The Dividend Cafe - Never Forget

Episode Date: September 10, 2021

I am typing this week’s Dividend Cafe from 30,000 feet very late at night on Thursday night/Friday morning, after spending four and a half hours on the plane, on the runway, alongside 100+ other planes that were unable to take off as airspace was closed for Kamala Harris' visit to the LA area (campaigning with Gavin Newsom against the recall). My wife and I will land in Nashville in the middle of the night, and we will forget this experience soon (I hope). Anyone who travels a lot has had bad experiences. I travel 50x a year and have been through everything, but as a percentage of the times I fly, I have had it easy over the last 25 years. It’s never fun, but it happens. But twenty years ago Joleen and I were also flying together, this time departing LAX for a Tahitian honeymoon. As I mentioned the other day Joleen and I celebrated twenty years of marriage this week. On September 10, 2001, we left LAX on a redeye with a planned landing in Tahiti in the early morning. One hour before we landed the most horrific act in American history took place. It is that event that is the subject of today’s Dividend Cafe. Sure, there are some personal reflections and musings. But there really is a market lesson in all of this, and I hope you will find this to be meaty enough for your normal Dividend Cafe longings. Truth be told, the rather basic message I have to share for investors on this 20th anniversary of 9/11 is more significant in practical terms than any commentary I have ever written about monetary policy or capital allocation. I will forget the wait of today, but I will never forget 9/11. Let’s jump in. 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 a, I think, kind of special edition here at the Dividend Cafe. It's definitely going to be a little bit different than normal. different than normal. More or less, I just want to kind of give the talk that mirrors what I wrote about in Dividend Cafe this week over at DividendCafe.com. The events of 9-11, of course, have inspired this week's Dividend Cafe. And basically for the reasons that should be obvious, that we're looking at the 20-year anniversary of this event. And not only do I personally, and I think just from those of us who have strong feelings about the events of that weekend, there's a lot to be said there.

But to the extent that Dividend Cafe is obviously a very specific investment commentary. I think there are just profound lessons to be extracted from all of this. And so I want to pull all that together for you. When I wrote Divin Cafe last night, I was on the airplane flying from Los Angeles to Nashville, where I'm sitting right now in my hotel room, getting ready for a day of meetings and a speaking event and some other things.

And the flight in Los Angeles was delayed about four and a half hours just on the ground. We found out well into the process that Vice President Kamala Harris, who had been visiting L.A., was going to be leaving. And more or less for like a hundred mile radius, all the airspace had been shut down. hundred mile radius, all the airspace had been shut down. And so there was something in the range of 110 planes that were off of their gates and not able to leave. And so, you know, it all kind of worked out. My wife and I didn't get to our hotel room till three o'clock in the morning. And so, you know, it was obviously one of those traveling conveniences. I think a lot of people have experienced. I'm blessed because I travel a lot, and I haven't had too many of these. I've had some various delays and weather things and stuff.

It happens. I've become real resilient to it, just kind of go with the flow. But for the most part, I've been a pretty blessed traveler. But I was thinking about back in September of 2001, Jolene and I had been married on September 8th. And the first couple of days after we were in Los Angeles and we had family events, we're at a nice hotel up in Bel Air. And then we're doing a flight to Tahiti for what was going to be a two-week honeymoon. And we were leaving on a red eye out of LAX on the night of September 10th, landing on the morning of September 11th in Tahiti.

