The Dividend Cafe - 25 Years of a Lesson Some Will Never Learn

Episode Date: December 19, 2025

Today's Post - https://bahnsen.co/4p4y8t8 Reflecting on 25 Years of Market Lessons in the Final Friday Dividend Cafe of 2025 In the final Friday Dividend Cafe of 2025, the speaker reflects on the major market events and financial lessons from the first 25 years of the new century and millennium. From the Y2K fears and dot-com bubble burst, through the 9/11 attacks, the 2008 financial crisis, and the COVID-19 pandemic, this episode covers significant economic and geopolitical events that shaped the markets. The speaker emphasizes the normality of instability in markets and the importance of staying invested despite turbulent times. The primary takeaway is that long-term investment in profit-making enterprises, especially via dividend growth investing, has proven resilient and rewarding. The episode closes with an encouragement to appreciate the lessons learned and look forward to the future with a disciplined investment approach. 00:00 Introduction and Overview 00:15 Reflecting on the First 25 Years 02:51 The Dotcom Bubble and Y2K 09:58 9/11 and Market Reactions 14:19 The Financial Crisis of 2008 18:15 The Recovery Decade 20:33 The COVID-19 Pandemic 24:15 Lessons from 25 Years of Market Instability 31:20 Conclusion and Final Thoughts Links mentioned in this episode: DividendCafe.com TheBahnsenGroup.com

Welcome to the Dividend Cafe, weekly market commentary focused on dividends in your portfolio and dividends in your understanding of economic life. Hello and welcome to the final Friday Dividend Cafe of 2025. What a year it has been. And as you're about to see in today's Dividendin Cafe, what a quarter century it has been. And we're going to look back at the first 25 years of this new century, which I would also add is the first 25 years of this new millennium, and have a little look at what these 25 years might be able to teach us as investors. What is, if there's only one, what is the one major takeaway that investors ought to learn from these last 25 years? I had an awful lot of fun writing it.

This happens more often than I'm willing to admit, but I did think I was going to sit down and write a 2,500 word dividend cafe, which is always my target. And I did end up writing closer to 5,000 words. So that is not because I lacked discipline or brevity or self-editing. I'm sure all those things are true too. But in this case, you really could not possibly do justice to the first 25 years of this new century in 2,500 words. So it took a little longer to do it.

But let me not be guilty of the same here on the podcast, on the video. The last 25 years happens to also be in addition to a nice calendar coincidence to the beginning of this century, where a quarter of our way, quarter of the way through this century, it also is the 25 years that make up the bulk of my adult life so far. I was a young man 25 years ago, at least I think I was young. I was into my mid-20s and beginning into a career in wealth management and professional financial services. Jolene and I were married in 2001.

So there's just a lot to reflect on, but this is not going to be biographical. I gave you enough of that last week with my reflections on my late dad. But when I think of the last 25 years, what's happened in the country, what's happened in the world, what's happened in markets, it's impossible not to think back as to the way of which a lot of this has overlapped with things in my own life. But I want to go through in order, and I'll do it as quickly as I can, just some certain degree of history and particularly focused in what it meant to markets so that we can then derive, extract, reflect upon this really significant market takeaway.

First of all, let's be clear that just coming into the new millennium, and I'm cheating a little bit here because I'm including the year 2000, which is technically the last year of last century and the first year of the new century should be 2001. But we'll look at it with something with a two in front of it instead of a one at the end of it. And let's just be clear that a lot of people believed coming into the new millennium that the very first event of the new century was going to be apocalypse. The two missing computer digits were going to bring down the electrical grid, the military, the banking system, and the bulk of civilized society. And thank God we got through that one. And that Y2K just joke, which by the way, there were a lot

of computers that need to be fixed. And the reason why it was a joke was not because that problem wasn't real in certain database technology. It was because they fixed it. And where the school of thought came from that they ever were not going to fix it is just beyond my ability to comprehend. But this is not, in this case, me Monday morning quarterbacking. I'm Monday morning quarterback a lot of things like most people once I gained the gift of hindsight. But this was something I held in mockery in 1997, certainly throughout the peak of crazy fearness of 99. But either way, the Y2K thing did not bring down the world. However, what did become a real significant event and a real life source of drama just months later was the implosion of the NASDAQ bubble.

