The Dividend Cafe - Where to Begin?

Episode Date: January 8, 2021

Where to begin, indeed. It may have been exactly the kind of week investors wanted to start off 2021, but it certainly wasn’t the kind of week anyone wanted to start off 2021 from the vantage point of our country, her peace, her well-being, and her example to the world. The concept of a city on a hill is not working well, and this patriot feels total exasperation and desperation. But I do know the readers of Dividend Cafe do not come to this publication for perspective on national conscience or psyche, especially not my clients. I believe there is a lot in this week’s Dividend Cafe that you will want to read, that matters to investors, that can better inform your beliefs and understandings in financial markets. So I am going to do what I normally do, and welcome any questions and comments any of you may have – as always. 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, welcome to this Dividend Cafe, I guess in a sense, the first Dividend Cafe of 2021, although we did a kind of special two part deal earlier in the week. But yeah, as far as our regular weeklies, here we go. kind of special two-part deal earlier in the week. But yeah, as far as our regular weeklies, here we go. Welcome to 2021. You know, I'll say the same thing here on the podcast that I kind of kicked off the written Dividend Cafe commentary with this week. It's quite a great first week of 2021 for investors and quite an awful first week of 2021 for so many other things.

And I'm sure everyone knows what I'm talking about. But look, the big question I think that might be on people's minds right now, just literally in the moment of this week or the last few days or whatnot, is why the markets have done so well. And yet there is this just obvious, really significant strain in the national psyche and agony over the events of what took place the other day, visual imagery. And we saw a lot of the social unrest over the summer, a lot of violence, a lot of vandalism. And markets did kind of find through it. It was mostly restricted

to a few different cities and so forth. But I think that there is a symbolic issue around what we saw take place at our own Capitol building, the nation's Capitol on Wednesday. And so I imagine all of you have various sources of news and sources of commentary and editorial that you may go to that have scratched your itches this week in terms of reading more, understanding it more, hearing more, how to think through it, whatever. And I don't think I'm one of those sources. I think that people listen to it in cafe for investment and market commentary. There's always inevitably, I don't really shy away from it, intersection of those things with politics and with philosophy and other areas. But in this case, I don't want to over saturate what's already been widely discussed. It was, you know, I, I was

just utterly appalled at what I saw this week. I was really, frankly, more depressed. And yet, I'm not surprised the markets shrugged it off, because I really have have tried to studiously understand what makes markets operate for many, many years of my adult life. And it's my job to try to articulate those things to you. And I believe that it is inconsequential market event, what took place this week, that we last week had a certain amount of headwinds and tailwinds in the market, and that next week those same exact headwinds and tailwinds are still in place. Various good factors, various bad factors. What will drive asset prices is never going to be as correlated to the big cultural moments and big political moments as

we may think. It's very easy to bore those categories. I don't let those categories get bored in the way that I actually manage money. But right now, I'm not even so much talking about what real portfolio positioning is involved. I'm talking more about the way we think about these things and why they might be separated. There was a pretty extensive amount of work that had been done. I think I've really overworked my team this week and I know the mental preparation and the actual writing itself that I did personally to get to the point of preparing the 2020 recaps and perspectives in 2021 outlooks and perspectives was vast and yet I feel it really important to try to provide that value that perspective as one thinks about how they want to be positioned, as one sort of considers how they want to think about their portfolio, state of their financial

goals and strategies that are aligned to those goals. And so I do hope that if you're listening to this podcast right now, you did listen to the part one, which was the 2020 recap that we did earlier in the week, and then the part two, which was the 2021 forecast and themes and so forth that we have. I'll color a few little things in right now that at DividendCafe.com, as much as any that we ever do, the written I think this week is superior to the podcast you're listening to or the video you're watching because the charts that are there, I think, are really, really interesting. I mean, they're interesting to me. Otherwise, I wouldn't have put them in.

But also just myself. Actually, I have it printed out right here. here. Taking 2020 and breaking it into the three phases, like the pre-COVID phase, the during COVID peak panic, national margin call phase, and then the post-COVID peak phase, and looking at what sectors and what asset classes did what in each of those phases, and then how that blended through the whole year. Looking at just the gravity and the violence of the drawdown and you look at these asset classes that were down 30 percent, 40 percent, 60 percent. And then you see their end of the year number that was up 20 percent. You know, and it's the same asset classes.

