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I caught up with Mr. Market recently for another interview about dividend growth investing. (You can check out his first interview here: "Here's What Mr. Market Says: 'Ban Dividends'.") He's having a busy summer, what with the numerous scandals plus keeping up with everything in Europe. On the other hand, summer is his slow season, with so many Wall Streeters vacationing in The Hamptons and out on their yachts. The well-known recluse was able to squeeze me into his schedule.

As I expected, he started right out showing that he views humans dimly.

Dave Van Knapp: How are you doing? How is your summer going?

Mr. Market: Look, I don't have much time here. Don't try to butter me up. Just get to your questions.

DVK: OK, sorry. What do you think of the Libor scandal?

MM: I really don't know much about it. My cousin handles interest rates.

DVK: Really? Is this a family business?

MM: Of course. It has been that way for centuries. We like to reminisce sometimes. The tulip bubble was hilarious. We still get a kick out of that one.

DVK: How extensive is your family business?

MM: My family controls everything. Interest rates, the bond market, the stock market, everything. We love to watch you humans react to what we do.

DVK: Well, how much do you yourself control? American markets? Foreign markets?

MM: I control all stock markets everywhere. They're all the same really. Human nature never changes and it is the same worldwide. We've never seen a need to split the job up. Of course, you realize that "foreign market" to you is a domestic market to someone else? You do get that, right? Ha-ha.

DVK: Yes, sure. Well, anyway, I wanted to talk to you about dividend investing again.

MM: I know that. Please get on with it. I have to take my meds in a half hour.

DVK: OK. There's been some talk going around that dividend stocks are in a bubble. What do you think?

MM: See, that's what I mean about human nature. You humans are always trying to categorize things, label things, put them into boxes. Do you know what our family calls that?

DVK: Um… Human nature?

MM: Goodness, I already told you that. But here's the word we use for it: framing. How you frame things impacts how you think about them. Your problem, little human, is that you work backward. You see a tiny speck of information about something, and you immediately generalize that out to some sort of framework, and you label it. That's OK. But then you dump other things into that box, and then you think you know details about the other things because of the box you tossed them in. Instead of looking for more actual information, you work inward from the frame. You assume that the label you stuck on something tells you details about that thing. It's really stupid.

DVK: Let me see if I follow you. Let's say I tell someone that a stock is a dividend growth stock. Then if they automatically assume from that label that it is a huge company, because lots of dividend growth companies are big, they have been misled by the label?

MM: Exactly. It could be a cruddy little pipeline company somewhere in Arkansas, but they never consider that. The framing causes them to close their minds. It works every time! Ah-ha-ha.

DVK: But wait. What do you mean, "it works"? You told me last time that you just control prices, not how humans react to them. You let humans create things like manias and depressions from their reactions to the prices you set. You're not saying that you can directly open and close people's minds, are you?

MM: No. You're right. But I was just using that as an example of how you humans never change. You all make the same mistakes over and over. It's been happening for centuries, and it will happen for centuries more. I know what you are going to do before you do it.

DVK: Didn't you just make the same mistake? You lumped all humans into a box called humans, and now you're making generalizations about all of us. I think that's a crock. Everybody's different. You know that we have a whole field called behavioral finance that is looking at how we think about economic things, identifying common errors, and working to overcome them.

MM: Of course I know that. But what happens? You identify a trait, like overconfidence, and then some of your human experts [spitting out the word] declare that everybody has that trait, no exceptions. It's gotten so that shoeshine boys think that they understand human behavior because they've heard of these traits. Overconfidence. Recency bias. I tell you, it's hilarious watching this from up here … ha-ha-ha. Some of these people even have PhDs!

DVK: The shoeshine boys?

MM: Well, yes. Anyway, aren't we off topic? Wait, I bet I know what you were going to say next. That dividend investors are immune from these foibles, because they don't care about price. Am I right? Am I right?!

DVK: Yes, something like that. We don't care so much about price, so we don't react the way you say everybody reacts to your crazy price offers.

MM: Be careful. Don't call me crazy. I do have to admit, some of you are pretty disciplined about it. But you all crack sooner or later. Always have, always will.

DVK: There you go again with the generalizations.

MM: Well, you are generalizing about dividend investors if you think that just because they've labeled themselves that way, they'll never crack. Are you trying to tell me that no dividend investor has ever sold a perfectly good stock just because I offered him a beautiful low price on another stock? Or that no dividend investor has ever "taken profits" when I offered him an absurdly high price on a stock that he already owns? You know it's true. You can't lie to me!

DVK: Well, of course those things happen. It's all part of the larger strategy of increasing the dividend stream.

MM: You are unbelievable. You think you can rationalize anything. What is this, a cult or something? I'll get you too. You own McDonald's (NYSE:MCD), right? Did you sell any when I offered you $100 for it?

DVK: No.

MM: OK, what's your price? $105? $110? $125? I'll get you somewhere. Your position will grow so large that you think you ought to rebalance. Ha-ha-ha. Or the price will be so much more than you paid for it that you'll tell yourself that you can capture five years' worth of dividends just by selling a few shares. Or, wait, I know, the current yield will drop so low from the high price that you'll sell because you think you can get a better yield elsewhere. That's it, isn't it? In fact, I'll offer you a value meal: A high price on McDonald's and on the very same day a low price on Waste Management (NYSE:WM). You won't be able to resist! I'll have you, right? You'll want to swap McDonald's for Waste Management!

DVK: Yes, I think I might go for the value meal.

MM: I knew it! Just wait. Watch for it, it's going to happen, maybe soon. Glad you came around to my way of thinking. Well, I gotta run. My meds are around here somewhere.

DVK: I think they're in your pocket. There's a bunch of powder spilling out. I think you crushed them when you were laughing so hard.

MM: Man, I hate when that happens. Listen, we'll do this again some time. How did the first interview go on -- what's that site you told me about? "Desperately Seeking Alpha" or something?

DVK: It's called Seeking Alpha. It went over pretty well, I think they like you there. Haven't you looked at the site yet?

MM: No, I've been watching CNBC. What a hoot! But I'll check it out. Maybe we'll talk about it next time. I gotta go back to my room and get some new pills. Have you ever tried to mix these bits and pieces with water and drink your meds? It's enough to make you choke. Can't take the chance at my age.

Hat tip to Dividend Growth Machine for inspiring this article with a recent comment.

Source: Mr. Market Says Dividend Investors Will Succumb