And you can refer to it as the tech bubble, the dot-com bubble. But in March of 2000, a NASDAQ had hit 5,132. And in the fall of 1998, it had been in the 1500s. So you were just looking at a blown out bubble top and it fell and fell violently. It would be down 50% by November of 2000. By the time it troughed, it was down 77%. That wouldn't come until October of 2002. But you had a an unwinding of totally irrational exuberance, an unwinding of what was an over-invested, over-extended, and over-estimated sector of the market. And this did hit both quality and low quality. It hit companies of no earnings and no revenues, the so-called dot-coms that I refer to as the Super Bowl commercial sector, but it also hit very, very viable internet infrastructure

companies. I want to make a quick point here. that there's a school of thought that says bubbles are impossible to label until they burst. And I'm very sympathetic to this view. I basically have a nuanced view where I think it's technically accurate that as a point in time, the bursting of the bubble is what enables us to officially label it descriptively a bubble, where until a bubble burst, labeling it as such is a prediction, not a description. It is an opinion.

And I think it is entirely possible that the vast majority of times, these things, there are people in 2004 that said housing was in a bubble. And by 2007, they were being vindicated. But until it happened, it hadn't happened. So this is more just a vocabulary semantics than anything else.

When Greenspan said that bubbles can only be identified by hindsight, he was attempting to say that there's nothing policymakers or a Fed can do that may not make things worse, that what looks like a bubble might actually be, in some cases, new technology, new innovation, new productivity, and that the Federal Reserve using monetary policy to prick a bubble could become problematic. I don't disagree with what Greenspan said. I do disagree what he meant. which is that, therefore, the Fed shouldn't be criticized for doing things to promote a bubble. I think it's one thing to say you can't go prick a bubble, burst a bubble, pop a bubble, whatever the right verb is. But I think it's very different than saying that the Federal Reserve should be accommodating a bubbles, and that is well, certainly what they did in a couple more recent history examples if you go back to the last 10, 20, 30, 40 years. However, that.com proved to be a bubble is very, very true.

But I am certainly a cognizant of the fact that these opinions about a bubble get validated after a burst, but the labeling of such only gains precision or legitimacy X post. And so, yeah, I have 2020 vision about the tech bubble, but it was the beginning market event of this last 25 years. And then you get to later in the year, and I think an event that is out of mind for most people. We've had so much political drama since that we forget that we actually had a point in our country where it took 36 days to identify who the President of the United States was going to be. We had a point in our country where a presidential candidate called and conceded to the

other candidate and then moments later called an unconceited. And I, of course, refer to the unbelievable razor-thin margins of the Bush v. Gore election of 2000. that ultimately had a lot of drama around it with hanging chads and this and that, but in both recount validation, but also in what was declared at the time and ultimately upheld by the Supreme Court amounted to 536 votes in the state of Florida, granting those electoral college votes and with it, the presidency to George W. Bush. Now, the market was down 6% throughout that escapade. That's not very much, but I also would say,

I don't really buy into the idea that even the uncertainty of a presidential outcome was responsible for the 6%. We were already in a bare market at the time. Nasdaq had already been collapsing. The earnings results for that quarter in the technology sector for the quarter before had been atrocious. So it's entirely possible that we have a correlation that is not a causation, but I certainly can admit that the presidential volatility didn't help. But my point being, as we kick off that year, you basically have a dot-com implosion, a tech sector implosion, a NASDAG bubble burst, and then a presidential uncertainty that was quite unprecedented at the time. And really, none of this brought us anywhere near where things would go by September of 2001. the historian markets that had been there for a good decade plus now of a peace dividend. It enabled multiples to be higher as a result of the fact that the Cold War had ended.

And what had loomed over markets for most of our post-World War II period, the threat of a nuclear Soviet Union, the threat of a Cold War had gone away and that markets were able to price in a broad and somewhat undefinable but nevertheless real. of a peace dividend. And it was called into question at about 9.30 in the morning on Tuesday, September the 11th, 2001, when jihadis attacked American soil and nearly 3,000 American lives were lost and hundreds of billions of dollars of damages done. You had people from Vice President Dick Cheney all the way to Warren Buffett saying it was basically inevitable at this point that there would be at some point in American future, a nuclear attack on American soil.

