The Dividend Cafe - Markets and My Life: A 50-Year Retrospective

Episode Date: May 31, 2024

Today's Post - https://bahnsen.co/3R7M9Io Reflecting on 50 Years of Market and Personal Milestones In this special edition of the Dividend Cafe weekly market commentary, David reflects on 50 years of market and economic history coinciding with his 50th birthday. This episode dives into significant economic events, market trends, and personal anecdotes, from the S&P 500’s journey from 89 points at David's birth to its massive growth over the decades. David shares insights from his personal and professional life, highlighting lessons learned and projecting forward for the next 50 years. Tune in for historical retrospection and wisdom on long-term investing and human ingenuity. 00:00 Introduction to This Week's Dividend Cafe 01:02 Reflecting on 50 Years of Investing 01:29 Personal Milestones and Market Parallels 06:15 Economic Challenges and Lessons from the 1970s 08:18 The Booming 1980s and Financial Innovations 12:05 The Digital Revolution and Market Zeal of the 1990s 14:39 Navigating the 2000s: Personal and Professional Growth 16:06 The Financial Crisis and Its Lasting Impact 17:35 Modern Market Dynamics and Future Outlook 21:24 The Power of Dividends and Long-Term Investing 24:37 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. Well, hello and welcome to this week's Dividend Cafe. I have very rarely enjoyed riding a Dividend Cafe as much as I enjoyed riding this week's. We're actually recording a little bit later than normal here on Friday morning in Newport Beach because the writing was a little bit more elaborate than normal.

I'm gonna do my very best to capture things here. For those of you listening to the podcast and those watching the video, the way that I did in the writing, but I will say, besides what I constantly reiterate about my own personal preference of the written word, I do think that this week's Dividend Cafe maybe is more captured. The essence of it and the intent of it might be more captured, written, than I'm going to be able to do here in this audio,

but I'll do my best. Why do I think this week's was a little bit different? Well, what I tried to do was create a retrospective of the last 50 years of investing, what's gone on in the economy, what's gone on in markets, what's gone on in the world, and applied that, of course, to investors, because that's what the Dividend Cafe is for. because that's what Dividend Cafe is for. But I tried to do so by dovetailing it to my own life. And the reason for this is because this is the week in which I turned 50 years of age. And when I don't really think much about my birthdays ever, I think the rule of thumb most people know is around the time that a guy turns 20 and certainly 30, you really just start celebrating birthdays every 10 years when they end in zero. And so that's the case. But look, this isn't midlife crisis territory. It's just a bit of, you know, there's contemplation that comes with hitting age 50. It's

all been very positive. And yet, as I was thinking about some of those things and going through the various reflections and projections and whatnot, just personally and biographically that go around this 50-year milestone, it occurred to me that there's an awful lot that could be said, should be said in the same vein about markets, about investing. And I hope that in this Diving Cafe, I have captured some form of lesson that could be useful and very candidly, not just useful right now, next week, next month, next year, but for the next 50 years. And so that's the intent anyways. You can do the math, I hope. If I turned 50 this week, I was born in 1974. And I want to give you the exact numbers because I think they're fascinating, but there's going to be a caveat that comes with it. The S&P 500 was at, I want to give you this number because it's surreal, 89.

I'm not talking about 89%. I'm not talking about anything, a dividend. I'm just talking about the absolute number. The index aggregate value was 89 when I was born. The Dow was 803. And that 803 is a little deceiving because just a few months after I was born, it was at 577. I was born into a very brutal bear market where both the S&P and Dow were down over 40% in a two-year period, 1973 and 74. But you're talking about over 50 years. That's 18,262 days. It's 438,000 hours. It's 26.3 million minutes. And in that 50-year period, the S&P is up over 20,000%. $100 would currently be worth $20,753. And you say, okay,

well, I guess it would have been a very good idea to put 100 bucks in the S&P 500 50 years ago. That's very true. I was born in Los Angeles, very specifically at Torrance Memorial Hospital. My parents lived in Manhattan Beach. They already had one other kid who was about to turn three when I was born. I was the second born, the middle child, because I ended up having a younger brother a year and a half later. But my father was finishing up his doctoral studies. He got his PhD from USC. This is where my love of the University of Southern California came from. My dad finished his PhD under the great Dallas Willard in 1974, 75, as I was born. And I joke that they couldn't, my parents couldn't have put a hundred bucks