And so it's one of those things where, you know, Varney on Fox Business just asked me this morning where I was on 9-11. Almost every adult, you know, remembers where they were and associates some part of it. I mean, what was going on, the events of that day, those are not the types of things that you easily forget. And particularly based on the drama of our situation starting off our honeymoon with this horrific event, it's obviously something that we'll never forget for all the different reasons. But when we were coming back from Tahiti to L.A., it was the first day they had reopened travel back into LAX. And we were stuck on the ground in Papeete, Tahiti that day, four and a half hours as well. And so we have these two bookends of these long airplane delays.

have these two bookends of these long airplane delays. But if you go back in time to the events of September 11th, 2001, and now switch gears a little to thinking about from an investment standpoint, and even apart from investor context, which is where I'm going to spend most of our time here in a moment, just specifically the economic anxiety. It's really important to remember what people were saying and thinking. They were not fringe. They're not extreme. It was not perceived as overdone or sensationalized. I was a young man, now newlywed, working in finance. Markets crashed thousands of points first of all the stock exchange for the first time ever had been shut down for for the whole remainder of that week my wife at the time was working in marketing at an ad agency and her account was the Hilton

hotel chain corporation and of course everyone says, well, tourism's dead, travels, dead hotel, air, airfare, airlines, all that stuff. You know, it's interesting how much of this kind of had certain rhymes and, and, and what precedent with what we then saw again in COVID. But yeah, that, I mean, there's no need to lie about it or anything. It's kind of obvious. There was a lot of economic insecurity and anxiety and questioning on a macro level for our whole country. But I spent part of my honeymoon wondering if we were too soon to be unemployed newlyweds.

You just didn't know what was going on. But then on top of that, the whole risk premium of economic life in the United States changed. And I don't think I can tell you to this day that somewhere deeply buried in trillions of price signals that are markets, that there isn't today a risk premium that accounts for the reality of terrorism, the reality of a potential large attack. I recall right after 9-11, Warren Buffett and Vice President Cheney, both referring to the inevitability, not the likelihood or the increased risk, but they spoke as if it were at some point kind of obviously going to happen, that there'd be even a nuclear attack on the soil of the continental United States. And so a lot of things had to get repriced and get repriced quickly.

And unlike COVID, when that hit and we were in this really positive economic time and markets had just come off in 2019, this phenomenally strong year, you got to remember too, that when the terrorists attacked the world's financial capital on September 11th, 2001, we were still reeling from the massive collapse in the technology sector, the dot-com bubble burst, the NASDAQ implosion. We were teetering on recession. We did end up going into recession in 2002. All of the 9-11 stuff happened just before the Enron scandal. And then into 2002, you had other accounting scandals and WorldCom.

And so there was just a period of time, let's see, that would have been about 18 months into what ended up being a 30-month bear market. So there was a lot of pain and agony in financial markets. And of course, just the utter agony over what had happened, what had been considered to be unthinkable, that not only that the United States could be attacked on its own soil, on the continental soil that previously had been reasonably protected by an ocean on each side, but that it had been attacked by a non-nation state actor, a terrorist cell that was highly resourced, highly organized, highly capitalized, but nevertheless, not even connected to a nation that had a flag on it and so forth.

And so a lot changed. And yet the thing that I believe is so simple and so redundant, and I just don't care. It has to be said, is in that moment, like the financial crisis that would come seven months later, which was far more existentially threatening to specifically to financial institutions and credit markets and financial confidence in a global economic order. And then, of course, the COVID moment of a year and a half ago, we're just 20 years into this new century. And I am aware it's also a new millennium, but it's a bit more appropriate for our context to think of the new century when you're talking about markets year over year decade over decade these kinds of things this has been a very unsettling first 20 years

if you had said at 2000 like I remember everyone being all afraid about this y2k nonsense but ignore that because that obviously was a nothing burger but um if you had said right after you know the century started that within a year you're going to have the worst terrorist attack on american soil in history and and 3 000 people are going to die and and we're going to have these prolonged wars and other things in the aftermath um and that the reality of the sort of jihadist threat against America was going to take center stage, that we would then have seven years later, the biggest financial crisis since the Great Depression, and markets would drop over 50%, and that housing prices would collapse, and that massive financial institutions would go down, largest bankruptcies in American history.

