I was in Washington, D.C. a couple of weeks ago.
Of all the amazing things that I saw – Japanese cherry blossoms in full bloom, grandiose monuments, a fossilized tyrannosaurus rex devouring a slain triceratops, and the tropical section of the United States Botanical Garden which transported me to my happy place: Old Town in Key West – the most impactful thing that I witnessed was at the National Gallery of Art.
It was Thomas Cole’s "Voyage of Life" series on full display.
Specifically, the idyllic depiction of boyhood in the "Youth" portion of his allegorical series.
Source: National Gallery of Art
Cole provided an artist statement for each of the four scenes in his "Journey of Life" series. Here’s what he said about his depiction of “Youth”:
The scenery of this picture—its clear stream, its lofty trees, its towering mountains, its unbounded distance, and transparent atmosphere—figure forth the romantic beauty of youthful imaginings, when the mind magnifies the Mean and Common into the Magnificent, before experience teaches what is the Real.
He continues:
The gorgeous cloudbuilt palace, whose most glorious domes seem yet but half revealed to the eye, growing more and more lofty as we gaze, is emblematic of the day-dreams of youth, its aspirations after glory and fame.
I can remember feeling like that. Sometimes, I still do. And youthful exuberance for life is something that we should all do our best to hold onto as we age.
But I know that’s easier said than done.
So does Cole.
You’ll notice that the peaceful stream in this picture winds through paradise and toward ominous canyons (on the right-hand side of the painting). The boy in the boat doesn’t know it yet, but there is major uncertainty ahead.
And Cole gets to that with his depiction of “Manhood”:
Source: National Gallery of Art
Quite a bit has changed, hasn’t it?
Here’s what Cole had to say about this painting:
Storm and cloud enshroud a rugged and dreary landscape. Bare impending precipices rise in the lurid light. The swollen stream rushes furiously down a dark ravine, whirling and foaming in its wild career, and speeding toward the Ocean, which is dimly seen through the mist and falling rain. The boat is there, plunging amid the turbulent waters. The voyager is now a man of middle age: the helm of the boat is gone, and he looks imploringly toward heaven, as if heaven’s aid alone could save him from the perils that surround him.
These paintings were finished in 1842. And, at least for me, they still ring true.
So far, so interesting. But what does any of this have to do with markets or investing?
Well…
The Happiness U-Curve
In 2008, Dartmouth Professor, David Blanchflower co-authored a study titled, “Is well-being U-shaped over the life cycle?” The paper concluded that human happiness is on an upside-down bell curve.
Source: Margaret Cox Henderson, PhD
Life satisfaction data varies from country to country. But in general, the study finds that babies, children, and young adults tend to be very satisfied… then things change.
Life satisfaction tends to trough around 40 and then begins to rise again, with elderly individuals noting child-like happiness levels once again.
Recent data is pointing toward the curve shifting, with unhappiness plaguing younger and younger individuals. That’s largely due to social media and the negative impact that it has on the psyche. Comparison is the thief of joy, after all.
However, my life has closely matched the original study data.
I thoroughly enjoyed my 20s. I was working for myself, focusing on travel, my wife, my dog, and my dreams of writing the next great American novel.
Then I turned 30…
I had kids, stopped sleeping well, saw my health diminish, and experienced immense pressure to support my growing family.
In other words, stress went through the roof.
I don’t know you personally, but I suspect you can relate.
Why?
In large part, financial freedom (or the lack thereof).
Children, new homes, college tuitions – these things are important. But they can also be expensive, sometimes very expensive. And they tend to roll around starting in your 30s and going well into middle-age.
But in retirement, there’s no more work to be done. And ideally, there are a lot of people (spouses, children, and grandchildren) to love. And when it comes to finding meaning, there’s a lifetime’s worth of wisdom to draw from.
But I would argue that one of the most important pieces of reclaiming the upward slope of the happiness curve in your later years is freedom… financial freedom.