The market was closed altogether for four days, the longest they had closed the market since the Great Depression. And then when it reopened the following Monday, which I believe would have been Monday, September the 17th, markets dropped 7% that day, and they were down over 14% that week. And this was in the midst of what was already a very, very bad market. Now, some sectors are worse than others. You can imagine airlines and insurance companies were particularly pummeled, but the whole market dropped. And what would end up happening is the Fed would respond with rate cuts, and that would enable people to start borrowing from their home equity lines to go to the mall. So there, I'm sure that's going to end up ending well. But then just a couple

months later, you get the six-time named Fortune Magazine Most Innovative Company in America imploding in the largest accounting scandal in American history. I'm of course am referring to Enron. And that was pretty bad. And tens of billions of dollars of market cap evaporated. But then you could say, well, it was kind of an obscure energy company in Houston, Texas, not really in the mainstream of American life. It's not totally true. but it certainly didn't stay true even if it were when then MCI WorldCom, Adelphia Cable, Global Crossing. You just had a whole bunch of other companies get caught up into the drama of these accounting scandals. So at this point, we now enter 2002, and you have to call into question the security of our country in the light of terror attacks.

The accounting and financial security, can you believe anything you're hearing from corporate America? and the economic well-being as we go into a mild recession. So when all was said and done, it was a really difficult first few years. The peak to trough for the S&P 500 was down 49% from its high to its October at 2002 low. The Dow was down a horrific 38%. And I mentioned the NASDAQ was down 77, nearly 78%. And even worse than the violence of this downside was, that it lasted for over 30 months. And so you got two and a half years. And there were a lot of

little rallies along the way, but none of them with this sustained follow-through. And it would be until October 2002 that marked the sort of bottom. And again, you had an S&P 500 that went from over 29 times earnings down to 15 times earnings. So massive re-rating, repricing as valuations had air taken out of them to put it mildly. But let me sarcastically say, well, maybe we learned our lesson. We would not have to worry. Now we're going to have a greater fidelity to strong numbers, a greater fidelity to credibility, greater fidelity to avoiding bubbles.

We've learned lessons. We're going to avoid leverage. We're going to be cognizant evaluation and never get into this kind of concern again. What would actually then happen would lead to the mother of them all. Now, first, markets did recover 100%, but let's be clear, if you're down 50%, and then you go up 100%, so this is what happened in the S&P 500, it went down 49, let's call it 50% from the very beginning of the new century to October 2002. And then from October of 2002 to the middle of 07, it went up 100%. But down 50 and up 100 equals 0, right?

because of math. And so even this 100% rally, it just brought people back to where they were at the beginning of the decade. The thing that caused that rally over four or five years was, first of all, valuations were able to come back to life, earnings,

started to grow again. You got multiple expansion. But you also got a lot of this on the back of a sort of resurgence of animal spirits that were caused largely by a borrowing binge. Home buyers and home borrowers going crazy and losing the collective minds. They were fueled to some degree by low interest rates, but there also was an insatiable capacity in capital

markets for new loan origination that just led to a housing bubble. And we all know how this ends. I won't repeat the entirety of the story, but I believe that the Pets.com of 99 became the Vegas condos of the 2000s, and the mental, psychological, spiritual, and certainly economic differences between the two are minimal. Now, the residential real estate multiples, the financial sectors, the things adjacent to that, they were up even more. But then Bear Stearns collapses, Fannie and Freddie collapse, Lehman Brothers goes bankrupt, AIG collapses, Merrill, Wachovia. So in the course of the whole financial escapade, I believe we go to the near later part of the first decade of this 25-year period recovering with a seminal moment for financial markets.

The Dow, excuse me, the S&P 500 drops 56, 57 percent, peak to drop. Credit markets implode, housing sector collapses, and I think it was a cultural, political, and social moment for the country that largely changed everything. And that ultimately, even apart from the great recessionary contraction that was happening at the time, the debacle that played out in that period of time that led to a left-wing populism and a right-wing populism changed much of the cultural fabric of our country. Now, from March 9th, 2009, until 2013, markets were recovering. They didn't make a new high all the way to 2013.

But this is an important point. We were in recession for a good portion of that time. But markets were recovering before the economy was recovering because markets are discounting mechanisms. But you also had in that period of time the most opportunities I've ever encountered in my what is only a 25-year career, but having studied markets that cover hundreds of years, you really had an incredible point of people saying this time was different. And as markets began going higher and higher, the people who had sold out at the bottom

that didn't want to believe it and suffered from the painful, emotional, financial reality of regret, ended up having to learn. lesson the hard way. And I think it's a mistake made from 2009 to 2013 that should hopefully sink in with people forever. Now then that recovery decade out of the financial crisis from 2010, 2019, it was a great time to be invested in risk assets, but it would be a lie to say that there was no pain or no bad behavior, no opportunity for bad behavior along the way. The S&P 500 would be up 255% in this decade. That was about a 14% compounded return annualized. And it happened with much less volatility than is normal in terms of the annual standard deviation of about 12% versus

a historical average of 15%. So what could go wrong? Less vol, more return. Only one negative year. It was barely down in that whole decade. But let's not forget the European debt crisis. in 2011 down 20% in a month or so. Let's not forget the flash crash where the Dow is down 10% in one day. Let's not forget the January 2016 debacle with Chinese concerns and currency concerns, dropping the market about 14% in four or five weeks. Let's not forget a 20% drop in Q4 in 2018 when credit markets completely froze. And that was going into Christmas Eve.