And that then years later, you would have the biggest global pandemic since the Spanish flu and hundreds of thousands of fatalities and a government that would shut down the entire country, first holistically and then kind of partially for a long, long time. So you described these three events and the drama of what we've lived through. And then I said, oh, and the market is going to go from 8,000 to 35,000. The S&P's percentage increased even higher than that. And the S&P was percentage increase even higher than that. Yeah, I think you could be forgiven for laughing at that idea that that could happen.

Well, why has it happened? It's happened for the very reason that we invest in equities to begin with. We invest in equities to begin with because we believe in free enterprise. And we believe in free enterprise because we believe in the indomitability of the human spirit. We believe in the resourcefulness and the creative capacity of mankind created by God to overcome brutal events and to operating in their own self-interest, looking for a better life for themselves, their families, their communities, and their country to create the environment that produces corporate profits to become investable to us as investors. This is the underlying thesis of equity

ownership. It is not PE ratios. It is underneath all of the math and all of the mechanics and how you get to earnings and to dividends and to cash flows. All those things become accounting constructs that matter for investors. But underneath that, before there can be any of that, there are human beings acting that create a profitable environment that becomes investable for us. So we get to take our long-term financial goals and we get to tie them to the long-term realities of the human spirit. That's why we invest in equities. And that's why we have overcome the tragic events of 9-11 and the subsequent disasters that I spoke about as well. It is why really bad things can happen in short-term periods, but that longer

term investors who have maintained that faith and that outlook and that perspective and that behavioral alignment from their portfolio to this philosophy have been so richly rewarded. So while I believe that those uncertainty spikes are rational, it was not crazy to wonder if people are going to travel again, or what was going to happen to financial markets, or how big cities were going to fare out of 9-11, or for that matter, out of COVID, all these things. I guess sometimes I'm critical of people that are permanently pessimistic or prone to just continue to fall back to the same lines, only to the extent

that they just don't seem to learn from the history of it that maybe next time you predict no one's ever going to fly again even when it seems like maybe they won't but that you can realize well i've said that before before and before and there's all these different times that these kinds of things have seemed to make sense at the time and they prove not to and so maybe this time it won't make sense also. But human nature is not necessarily always like that. And I get it. I really do. But what I want for investors, when we as human beings who mourn the loss of life, and we as human beings look upon the heroism that took place from so many on 9-11, all of those very important aspects to the remembrance of this solemn occasion. When we switch into wearing the hat of an investor as

an economic actor and think about what has happened in the 20 years since 9-11, I think this is the takeaway, that those who practice good behavior around a soundly constructed, practice good behavior around a soundly constructed, well positioned, properly allocated portfolio, and from there maintain their belief in the principles that help to construct that portfolio to begin with, they succeed. They overcome very, very difficult times. Short-term occasions are going to be horrific in our portfolios, in other circumstances in life, too. But I'm saying we cannot control how markets will respond immediately to uncertain events, unpredictable events. You cannot hedge. You cannot time.

You cannot do anything about these types of events, like global pandemics, jihadist terrorist attacks, and great financial crises. What you can do is in those moments, remember why the portfolio is constructed the way it is. And remember the lesson of history and history did not start in 2000 or 2001. We had plenty of horrific and dare I say existential events in the 20th century as well, and overcame those as well through the Cold War, through a couple of world wars, through a Great Depression, through the awfulness of the 1960s and 70s, awful in so many ways. Here we are. So we do not forget the lessons of 9-11. And what I mean by that is, of course, on a minor scale, what that means to us as investors and on a more significant scale, what it means to us as Americans.

I pray we will never forget. Thank you for listening to this edition of Dividend Cafe. Those watching the video, listening on podcast, we appreciate your support and welcome any questions, comments, anytime. Have yourself a wonderful weekend. Never forget. I'm Matt Levin. performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors. All data and information referenced herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary and does not constitute investment advice. The Bonser Group and Hightower shall not in any way be liable for claims and make no expressed

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