Stop Gambling on Sports, Stocks, and Predictions Right Now
We're concluding our special series of interviews this week... and this last one is phenomenal.
Again, the folks who I've sat down with are, in my opinion, some of the top thinkers on markets and investing.
My previous interviews featured Ben Hunt, head of AI-research firm Perscient, and Carson Block, founder of investment firm Muddy Waters Research.
This week, I'm sharing my interview with David Bahnsen, the founder and chief investment officer of the Bahnsen Group.
Bahnsen manages more than $9 billion in client assets. He has a deep and abiding interest in economics and how understanding it can help humans flourish.
So, of course, I wanted to get his thoughts on how to build real wealth in the stock market.
Bahnsen and I agree, you won't get rich by gambling.
As we discuss, so many investors today use prediction markets, sports betting, and reckless trading to try and shortcut the proven path to wealth.
If that's you, please stop right now.
Bahnsen and I talk through how to do it better, why so many young folks today are "anti-capitalist," and what human nature tells us about AI and the future...
Three Big Ideas From David Bahnsen
Stop Gambling. Start Compounding.
The young investor attracted to meme coins and prediction markets isn't irrational.
They're plain wrong.
Bahnsen has a term for what drives the gambling impulse in younger generations: envy.
Not greed. Envy.
Charlie Munger said it first, and Bahnsen agrees: People aren't chasing returns because they're greedy. They're chasing returns because someone else got there first.
We tend to measure ourselves against that guy who hit a 10-bagger on bitcoin... or the friend who seems to be living a life you can't afford.
But gambling and prediction markets are a zero-sum game. That means the winners only take from the losers. There's no overall growth in value.
And if we're being technical, betting is really less than zero-sum... because the house takes a cut.
Investing in real businesses can create wealth for all.
A company buys inputs at one price (i.e., raw materials and labor) and sells its output (i.e., goods and services) at another. It creates value. And that value compounds.
Bahnsen's pitch to the skeptical young investor: Buy a stock yielding 4% today. It may be a boring business. But that dividend will grow over time, and the share price will compound.
Before long, it creates real wealth. And that's not luck. It's math.
What Young People Call 'Anti-Capitalism' Is Actually Something Else
A lot of young people today say they're "anti-capitalism."
When Bahnsen asks what they mean, almost every time, what they describe isn't capitalism at all – it's cronyism.
Capitalism is an economic system in which trade and industry are controlled by private companies looking to make a profit. It's built on fair competition and customers deciding who "wins."
Cronyism is when government and business get cozy enough that the rules of capitalism stop applying. It involves unfair advantages and making the right connections. In cronyism, powerful people and corporations often decide who wins.
Take Amazon's (AMZN) 2017 to 2018 "beauty contest"...
The e-commerce giant held a competition where U.S. cities could bid to be home to its second headquarters. Cities offered tax breaks, land and infrastructure support, and even rapid permitting.
Tax breaks nobody else gets... City funding no small business could ever access... And speedy regulatory approval for only the biggest players.
That's the definition of cronyism. And it suits big players like Amazon just fine because it walls out the competition.
Economist Adam Smith wrote about this all the way back in 1776. And it wasn't new then, either.
Bahnsen is as anti-cronyism as anyone could be. He believes that free enterprise – as expressed through a capitalist economy – is the best way to create the most wealth for all.
And he says many of the problems that appear to arise from capitalism stem from areas where free enterprise is diverted toward the goals of others in power.
AI Will Transform Everything – Except Human Nature
Nobody knows which AI company wins. Bahnsen's honest about that.
In the same vein, nobody knows what AI will look like two years from now – let alone 10.
There's no doubt that jobs will get displaced. The worry that technology will eliminate jobs has surfaced with every major tech shift in history.
But we also don't know exactly what the economy will look like in the near future... because human wants are infinite.
Human beings never stop wanting more. They satisfy one need and invent two new ones. That dynamic is what creates new industries, new jobs, and new categories of work that nobody could have predicted.
As an investor, humility is key.
Bahnsen was around for the Internet boom. Every single revenue model predicted in 1997 was wrong. The actual business models that worked came later, from companies nobody expected. He sees the same story unfolding with AI.
His investment approach for AI is this: avoid the mania, stay humble, and favor the companies that use AI rather than the ones racing to build it.
The end users – companies with real cash flows and growing dividends – are likely to be the quiet winners. They always have been.
Watch to Learn More
To hear more about my discussion with David Bahnsen, check out today's Top Stocks video. We sit down to critique our gambling culture, praise dividend stocks, and look at life in the age of AI.
You can watch the entire episode on our YouTube page by clicking the image above. Be sure to like and subscribe to get more of our videos.
Straight to the Source
- The Dividend Café, Bahnsen's ongoing market commentary
Until next week,
Matt Weinschenk
Publisher and Director of Research
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