that we were dealing with all this at late 2018. Now, you could say, okay, well, all these events came and went, but the things being said at the time, markets are freefall, market stability collapses, Europe on the brink of extinction, U.S. credit downgrade, calls into question our own national stability. There were ample opportunities for people to panic out

and ample justifications for very, significant that were not manufactured things. These are real problems. These various incidents always contain truthful news, even when the media embellishes or misunderstands. They always contain a risk of further contagion. And they did in each of these cases that I was investing money through in that decade. Some periods last longer than others. Some end up with a better ending than others. But my point being that they all create the opportunity for casualty of bad behavior. And then, of course, you get out of that decade, go into the new decade, and the COVID moment comes. I wrote a whole dividend cafe back in March of this year on the five-year

anniversary, remembering the COVID month. But 36% in 32, 33 days in markets. It's not a month any of us want to relive. It's not a month I want to relive right now. But it was a period where people said commercial real estate is dead forever. Unemployment won't recover for years. years and years. A lot of fringe things were said, a lot of crazy things were said, but it all felt real at the time. You didn't know what the casualties were going to be. We were dealing with a very real health pandemic. But as far as what it meant to markets, the fact of the matter is that the COVID pandemic was a significant left tail risk event. And then it wasn't. And you go into 2022, where I think you could make the argument. It was the worst market year of all time.

It was only the seventh worst market year for the S&P 500. The S&P was down about 19% that year, and we've had six other years worse than that. However, it was the worst year of all time for the bond market, with the bond index down about 13%. It is the only year in history that both stock and bonds are down double digits. So from an asset allocation standpoint, when It's supposed to be zinging when another thing is zagging, both go down together and go down double digits. You could argue it was the worst year for a traditional portfolio ever. And yes, plenty of things were down worse, the shiny object stuff that was down 70, 90, 97%.

Some things did real well. Dividend growth stocks had a very good year, no question. But my point being 2022 is a horrific year. And then now 23, a big year for risk assets, 24, a big year, 25. I've been a good year for risk assets. Now, not without any problems along the way. We had a 5,000 point swoon just this year alone in only four days. As you had that kind of tariff tremble that lasted a bit until the administration reversed course.

But that's 25 years of not small dramas, not small events, big issues. Now, you notice what I have not said at all today? I think I mentioned the Bush v. Gore thing. But I didn't talk about President Obama. I didn't talk about President Trump. I didn't talk about President Biden. Just so you're aware, we have basically had, in the first 25 years of this century, half of the time filled with the Democrat president,

half of the time with the Republican president. We have basically had 16 of 25 years with a House Republican majority, and we've had 14 to 25 years with the Democrat Senate majority. This is as close to a tie or break-even of political power in the country over 25 years. It's vacillated back and forth across all the branches of government. The story of the first 25 years is not about markets being impacted by political affiliation. And the heavy partisanship and tribalism of our day may want us to paint a different narrative there. And there's certainly policies that each respective administration passed that matter.

but what you have had is a very apolitical 25 years in markets with things like COVID and 9-11 and financial crisis that don't have a lot of foundation to a particular political story and yet we're massive drivers of historical events that impacted markets. But what are we to make of this? 25 years, what is our major lesson? If I were to sit down with any of you 25 years ago, and have a perfect crystal ball and tell you of dot-com implosion,

of presidential uncertainty, of financial crisis, of 9-11, of all of these different things, I laid it all out, how many of you would want to back the truck up for risk assets? The stories, the headlines, the things I've gone through here for us in the last few minutes, it doesn't sound good. But if I told you that a million bucks in the market is now seven and a half million, Would you believe me? How could the 25 years I just described a financial crisis of international threats,

of debt crises, of massive buildup of national debt, of geopolitical turmoil, how do risk assets go up seven and a half times? And you could say, well, that's because markets outperform their own historical averages. No, they didn't. markets are up about 7.5% per year for 25 years. Now, that's largely because they've been way more than that in the last 15 years and we're way less than that in the first 10 years. But markets are actually up less than their own compounding average over a 25-year period, significantly so, by the way. The reason is that everything I've described today,

