagnosis. The encouraging part was that they were going to replace the pig valve from heart surgery #2 with a St. Jude valve that they believed would last the rest of his life. He had his third open heart surgery on Tuesday, December 5, 1995. Things seemed to go well in the surgery, and the medical team reported a very optimistic outlook that night. The next day, he took a turn for the worse, and his body began to shut down. The next few days were rather brutal, as you can imagine, but I believe he passed somewhere in those days (he was being sustained via machine support). On Monday, December 11, he officially passed.
I don’t mean to strike a somber tone to kick off this Dividend Cafe, but I just thought some context and backstory were needed. Most people do not die at age 47, and most sons do not lose their dad when they are 20 years old. The medical context seemed important to the story. It also has a market component, because just six years after my dad died, Edwards Lifesciences (ironically, based in my dad’s hometown of Irvine, CA) introduced the transcatheter aortic valve replacement, which fundamentally changed how many of these things are treated. Aortic stenosis treatment and the TAVR innovation that Edwards brought to market did not change the fact that many patients still need mechanical or bioprosthetic valves, but it has eliminated the need for open-heart surgery for over 1 million people (so far). Approvals for lower-risk patients took way, way too long if you ask me (I have an axe to grind here), but saving more humans the physical trauma of open heart surgery is one of the most profound medical innovations of all time. It happened because markets incentivize research and development, and because human beings were made by God to do amazing things. And when I hear people bemoan the medical device world, the pharmaceutical world, and the biotech world, I always assume they have never lost a family member whose life may have been saved by the absolutely unbelievable progress our medical industry has experienced, not just in my lifetime or your lifetime, but in very short periods of time throughout. We live in an amazing part of human history! And we collectively are in need of greater gratitude. But we are also in need of continued private market investment in the R&D that leads to life-saving and life-altering innovations, all within market mechanisms, that have kept some people’s loved ones alive longer and/or with a higher quality of life. My dad never had an Edwards LifeSciences treatment, and I have never owned Edwards LifeSciences stock (from an investment criteria standpoint), but on behalf of the hundreds of thousands of families who didn’t lose their loved one because of them, I think of them admiringly and glowingly, often.
The Mind of Greg Bahnsen
I really am trying to avoid making this Dividend Cafe excessively personal or emotional. My dad was my best friend, mentor, hero, pastor, and, yes, father. He was a remarkably brilliant man, graduating summa cum laude from Westmont College in 1970 with a degree in philosophy, then achieving a M.Div degree and Th.M degree (masters degrees in both Divinity and Theology) from Westminster Theological Seminary in Philadelphia before I was born, and then receiving a Ph.D from the University of Southern California in 1978 (I was born in 1974). His doctoral work focused on epistemology, and his dissertation was titled “A Conditional Resolution of the Apparent Paradox of Self-Deception.” His dissertation advisor was the great Dallas Willard. Allow me to say, it was a masterpiece.
Epistemology, the theory of knowledge (how we know things, and how we know that we know things) was very connected to my father’s philosophical and apologetical interests. He was, above all else, a Christian intellectual who dedicated his life to a rigorous defense of the faith. He was a prominent debater, a brilliant writer, and had an analytical mind that tops anything I have ever encountered from some of the most remarkable hedge fund managers on Wall Street. If I were not related to the 40-year-old Greg Bahnsen and he were on the market as a macro analyst, I’d pay him unfathomable money to come join my firm’s Investment Solutions department. They do not make them like Greg Bahnsen anymore.
But the reason I bring up epistemology is because it is going to prove very important to the world of behavioral finance in a moment.
The Work Ethic of Greg Bahnsen
When my book on a theology of work came out in early 2024 I did a special podcast series to support the book. The final episode of that series featured a few dozen excerpts from Greg Bahnsen sermons talking about work. The book itself is dedicated to Greg Bahnsen because it never would have been written if it were not for him. I will just quote the dedication page:
“This book is dedicated to the memory of my father, Dr. Gregory Lyle Bahnsen, who did more work in forty-seven years than most could hope to do in double that lifespan. Through his own indescribable and inspiring productivity, he taught me the telos found in work. He was the embodiment of diligence, focus, and calling fulfilled.
The visual memory I carry of finding him in his study, every single morning, working, is the best visual memory any father could leave his son. The joy he derived from studying, writing, preaching, and ministering as a scholar created this book.”
I believe that God made me a hard worker. I have plenty of bad attributes and character defects, but laziness has never really been one of them. That is because of my dad. So to the extent some element of The Bahnsen Group’s success is a by-product of my work ethic (and love of the early morning time), that is a story that cannot be separated from Greg Bahnsen. He modeled it. He lived it. He made it infectious in my life. And more than just the fact that he made me want to be a hard-working person like he was, he explained to me why hard work mattered. It was not taught to me as merely an “old school rugged individualism.” It was not merely a duty, an obligation, a responsibility (though it was all of those things) – it was a critical component of the purpose of our lives. It was a driver of joy, of meaning, of dignity, and of worth. He valued the meritocratic society, but he linked this particular American DNA (which he loved, and I love) to something transcendent. I was raised to believe that hard work mattered because God made us to be like Him, and He was a creator. We work because we are made in the image of God, and that is a basic life truism that I came to understand from a very young age.
This sort of gave me a leg up in my professional life.
