John B. Keown of The Graham Investor recently enticed the reclusive Mr. Market into his first-ever interview. Among other things, Mr. Market revealed that he is not really manic-depressive, but that he does control market prices and sets them crazily sometimes. He gets fun out of watching humans react.
The interview apparently went pretty well, because Mr. Market agreed to let me talk with him about dividends. I’ve been trying to get Mr. Market to speak on the record for years, so I am thrilled with this opportunity. Perhaps Mr. Market is learning, as Warren Buffett has learned, that media exposure has its rewards. Maybe we’ll see him on CNBC soon. I particularly wanted to get his views on dividends and dividend investing.
Dave Van Knapp: Thank you for agreeing to this interview. You are a hard man to pin down.
Mr. Market: You’re welcome. I’ve always distrusted media types, but my interview with that Graham Investor fellow was not bad. I don’t think I gave away too many secrets.
DVK: Well, he certainly didn’t get you to reveal much specifically, but your basic nature came through. I think it’s good to remove a little mystery about yourself after all these years.
MM: Centuries. I’ve been doing this for centuries.
DVK: I see. In that interview, you said that you set prices according to what investors are willing to pay, and that often they are willing to pay outrageous prices. Have you found that this trait never changes?
MM: Never. You humans are ruled by your emotions, and they are pretty predictable to a higher-order thinker such as myself. I know you all have identified greed and fear as the controlling emotions, but really there is a whole gamut that I can prey on—hope, panic, euphoria, herd instinct. Really, you guys are emotional gold mines. And by the way, as I said in the earlier interview, although I do set prices, I don’t cause the booms and busts. You guys do that yourselves.
DVK: I want to talk to you about dividends and dividend investors.
MM: I knew that. Go ahead. [look of derision]
DVK: Well, just to get started, what’s your general thinking about dividends?
MM: Dividends are a crazy invention. I’d like to see them banned.
MM: Because it’s harder for me to mess around with dividend investors. It takes some of the fun out of what I do. It’s harder to entice dividend investors into accepting crazy prices than the other ones. But [smiling] it’s not impossible. Actually I enjoy the challenge.
DVK: In your earlier interview, you said that value investors who examine stock fundamentals and try to ignore you are harder to suck in. Do you put dividend investors in that category too?
MM: Yes, of course. Dividend investing is just a form of value investing, isn’t it? Look, no disrespect, but at some point are these questions going to get harder? I’d like some intellectual challenge here.
DVK: I’ll see what I can do. How about this—Some dividend investors think that their approach renders you irrelevant. They say that “dividends disintermediate the market,” meaning that they flow directly from the companies to the shareholders, and that you don’t have anything to say about that.
MM: Is that a question? Here’s what I think about that: It’s BS. Everybody knows that total return is made up of price return plus dividends. Usually dividends are a small part of that total. So dividend investors care about price, no matter what they say. I know some of them try to deny it, but they do care. They can’t help it. They have the same emotions as everyone else.
DVK: Actually, dividends make up about 40% of total return in the average year, and if you count reinvested dividends over very long periods of time, dividends create over 75% of total return. So how is price relevant to that?
MM: [laughing] Ha! You just said it yourself! “Reinvested dividends.” Well, little human, who sets the price at which those dividends are reinvested? I do! And I set the prices at which dividend investors buy their stocks in the first place, and at which they sell them too. They can’t get away from me. I control prices. If you want to buy a stock, you have to pay the price. My price.
DVK: Then why do you want to see dividends banned?
MM: It’s just harder and less fun for me, that’s all. Like the Graham wannabes and value investors, the dividend people seem to be a little more disciplined. They resist my skewed prices better. They are not always part of the herd. But I still get ‘em.
MM: Like I said in the earlier interview, the human mind doesn’t want to miss a good thing. All I have to do is set prices real high and keep them there, and you dividend investors come running like the rest of the sheep. Once you do that, I have you trapped. Look at what happened in the dot-com bubble! [laughing hard] Everybody forgot about dividends. And I mean everybody. Besides, even if they cared about dividends, the yields dropped to nothing. Who gave a rip about 1% per year when you could make 25% just by buying an index fund?
DVK: But even during the dot-com bubble, dividends still continued to increase at many, many companies, just as they always had.
MM: Of course they did! But nobody noticed, did they? Ha!
DVK: The market’s been going up the last few weeks, do you plan to keep it going up until Christmas?
MM: Sorry, can’t tell you. I’ll do whatever I feel like doing. I must admit, I do like to create some good feelings around the holidays. Some years, anyway. We’ll see, I haven’t decided. It’s not even Thanksgiving yet.
DVK: What do you think about mutual funds and ETFs?
MM: Love ‘em! It just makes it easier for me to herd everybody together. People assemble themselves in groups, and they do it on their own! I can move a whole bunch of people around at the same time. Fantastic.
DVK: Well, Mr. Market, thank you very much for this opportunity. I know you are very busy. I do hope we can do this again some time. I’d love to see your control room.
MM: Doubtful. I can tell you what one little dial shows, though.
DVK: What’s that?
MM: [cackles] That the current yield of the S&P 500 is 2%. Ha ha ha hahaha. [tries to catch breath] Sorry. I must admit that these interviews are not bad. Do you think you can get me on the cover of Time?
DVK: Sorry, I don’t have that power. Maybe the front page of Seeking Alpha.
MM: Never heard of it.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.