in the SAB 500 to turn into 20,000 for me if they want to do since the salary of a grad student working in a part-time staff position at a church wasn't great. But you know, at least using a graduate from USC where everyone goes on and makes a whole bunch of money. Unless of course, what you graduate from USC with is a philosophy degree and you are going to be an ethics and apologetics professor at a Reformed Theological Seminary in Jackson, Mississippi for a couple of years. Now, that did not allow for further S&P 500 contributions. To my knowledge, my father, who died in 1995, never owned a stock. And I know he never owned the S&P 500. I believe my grandparents gifted him some shares of IBM at some point. My grandmother had worked at IBM. But my dad

was never in the stock market and had chosen a life as a Christian intellectual that wasn't going to produce the type of disposable income that would allow for investing in financial markets. But the 1970s were a painful period in a lot of ways. Economically, the phrase stagflation came from the combination of high inflation and economic stagnation that was prevalent at the time. Very high oil prices, very painful energy markets worldwide, OPEC holding a lot of leverage on the energy front, very poor policy decisions in price and wage controls and very poor monetary response, creating conditions that were quite the opposite of what we became used to throughout most of what would then become my childhood and into my young adult years. Then we'll get there in a second.

I joke, well, I guess it's serious, but I'm going to pretend I'm joking, that one of the advantages of my dad's professional decisions not producing a lot of disposable income is it didn't give him the access to go buy a bunch of people in his orbit were recommending. And various newsletter writers would have encouraged one to do at that time, just in advance of what would become an over 20-year period of dropping 75%. And really on an inflation-adjusted basis, you could argue far worse. So he didn't get to make money from the stock market throughout his life and he didn't get to lose money, which is probably more likely what would have happened in gold either. But be that as it may, we came back to Los Angeles, which is where my dad was from, after what I think was about a three-year period in Mississippi, where my dad was a professor, and returned to Southern

California in time for me to begin kindergarten. And so my whole childhood was spent in Orange County and my father was teaching and preaching and other things and so forth. And I began elementary school roughly around the period that Ronald Reagan took office. Jimmy Carter had talked about economic malaise. And while we double dipped in recession in the early 80s, there is a very strong correlation between a period of economic recovery and my school-age childhood starting. And I may not have been the coolest kid who ever lived, but I was very intellectually curious. And the 80s were just an incredible period of economic growth. I'm going to give you the exact numbers, but just consider what it would be like to live in a period in which net of inflation, real GDP growth, was 4.58% in 1983, 7.24% in 1984, 4.17% in 1985. I mean, just absolutely thriving.

And then behind a flying economy, a soaring stock market, me going through all those years, you get into the late 80s. And while I don't think I was necessarily understanding this in all of my Alex P. Keaton attempts at the time, a very important lesson became ingrained in American economics and American economic life in that time period. And that is the vitality of capital markets, the vitality in free enterprise that is made possible by capital markets. Michael Milken ended up becoming demonized, arrested, I think grotesquely, unfairly, in my personal opinion, but be that as it may, Michael Milken taught us that capital is never the scarce resource. And venture capital industry out of Silicon Valley, private equity that we

began to take hold out of Wall Street, innovative financing mechanisms in debt markets, what became known as high yield or junk bonds. Although by then, Milken and Drexel Burnham had moved to Beverly Hills and were not out of Wall Street, but Wall Street followed suit real quickly. And there were excesses, there were losses, there were bad actors. Just recently, Ivan Boesky died. He was the famous inside trader of the mid-1980s. You know, I'm not romanticizing all of this. There's always bad actors because we live in a fallen world. But there was a period of robust financial innovation that I am deeply grateful for. And then there's a whole lot of other people that should be grateful but may not know that

they should be. And that's, I guess, my job to try to help understanding in that process. But the concept about capital not being the scarce resource means this. The only thing that limits economic growth is ideation, innovation. And when you have ingenuity, as the human person is extremely capable of, it will find capital. And then when you execute on human ingenuity, you will find a lot of capital. And so the belief that scarcity of capital is what holds business back as opposed to scarcity of goods and services is one of the great flaws of all time. And we began to really unpack the wisdom of seeing