First Things
I have a whole lot of opinions in the domain of economics, of politics, of theology, and of general cultural application. I have no doubt that some of my opinions are subject to being formed by my own emotions and instincts. But from the bottom of my heart, on any issue that actually matters in terms of how we think about serious things, I try to formulate and construct my opinion around “first things” – those guiding and operative principles that provide us the foundation for cogent reasoning. From basic logic to epistemology to metaphysics, we all have “first principles” or operating assumptions, and when we have a good basis for those “first things,” and then seek to understand what we actually believe about “stuff” out of our own first principles, we avoid being blown around like a kite in the wind. The idea of deriving conclusions from consistently held premises and beliefs seems lost on many people, and I do not think that is going well. But in the investment world, it can be fatal. Nearly every crucial investment mistake I have ever seen comes from someone not having a discernible investment philosophy. Sometimes it is just someone violating their own philosophy – being inconsistent in application from the theory – but more often than not it is the former. People managing money without “first things” is not the path to cogent investment decisions and successful investment outcomes. That I have lived in the professional investment world for 25 years as one dedicated to “first principles” and “first things” is an inheritance I received from Dr. Greg Bahnsen. That we do all we do out of a real investment philosophy is where Greg Bahnsen would have deserved some equity in our company.
To be clear, he did not have an investment philosophy, per se. At least not one he and I could have discussed with any specificity or application. I had no money when he died, and he had a house with a mortgage and a Toyota Celica (that he routinely drove far above the speed limit). As I took on the duty, burden, and thrill of developing an investment philosophy, I did not have Greg Bahnsen material on dividend growth investing to appeal to.
What I had, though, was the framework for how an investing philosophy ought to be formed. I had the critical thinking skills I had been taught by my dad to go do the new application needed out of the evergreen principles he taught me. I didn’t have (and don’t have) a fraction of his intellect, but I had the belief that we ought to do things with a purpose, with a foundational reality in mind, and that those foundational beliefs we hold must govern our decision-making.
The Myth of Neutrality
Sometimes in investment management, you hear people say, “There is no right or wrong way, just do what feels right for you.” In other words, one investor can/should chase a hot stock, another should time the ins and outs of the market, and another should look up a target-date, age-based rulebook set for “all 70 year olds, everywhere” – and these varying ideas (all deficient in different ways) are “all the same” because “who is to say what is right and wrong.”
I am not referring to the morality of various investment methodologies, but I am referring to propriety. This relativistic view is utter nonsense, and has done more damage to the real-life goals of real-life people than I can even begin to itemize. But I did not figure out on my own that there are bad ideas and that there are good ideas – I was raised by Greg Bahnsen to appreciate the reality of absolutes, of truth. I was raised by Greg Bahnsen to hold in contempt that “all ideas are good ones as long as they are sincere ones” (he would say, “what if I sincerely believe that the idea that all ideas are good ones is a bad idea”). He was funny that way.
Moral relativism has done unspeakable damage to postwar America, and has probably killed off Europe for centuries to come (I hope I am wrong). But intellectual relativism in investment management is a plague, and I believe the intuition I have to root it out and reject it was given to me by my dad.
Having convictions is important. Defending them is important. And no one can do either if they believe the nonsense that “there are no absolutes.” My love of absolute truth was also part of my inheritance.
Back to Epistemology
My father’s focus on self-deception was particularly epistemological, and with that, particularly apologetical. He believed that human beings know truths but suppress them under certain conditions, which leads to decisions and behavior that go against God’s design for our lives. We do not believe “P” and “not P” at the same time – we simply suppress one belief when needed in certain contexts. His focus here was apologetical – he did not want to argue people into belief if their challenge was less intellectual and more ethical – but it carries a broad application.
The financial advisory career I have dedicated my life to is largely one of dealing with perpetual efforts of self-deception. People do not lack the knowledge of how markets perform over long periods of time, but in certain contexts, we want so badly to believe that we can time the ins and outs of such that we have to believe that it is possible. People do not lack the knowledge that a 10% guaranteed return from their friend’s real estate developer contact is, well, not guaranteed. They just want so badly for it to be true that they will go to extraordinary lengths to convince themselves it is true. The amount of self-deception I see people go to with the Bitcoin craze is unfathomable.
These are not intellectual issues. They are behavioral. Our human nature wants so badly for certain things to be true that in those contexts, we re-order our beliefs as is necessary to get to the conclusion we want. It is self-deception. It is epistemological. And in my career, we call it the challenge of behavioral management.
One of my mentors, Nick Murray, has taught me for 25 years about the realities of human nature in investing. But one of the reasons his messages always resonated with me so naturally is because my father’s own philosophical legacy was so incredibly consistent with this understanding. I care about human emotions, inclinations, and frailties in investment decisions because they are determinative of their outcomes, and these are outcomes I am duty-bound to drive in a successful manner. What I know of the causation of these emotions, inclinations, and frailties is that they are not primarily cognitive. They require a different manner of treatment than argument.
So, to that end, I work because of Greg Bahnsen’s contribution to my understanding.
Conclusion
I have to wrap it now. It has been an emotional experience to write this, and I do hope it has not caused a high number of you to tune out. I know there is a lot of personal and medical stuff here that, for many of you, may be uninteresting to your economic or financial interests. But when I think about work ethic, commitment to first things, and the belief system that drives us as investors, I can’t think of a better excuse to discuss all of this than the 30th anniversary of the passing of the man who taught it all to me.
Quote of the Week
“The Christian worldview alone provides the necessary preconditions for intelligibility.”
~ Dr. Greg L. Bahnsen
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Next week’s Dividend Cafe is going to be a pure market bonanza. It will be the last Friday Dividend Cafe of 2025, as the next two weeks will be Christmas and New Year’s, and we have learned over time that you will be more tuned out than we will. So next week it will be a very special Dividend Cafe as the first 25 years of the new millennium come to an end and we seek to analyze its main, undeniable lesson for investors. We will be back the first week of January with our annual white paper, doing a Year Behind, Year Ahead look at 2025 and 2026. ‘Tis really the season …
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
thebahnsengroup.com
This week’s Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet
