The Dividend Cafe - Timing is Almost Nothing

Episode Date: November 13, 2020

I wrote this week’s Dividend Cafe on Thursday morning, something I haven’t done for a Friday publication in a long time. For virtually all of 2020 there was a huge focus on making the distributed commentary as “current” as possible before submitting. Markets were moving so quickly that if the focus of the commentary was on what was happening in the markets, any delay between submission and distribution was likely to result in some part of the message being “obsolete” by the time it got to you, the readers. Indeed, as I type this beautiful Thursday morning, I have no idea what the markets will do on Thursday, let alone Friday. But I don’t particularly care, for reasons I will explain inside the Dividend Cafe. I have been writing the weekly market commentary since the financial crisis, and a large portion of you know. I am grateful to all of you who have stuck with the reading of this for so long. It has really always been written “as I go” throughout the week, sometimes with a lot of weekend reading the week before driving some of the message, and almost always with bit by bit writing throughout the week leading to the eventual finished product. I may get inspired on a Monday morning about emerging markets and write something then, and find a development in rate policy on Tuesday and write more still, then. It has always been the culmination of many hours of reading and writing work throughout a week. Well that brings me to this week’s Dividend Cafe, and the topic of the here and now. Some reflections are in order, and I hope my reflections will resonate with you to some degree, and even provide some investment application that speaks to your situation. So without further adieu … 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 this week's Dividend Cafe podcast and video. Those of you watching on video are aware of the fact that I am about as dressed down as I do for this week's Dividend Cafe. And that's because as I'm sitting and recording, I'm about five minutes away from leaving the country for the weekend. And so I'm recording in the middle of the market day on Thursday. And you're hearing this Friday, and I have absolutely no idea what the market will do by the close of Thursday, let alone into Friday. And that actually is the first day in well over 10

years that I've done so. But particularly around the writing of Dividend Cafe, the kind of day-to-day realities of the market, the contrast it represents to what we were doing with Dividend Cafe and our own mentality and client communications earlier in the year in the peak of the COVID or the development of the COVID anxiety. I decided to try to turn all this into the actual subject of the Dividend Cafe. And I'll explain what I mean by that here. The simple reality is that there's no reason in the world that I couldn't record or shouldn't record Dividend Cafe every Thursday morning, even before the market opens, what have you, and send it out Friday. I think we generally send it late morning or early afternoon and have that sort of real-time market sensitivity and timing reality removed from our consideration.

And we probably have done that over time more, but in this year, particularly in the peak of the COVID anxieties as they were formulating in February and as they peaked in March, there were times where we'd record something on a Thursday and then the movement in markets by the end of the day Thursday, let alone into Friday, were so severe that we just would re-record or I'd rewrite things or what have you. And I'm not down on the fact that we did that. I think that I'd have to be pretty naive to not understand

that in a moment like that of peak anxiety, on the fact that we did that. I think that I'd have to be pretty naive to not understand that in a moment like that of peak anxiety, there is a desire from clients and even non-client listeners or readers or viewers to have a sort of real-time, as much as possible, a non-adequated commentary on current events. I think about my own love of reading the newspaper. You know, I went pretty much through my teen years and especially my young adult years. One of the great joys of my life was reading the newspaper and holding it in the morning. And I still get the Wall Street Journal delivered to about four different places so that I'm constantly receiving it and have access to it as I desire. But when I sit down to kind of read the journal, if I get a moment in the morning or I'm in transport somewhere and

whatever those cases are, I got to say that it's a little weird to be reading articles that I read already the night before or the afternoon before, because we are now accustomed by the miracle of modern technology to real updates, to real-time delivery of news events. And that's obviously translated into markets as well. And so I get the idea that in moments of anxiety, this commentary would feel weird for us to be writing about something that then was totally antiquated a day later. But this writing is really not meant to be about the day-to-day movements of markets. It never was. In the early days of market commentary back in my prior life, when I first

started doing the weekly commentary, it had an ad hoc component to it around the realities of financial crisis. But even then it wasn't the market did this last hour or the market did this yesterday. It was this firm went out of business and this firm's going out of business next. It was still existential. It was still big picture, but there was just really traumatic things happening in the big picture moment. Well, the reason that I right now feel incredibly comfortable not worrying about what the market's going to do for the rest of today or for tomorrow when you're listening to this or reading the Dividend Cafe is not because all of a sudden the risk of markets having a thousand point drop or a 500 point rally or something is off the table. As a matter of fact,

as these things tend to go, I actually believe that I'm increasing the odds of one of those things happening by doing this because that just seems to be the way this stuff goes for me. I don't know if I really mean that last thing or not. I kind of do. But here's the thing. I don't want anyone to feel remotely sorry for me and my admittedly workaholic lifestyle. These are decisions I make and behaviors I choose. And my 16 to 18 hour work days and my often total inability to shut down electronically is a free decision that I make. I don't feel it was totally voluntary throughout the peak anxiety moments of COVID. And there were periods there, moments throughout that whole event that were probably more strained and more difficult than others. But to the extent that I want the Dividend Cafe

to translate real life and practical investment lessons to the people that are taking it in, I want one of those lessons to be that one day in the market is never, ever going to make or break an investor's success. That lifetime behavioral habits with portfolio decisions that are rooted in timeless principles, those things will make or break an investor's success. And I'll use the Dividend Cafe to week by week write about different manifestations

of behavioral principles and investing philosophy. manifestations of behavioral principles and investing philosophy. And when there is a special moment that really calls for very current event treatment, the election results, the COVID, you know, all these things, then obviously we'll do that. But I do believe that there's a symbolic lesson in the fact that I'm going to finish recording here in a moment and leave the country and not bring my computer with me for literally the first time I can even remember. And this doesn't, this isn't just a vacation getaway. It's, it's weekends and the whole thing. All right. I should have a better understanding of these market realities, but certainly to the extent that a client who is an investor trying to derive a greater quality of life out of their investing, they invest towards the aim of more peace and more financial stability and more financial capacity. That's what investing does.

And therefore, the idea of having to be glued to what the market will do today or tomorrow morning is utterly counterproductive. At least I'm paid to take on that anxiety. But for you who pay me to take it on, it's utterly unnecessary. Now, habits sometimes break in a difficult way, but you get my point, I hope. Why do I feel somewhat sanguine about the current market environment? Well, I want to be real clear on this. I believe that it would be very difficult to not justify a modestly positive view about where we are right now when one considers

that the largest tail risk that had loomed over markets six months ago is primarily resolved. That we do not have a COVID outcome that will result in millions of Americans' demise, that we will not have an outcome of a perpetual and undetermined lockdown that takes away economic life. On the margins, there continues to be certain uncertainties, some of which may prove to be better than expected, some which may prove to be worse, but that severity of March-April is gone and has been gone for markets for a very long time. The other risk that had been pending was the notion of certain policy framework potentially coming out of the election results, single-party control that might drift to a more investor-unfriendly direction. And indeed, as we talked about last week, and as we have even

more clarity on this week, the separation of powers embedded in the United States form of government prevailed, and there will be checks and balances, and there will not be an outcome that is universally in line with what any one party or one voting constituency wants. Ergo, one party or one voting constituency wants. Ergo, the outcome for investors is not nearly as detrimental as some had feared. And by the way, to the extent that some had said, I just, I have to go to cash till we get on the other side of the election, or should I go to cash? I don't even know how many times I was asked that question. It was so many, I honestly lost count. And that was 3000 points ago. We went into the weekend before the election, Halloween weekend, 26,200 on the Dow. And at least as I'm sitting here recording right now,

we're at 29,200 on the Dow. And that's with giving back about 700 points of the market's big, huge move up earlier in the week, which is still up on the week, but not as much as it was. And my point is a 3,000 point move higher is what those who decided to exit the election in cash have lost, not counting other timing issues that could have affected that even worse. That's a big deal, but it also was an avoidable deal simply by remembering the principles that we're talking about. So back to the subject at hand, that COVID risk, that election risk being where it is and now facing the future, is everything coming up roses? Are we just in a perfect environment? Well, I'd say not. We've added a few trillion dollars to national debt. We're sitting here at the very

uncomfortable position of a zero bound risk-free rate. The risk-free rate at zero prices equities and real estate and risk higher, but it leaves less margin for error for risk management in the future. We do not know what the regulatory regime will be into the new administration. There am then, here's the biggest risk-facing markets, the things that I couldn't talk about if I wanted to, because we don't know what they are. We don't know what risks and uncertainties will jump out from behind the bushes. What I do know is that in November of 2019, the risk we were sitting here talking about for markets entering 2020 was not COVID-19. And that is what 2020 has been dominated by. Am I predicting a new viral pandemic next year? God, no. But am I predicting the certainty of some greater market volatility

around the realities of life? Yes, I am. And therefore, investors should be encouraged, not discouraged, because if there was not a risk premium in markets, there would not be a return premium. The notion that one can get a beautifully attractive premium return in their investing without taking on the risk premium of uncertainty is a lie. It's a fraud. And anyone who shares it with you is either part of that fraud or themselves intellectually incompetent. So as I get ready here to jump out, I do so with the utmost peace in knowing that we have survived

what have been a couple of really traumatic events of this year. There's plenty more work to do in front of us, not just on the medical and societal side of the COVID reality, but particularly through markets and through investing. There is a mean reversion that is yet to fully play out where significant assets are restored to their proper valuation in the universe. There is still ongoing need for optimizing portfolio allocation for each individual client in their own circumstances. Markets really don't sleep. But for now and for this weekend,

I'm recommending that people remember and that I reiterate to you the lessons that make all this possible. I hope this has been helpful and useful. Please reach out with any questions. And on Monday, I'll get back to you. Thanks for listening to and viewing the Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower Thank you. our advisors, LLC. This is not an offer to buy or sell securities. No investment process is free risk. There's no guarantee that the investment process or investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future 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 Thank you. of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice. This document

was created for informational purposes only. The opinions expressed are solely those of the Bonson Group and do not represent those of Hightower Advisors LLC or any of its affiliates. Hightower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client's individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor for any related questions.