capital is always available, but needing more supply side innovation that really became a profound takeaway from the 1980s and into the 90s. So you get into the 90s, and I think we know about the digital revolution, the dot-com period. It was a robust era. Let me give you these returns. The S&P 500 in 1995, up 34.1%. But then in 96, 20.3. Then in 97, 31. Then in 98, 27. Then in 1999, another 19.5%. Those five years in a row being the best five-year period in market history. And after, before even two years of that was over, Alan Greenspan, then Federal Reserve Chair, famously referring to it as an era of irrational exuberance. I had a lot of difficulties in my life in the early 1990s, late 80s, early 90s in family, church, and school. And there was a kind of little two-year period there that was

very transformative. And I'm not going to get into all of it now. I'm pretty open about it in various circles, but I don't want to bore anyone and it's a little bit of a distraction to the major takeaway. But the 1990s was funny in this sense. From the vantage point of markets, that bull market of the second half of 1990s lured me in. But my father passed away in 1995. And I now needed to do something with my life and to know what I was going to do in my life. And markets captivated me, intoxicated me. Really, at the end of the day, that transition into a life in wealth management, financial services made possible by what was happening. I should say provoked or catalyzed by this real zeal from what was happening in markets.

There was a lot of difficulties that are undergirded as well. And I talk about in Dividend Cafe, the written Dividend Cafe this week, that on one hand, the early 90s were this period of some difficulty in life. But on the other hand, I also got to live through the Michael Jordan era of basketball. So, you know, there are things that we're never going to see again. One of them is Michael Jordan, who, you know, through 91, 92, 93, and then 96, 97, 98, won six championships. But we're also never going to see, I don't think, a five-year period like we saw 95, 99 of markets. And so that's my best attempt to bring these two things together. It was a surreal period. And then you get into the next decade.

Jolene and I met in the year 2000. We were married in 2001. I've written about Individuum Cafe before that we spent our honeymoon in the aftermath of 9-11. We were literally in air on a red-eye flight to Tahiti when 9-11 happened. I'm now older, into my 20s. Jolene worked in a marketing position and advertising at the time in the travel industry. So 9-11 was a very frightening issue just for us as young newlyweds professionally. But obviously it changed the world. And the far bigger ramification than what it meant to us and our careers and whatnot was what I meant to the world became a scarier place immediately. And one could say it didn't become scarier, but it revealed how scary it already was.

And then, you know, the next decade was just glorious in so many ways in the sense that all our three kids were born in 2005, 2007, 2010. I was building a business. I'd gotten hired at a firm called Payne Weber that then became UBS that then I left and joined Morgan Stanley. And we were living through this cultural absurdity that was the housing bubble that, you know, I guess we'll say hit its apex 2004, 2005, 2006. And of course, the financial crisis came in 2008. I've said this a thousand times, I won't. I'm going to resist the temptation now to go down that memory lane yet again. But it was the seminal moment of my career. And it was the seminal moment, I believe, for that entire era, that entire generation in terms of American

political life, economic life, and cultural life. And we will spend the next 50 years unpacking what that meant in our economy. We may spend the next 50 years unpacking the specific ramifications of some of what happened into the economy from a fiscal and monetary standpoint. I talk about this all the time. But when you're the firm I was working for at the time is going to this existential moment, it was not merely a stock market correction or stock market bear market, all of which are always, you know, filled with their own level of complexities and client challenges and whatnot. But where it was so much more than that in terms of being a global credit crisis, a contagion, and really just powerful experience to go through in my young 30s.

And yet one that was powerful in what it taught me and how it informed the way I view the client advice business that I've devoted my life to. The decade that followed, what can you say? I'm going to incorporate it not just as the decade, but even the post-COVID years now. The market went through another heck of a bull market. You had the unprecedented fiscal and monetary interventions. You had quantitative easing. You had zero interest rates. We now watch TV on streaming instead of cable. There's a lot of things that changed. Near the end of that 10 years, then you go into 2020, and we all know they shut the world down. And I don't want to get into all the issues of more modern history. And I don't want to get into all

the issues of more modern history. I think it's more interesting to talk about, you know, Milken and junk bonds in 86 or, you know, Solomon brothers in 1978 than it is talk about COVID in 2021. I mean, all these things are, I like, I think there's more interesting tidbits and further decades out than there is in more recent history. But nevertheless, over this entire period of time, you've had tremendous successes on the world stage in terms of the US prevailing in the Cold War, a lot of the economic achievements of real GDP growth, of the digital revolution, the internet moment in the 90s. We came through the other side of 9-11. We came through the other

