Newt Gingrich and David Bahnsen Explore a Different Way to Think About Investing, Profits, and Long-Term Wealth.
Markets reward innovation, but they can also reward speculation, herd behavior, and the temptation to chase whatever happens to be rising at the moment. In his new book, Profit From the Profit: The Past, Present, and Future of Dividend Growth Investing, David Bahnsen argues that investors should return to a more fundamental question: What does it actually mean to own a business?
On this episode of Newt’s World, Newt Gingrich talks with Bahnsen about the philosophy behind dividend growth investing, the lessons of the dot-com collapse, today’s artificial intelligence boom, and why even extraordinary companies can become poor investments when valuations become disconnected from reality. Their conversation moves beyond picking stocks to explore human nature, work, ownership, patience, and the remarkable ability of profitable businesses to create wealth over time.
Listen to their conversation below, or scroll down for an edited transcript
Edited Transcript
This conversation has been condensed and lightly edited for clarity.
Newt Gingrich
You’ve been on the show twice before, but this is a brand-new book and essentially a sequel to The Case for Dividend Growth, which came out in 2019. What changed in the markets, in your thinking, or in your own experience that made you feel this argument needed to be revisited now?
David Bahnsen
My thinking and the philosophy behind what I believe did not change. But seven years of additional development in markets, the entire COVID moment, and the entire AI moment have all taken place since that book came out.
Good philosophies and good first principles require ongoing application and revisiting. That’s really why the sequel was written, to update the thesis and review it in the context of the world we live in now.
Newt Gingrich
You began investing in the second half of the 1990s, and you went into professional money management just as the tech bubble was imploding. What did that wild ride teach you?
David Bahnsen
It taught me that our profession was very attracted to selling what didn’t need to be sold. People presented the things people wanted to buy, and that was a great way to blow up a career, but it was also immoral.
If you’re going to take a fee to give advice, you had better believe in the advice you’re giving.
It taught me to avoid bubbles. It taught me to avoid the mania of the moment, even if it alienated me from people who wanted to participate in those things. It was my moral and professional duty to help them avoid it.
Newt Gingrich
You talk in the book about the difference between an investment strategy and an investment philosophy. What is the difference, and why does it matter?
David Bahnsen
Supply-side economics is a philosophy that believes in promoting incentives and removing disincentives to promote production in the economy. Reducing marginal tax rates is a strategy. It’s a way in which you apply the philosophy.
I view my philosophy as this: You create value in public equities by producing goods and services profitably. It is a byproduct of human action, and it is not zero-sum.
Dividend growth is the strategy. But I have to start with the first principles of where that strategy comes from.
The philosophy is that humankind is constantly capable of generating profits. That’s where dividends come from, and that’s where investor returns come from.
Newt Gingrich
Given your model, doesn’t it actually lead to an optimistic belief that there are always new ideas, new technologies, and new opportunities?
David Bahnsen
It very much does. That philosophy derives from my belief that human wants and needs are unlimited, and therefore the solutions to those wants and needs are unlimited.
I believe we’re made to constantly produce, innovate, and create. If someone wants to say that, after thousands of years, we’re now hitting the wall on human ingenuity, they’re welcome to say it. But I’ll take the other side of that bet all day.
Newt Gingrich
You say you don’t buy the stock to get the dividend. You buy the dividend to get the stock. What does that mean?
David Bahnsen
There are people who would interpret dividend growth investing as saying the benefit is simply the cash coming from a company.
What I’m saying is that behind the dividend is the source of the wealth. You own the company.
The dividend is not the ultimate purpose. The company is what you want, but the dividend is the fruit of it and the evidence of it.
You can’t get a repeatable, sustainable dividend without a great company behind it. What I want is to buy great companies. By limiting my search to the dividend, I’m looking for businesses capable of sustainably producing profits and returning capital to shareholders.
Newt Gingrich
Young investors are often told to take more risk and chase growth while they’re young, then worry about income and dividends when they’re approaching retirement. You argue that’s mathematically and historically flawed. Why?
David Bahnsen
A lot of it deals with human psychology and this notion that young people are going to time their entry well and time their exit well.
When something is still working, don’t you feel tempted to ride it out a little longer? Yet if something goes up dramatically and then falls 50%, you’ve given up an awful lot of that return very quickly.
History has not been kind to those who have played timing games with this stuff.
There are companies I’ve owned that are now paying me 30% per year on what I paid for the stock two decades ago. They weren’t high flyers. They were normal compounders operating in this wonderful U.S. economy.
I think that’s a great story for young people.
Newt Gingrich
You make the point that Cisco’s stock collapsed during the dot-com era even though the company continued earning a tremendous amount of money. What happened?
David Bahnsen
Cisco’s operating earnings only went down in the year 2000, and yet the stock went down 90%.
They were simply too expensive at the peak of 1999 and early 2000.
You can have a company bought at the wrong time that performs very well, yet based on your entry point, it becomes mathematically very difficult to make money.
Microsoft was essentially flat from 2000 to 2016 despite its dominance in enterprise software. Intel was flat. The NASDAQ was flat for 16 years.
And this was during one of the most innovative periods for technology in human history: the internet, cloud computing, and social media.
Entry price and valuation matter.
Newt Gingrich
You manage about 35 stocks. What does that discipline look like in practice?
David Bahnsen
It’s a very research-intensive, bottom-up approach.
You have to respond to what has happened in the news. During earnings season, companies release quarterly results and give forward guidance. There may be numerous analysts releasing research on these companies.
We have new money coming into our firm every day, so we’re continually deploying money into markets. At our size, we have to be meticulous about how we’re doing that.
Newt Gingrich
You close the book with a Charlie Munger line that the big money isn’t in the buying and selling. It’s in the waiting. What does that mean?
David Bahnsen
As an investor, you’re allowing markets to work. You’re allowing company management to work. You’re allowing market forces to play out.
Whether it’s McDonald’s, Coca-Cola, or smaller companies, you’re looking at human needs that aren’t going away.
The returns that can come from waiting for all of this to play out can be incredible.
You do not have to be Elon Musk to generate wealth. You can buy dividend growth companies and wait for markets to do what they do. It’s a beautiful thing.
About the Guest
David Bahnsen is the founder, managing partner, and chief investment officer of The Bahnsen Group, a private wealth management firm managing billions of dollars in client capital. He previously served as a senior portfolio manager and managing director at Morgan Stanley. Bahnsen is a frequent financial media contributor, writes The Dividend Cafe, and hosts Capital Record for National Review.
His latest book, Profit From the Profit: The Past, Present, and Future of Dividend Growth Investing, builds on his earlier bestseller, The Case for Dividend Growth, and examines the philosophy and practice of owning profitable companies for long-term wealth creation.
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