So, how do you get there?
If you’re a longtime reader, you already know the answer.
This Chart Is the Answer
In a recent episode of the Wide Moat Show (catch up here), I shared this chart with our viewers.
It’s from “The Power of Dividends” study performed by The Hartford Funds.
It’s one of my favorite financial charts out there, clearly showing that high-quality dividend growers outperform over the long term.
But there’s a catch.
Many people lean toward speculation early on in their investing journeys, usually with little success. Ask a person in their early 20s what their favorite investments are. Invariably, the answer will be crypto, meme stocks, or crypto meme coins.
And if you do know any young people who “invest” exclusively in these “assets,” grab them by the shoulders and shake them until they come to their senses.
Individual investors who try to time the market and gamble on get-rich-quick schemes tend to do poorly and eventually wise up.
Right about the time that the happiness curve heads south, many investors realize that investing in relatively boring blue chips, or simply broad market indexes, is in their best interest as far as reaching financial freedom goes.
… Eventually.
The Boring Middle
This phase of life (in terms of our financial journeys) is often referred to as “the boring middle” by retirement planners.
Unfortunately, that’s a pretty apt description.
It’s the time when people are continuously investing, building up positions, while producing solid but not life-changing annual returns.
The power of compounding is real, but it takes time. And it’s not exciting. Sometimes, it’s downright dull.
But the chart above is your roadmap.
You’ll notice that the top-performing class of stocks is called “Dividend Growers and Initiators.”
It’s important to note that it’s not just “Dividend Growers.”
This segment of stocks includes companies that have recently started paying dividends and to me, this is where the sweet spot between speculative growth and boring defensive stocks lies.
Don’t get me wrong. I love a long-term dividend growth streak.
But sometimes, owning companies that have just begun dividend payments can be a winning strategy.
Companies like Alphabet (GOOG/GOOGL), Booking Holdings (BKNG), Meta Platforms (META), and Salesforce (CRM) have all recently initiated dividend payments.
These stocks often fly under the radar of income investors because of their relatively low yields and the fact that they won’t show up on any dividend aristocrats lists. But that’s short-sighted.
Sure, the yields on these stocks are less than 1%. However, they offer double-digit fundamental growth prospects and very conservative payout ratios, pointing to the ability to compound their dividends at rapid rates moving forward.
They’ve all provided fantastic total returns over the last five- and 10-year periods, meaning that anyone who anticipated these cash flows turning into dividends is already extremely happy with their investments.
[Note: Below, EPS stands for earnings per share.]
Because fundamental growth supports both share price appreciation and dividend growth, I suspect that these trends will continue.
What’s more, there are other non-dividend paying companies today whose secular growth tailwinds will undoubtedly lead to strong cash flows – and shareholder returns – further out into the future.
When looking at growth stocks, it’s impossible to know which ones will turn into a dividend aristocrat decades down the road. But one thing is certain. If you’re able to pick a winner like this and have the patience and discipline to hold onto shares over the long term, you’re very likely to accelerate your journey towards financial freedom… and happiness.
The SWAN Recipe
Brad and I broke down the “SWAN Stock Recipe” during this week’s episode of The Wide Moat Show (again, catch up here).
The main ingredient won’t surprise you: Safe, growing, and yes, relatively boring, dividends.
This is not the only piece of the puzzle. It’s okay to allocate funds towards a high-conviction secular growth idea.
And the good news is, you don’t have to go overboard to accelerate the retirement process.
Looking at the Hartford Funds data above, just a few thousand dollars allocated toward a big winner can make a big difference a few decades down the road.
Cole is right.
Life is magnificent. Don’t lose sight of the daydreams of youth. Weave them into your plans as you age. And use the excitement they bring to get you through the boring middle so that you don’t have to wait until you’re 70-plus years old to experience childlike joy again.
Regards,
Nick Ward
Analyst, Wide Moat Research