side of the financial crisis. And of course, at the same time, there's these challenges I talk about all the time. And I think people make a grave historical mistake to believe that we used to not have historical challenges. And now we do. We used to not have various, you know, either governmental or geopolitical stressors. And now we do. We've had them forever. And yet, much like individual lives, including the biography of your humble servant. I believe that with the right posture, the right resilience, the right decision-making, and the right grace from above, we find the victories to outnumber the tough times. And the story of $100 turning into $20,000 in 50 years is not this mathematical outlier. It's a byproduct of a belief system that focuses on human ingenuity and not perfectible

human ingenuity, not a perfectible humanity. The utopianism of the 20th century should be dead and gone now. It finds its way to breathe every now and then. But I'm referring to the reality of a fallen world when I speak about the fact that humanity was created with some very significant capacity for production and for doing big things. And that we live in a time period where the negatives can outweigh the positives. And I think many of you have lived lives where some of the difficult times could outweigh the good times, but I hope that you don't allow that to happen. I feel very blessed and I do mean it sincerely when I say I feel humbly blessed. But I'm grateful. And I feel very lucky in the sense that I am fortunate and that someone I

think has smiled upon me in my life. I'm fortunate for my wife and children. I'm fortunate for this business that I love so much. But I also believe that there is something embedded in this experience that I choose to be long humanity. And this is an expression I borrowed from my friend John Malden. When I say long humanity, I mean long the things of the last 50 years that you really should be long. And I mentioned that $100 turned into $20,000, but I need to get my own agenda in here a little bit because it isn't really true. I mean, it's true, but that's because of the S&P 500 reinvesting dividends. reinvesting dividends. $100 only turns to $5,000 on a price basis. With the reinvestment of dividends over 50 years, that's when it goes to $20,000. So you lose 75% of the return in my

lifetime apart from dividends in the compounding they're in. But that's only part of the story. Let's just do basic math here. Because the S&P spent the first half of my life with a pretty attractive dividend yield. And it doesn't have that now. It's a, you know, one and a quarter dividend yield now at an entry level. But if you take a starting, you put a hundred bucks today in something that has a 4% dividend yield, it's going to grow that dividend at 7% a year for the next 50 years on average. I would like to hope those will be conservative numbers. If your prices are going to appreciate 3% a year, I'd like to think those are conservative numbers. This is hypothetical and illustrative to do some math for you.

You understand that in 50 years, you're talking about a 42,837% return. 12.89% per year based on those numbers. But more important, that $100, the yield will be 8,887% what you'll be getting in dividends compounded in 50 years. Most of us don't have 50 year timelines. We'll see. I wrote more about it in Dividend Cafe. I haven't talked about it in this podcast or video, but my kids joke with me a lot about the color of my hair now, the sounds I make coming back from exercising. I'm painfully aware, and that's not a metaphor, it's an accurate word about some of the risks of exercising. I do it every day and it hurts differently than it did when I was 20. I do it every day and it hurts differently than it did when I was 20.

So I know I'm getting older and maybe my timeline for investing isn't 50, but in a lot of ways, it's much more than 50. I believe in multi-generational wealth. In 2074, 50 years from now, do I believe that a 4% current yield with 7% annual growth of dividend will be yielding 8,887%. I believe that's the math. Yeah, I believe in math. All I can say is that do not be surprised by what great things lie in store for optimists. That is not to say there will not be challenges, significant things along the way. There were a lot of significant challenges along the way the last 50 years too. There certainly will be the next 50 years. But I, for one, in my own life, in the management and stewardship of this business and in the ongoing cultivation

of client portfolios. I look forward to what the next 50 years has to offer. And I just want to say, Warren Buffett was not a billionaire until he was 50 years old. Fast forward to today, he's worth about $88 billion. The second half of one's life can be very rewarding. Compounding can be very rewarding. And compounding can be both a mathematical term and the result of the way in which you live your life. Thank you all for bearing with me in this retrospective 50 years in markets in my own life. And I look forward to not just what the next 50 years will bring, but what the next 50 days will. Every day is special.

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