everything we've lived through for 25 years, everything that has marked these last 25 years that are in the kind of core portion of my adult life covering a lot of my 20s and certainly my entire 30s and 40s as I now am into my 50s. Everything is, can be reduced to something called instability. And instability, my friends, is normal. Instability is part of the human condition. Citing instability as a reason to be uninvested is clinically insane. You don't get to be invested in a systemically stable period of time because the world is systemically unstable. And if anything over the last 25 years should be clear, it is that people that are trying to identify systemic concerns or pockets of some economic or political or economic

turmoil as a reason to jump in and out of markets. It's a money losing endeavor. And it comes at an opportunity cost that has confounded investors for decades. I do not have a prediction for what's going to happen in Western Europe in the next 25 years. I do not have a prediction for what U.S.-China relations are going to be over the next 25 years. I do not have a prediction for how bad this current U.S. political dysfunction is going to be. I cannot imagine that U.S. valuations in AI, big tech, are going to end well. The economic and cultural reality is not good. The fact of the matter is that $37 trillion of debt and a debt to GDP ratio we have,

this is a major issue I write about all the time. I just got done saying four or five things that cite further instability. Who could be bullish? And the answer is anyone who's paid attention to the last 25 years. Because you can change all the examples I just gave. And the fear and trepidation that comes with them

and replace it with the fear and trepidation of a dot-com implosion of COVID of 9-11, of Lehman and yet what you had was seven and a half times return on your money. This time it's different. Let it enter your head. Go through it a little bit. Tell yourself some new moment is coming. Tell yourself that there's something new. Tell yourself that there's something new right now is going to wipe away civilization again or some big new paradigm shift. There's a lot of people that make their living peddling these types of things. But this has been a horrific 25 years for that kind of fearmongering. And it's been a wonderful 25 years where people understand

what they're actually investing in. They're investing in the right things, which are profit-making enterprises that are a byproduct of the human spirit, the human condition, the human reality, the good part, our ability to produce goods and services that create value. Out of that value, this is the investable opportunity. The bad side is another part of the human condition, our propensity for fear, our propensity for panic, our propensity for melodrama. But in all seriousness, I can tell you that the bad things we talk about enhance expected rate of return, that in a world that had no bad things to cite, you would have less risk premium, less volatility, and less return. turn. I do not believe the next 25 years are going to be better or worse than the last 25 because I don't have any idea what's exactly going to happen. What I do know is that the last

25 years didn't teach people to knock off headline exegesis as a way of formulating an investment plan. I don't think anything's going to help them in the next 25 either. There'll be plenty of opportunities to panic and behave badly in the next 25 years. There is a deep principle. here, though, that what is happening in any 25-year period is supposed to happen. Some of them are horrible events. Some of them have prolonged periods of bad returns. Others have prolonged periods of good returns. But the notion that we believe we can predict a bad thing that will happen and therefore a bad investment outcome is defied by history. It's defied by empirical evidence. It's defied by logic and rationality.

And if I may, I would add that a great offense and defense out of this very dynamic, this very reality I'm describing is dividend growth investing, where for a withdrawal of capital who lived through the first decade of this 25 years in the S&P 500 would have run out of money and a withdrawer of constantly growing dividends would not. And an accumulator of capital would be offensively exploiting and taking advantage of the difficulties of severe market volatility and just inevitable geopolitical economic, what have you, events, reinvesting dividends at those lower amounts. There's an embedded offense and defense and dividend growth that was tailor made for the last 25 years, I believe will be tailor

made for the next as well. I know one thing people will want in the next 25 years if they can get it. And that is the same return from risk assets, the disciplined, wise, and prudent people got the last 25 years. And I swear to you that that is the end to which we will work at the Bonson Group. Thank you for listening. Thank you for watching. Thank you for reading Dividendon Cafe. There is a wonderful chart of the week at dividend cafe.com reinforcing in one simple visual so much of what I talked about here today. Please go enjoy your weekends. I will be with you on Monday for a Monday dividend cafe, which will be our official last communique of the year. So I'll hold off saying Merry Christmas and Happy New Year until next week.

But have a wonderful weekend. Thanks so much for being a part of Dividendin Cafe. The Bonson Group is a group of investment professionals registered with High Tower Securities LLC member Finra and SIPC with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities LLC. Advisory services are offered through Hightower Advisors, LLC. This is not an offer to buy or sell securities. No investment process is free at risk.

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