But that's how significant the drawdown was on the way to those total returns. but that's how significant the drawdown was on the way to those total returns. So I think that there's some new charts in this Dividend Cafe of today that I really hope you'll be able to check out. But that's kind of what the major theme is, reiterating what we already know about market volatility, about the need for addressing it with asset allocation, of pacifying the up and down movements that can be so disruptive to our own emotional well-being through the process of asset allocation, of incorporating less volatile assets. That overall theme right now of growth rotating into value

is most certainly one that we've been on for a while. And it's one that I expect is now, you know, picking up steam and will continue to pick up steam. It won't go in a straight line by any means. But I think you have a lot of historical support. I put a chart in there as well of just real secular periods of time. Throughout the 1990s, growth outperforming value. And then the next decade, value just trouncing growth. And then in the last decade, of course, growth having its run. And now here we go into this next cycle.

And yet I also want to be careful when we talk about the difference between absolute and relative returns. If one believes that, for example, value is going to outperform growth on a relative basis. I did not say that growth would be down 20. I didn't say growth would be up 10. It's just simply that the belief in that situation is that growth could be up X and value would be up something more than X and generally something meaningfully more than X. And I think that those trends have played out and there's really, really good economic reasons why. It isn't just coincidence or happenstance right now it's primarily valuation driven it's these are the ebbs and flows of markets and their

own embedded cyclicality capital if you recall is always in forever on this never-ending insatiable search for its most rational and best use and finding things that are at an abundant valuation gets to a point where it becomes somewhat irrational or somewhat suboptimal and it rotates into where it could find a better use, which may be in more undervalued assets. And that's sort of this rotation that I'm advocating for. I could get even more specific from there. I'll spare you another dividend growth sermon right now, but that's certainly the way in which we address some of the tensions that are embedded in those unknowns,

is by finding dividend growth equities. I almost can't resist the temptation to go down that tangent right now, but I won't just in the interest of time. And I also hope that maybe some of you are a little sick of hearing my voice because I feel like I've been talking to you and writing at you quite a bit here this week. So I'll give you a little breather from your David Bonson intake as well. from your David Bonson intake as well. The absolute relative issue doesn't really solve for what could actually happen in a meaningful way to the investor. It just talks about one versus the other. And that's another thing I would say,

and I talk about this in DividendCafe.com, is that same concepts at play when we talk about, I anticipate a weaker market in 2021 than 2020, and I anticipate a stronger economy in 2021 than 2020. And so last year, you had a very weak economy, a very strong market. And I think this year, those things reverse relatively speaking. But see, it's kind of an easy call to say that about the economy when you had that violent economic contraction in the middle of 2020. And the idea that the economy itself should be stronger in 21 is kind of a no-brainer. But then some may say, well, wait a second.

If the economy is stronger, couldn't that mean the market is even better in 21? Probably not, just in the sense that the multiple expansion that was necessary to get the S&P up 16 last year and the NASDAQ up 40 last year has put it to very, very stratospheric levels. To really outperform last year's performance, for the NASDAQ to go up another 40%, you kind of go into a mother of all bubbles that would be somewhat incomprehensible. But then what that does leave you with is a sort of worthlessness to the statement because all you're saying is that the NASDAQ will be up, will perform less than plus 40 this year. So that could be negative 40. I wouldn't rule that out. And it could be positive 20.

I wouldn't bet on that, but I wouldn't rule it out either. So, you know, plenty of people would be real happy with a 10%, 15% return in a market index, and yet that would meaningfully underperform last year's. So that's why I don't think it's very helpful or actionable. It doesn't speak to the reality of goals-based asset allocation, how we want to allocate a client portfolio in the present context. But I do think it's a good paradigm to be thinking about and framing expectations around. The investment markets are not likely to do as well this year as last year.

The economy is likely to do better. I sure pray that it will. I think of the 140,000 leisure and hospitality people that lost jobs in December and pray that they find new jobs as economy reopens and as we go into a more advanced phase of economic recovery in, Lord willing, a couple of months. So like I said, I want to give you a breather from my voice, so I'm going to leave it there. I covered most of the things we kind of address in this, uh, Friday Dividend Cafe. Um, but I gave you plenty of content this week. Maybe some of it will find its way into your player this weekend.

I haven't brought this up in a while, but let me just real quickly say on speaking of your player, I really do hope that if you're a podcast listener or a YouTube, um, video watcher that you are subscribing. So it comes through your feed. If you are just watching it week by week by linking, that's great. You're getting the content, but it really is better for us and frankly easier for you if you do it that way by subscribing. And so I just wanted to mention that from a housekeeping perspective. All right. Thank you, as always, for listening to and viewing the Dividend Cafe. Have a wonderful weekend. May your NFL teams win their playoff games.

And may we go back into the second week of 2021 next week, a better and more prepared country. Take care. God bless. Thank you for listening to Dividend Cafe. Take care. God bless. Thank you for listening to Dividend Cafe. The Bonson Group is a group of investment professionals registered with Hightower 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 of risk. There is 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. 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 express or implied representations or warranties as to the accuracy or completeness 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.