What Is the Market? Why Your Definition Shapes Your Returns

The news says the market is down, up, sideways... but which market? The Dow, the S&P 500, SCHD, gold, real estate—on any given day, they're all doing something different. If you don't know which market is actually yours, sooner or later, one of the others will seduce you into a move you'll regret.

In Episode 60, Greg takes on a question that sounds almost too simple: What is the market? Using six real-world examples—from dividend ETFs to Denver office towers to SpaceX ($SPCX)—he shows how dramatically different markets can move in completely opposite directions at the same time and why investors who haven't clearly defined their market tend to react to the wrong signals at the worst possible moments.

The clearest example is SCHD, Schwab's dividend ETF. From 2022 through 2025, it lagged the S&P 500 by a wide margin in three of four years—enough to break most investors. Then 2026 hits: SCHD is up nearly 20%, and the S&P is under 9%. The investors who stayed were right all along. They just had to get comfortable with 3 years of underperformance to realize the benefit. Greg explains why that gap—between being right and feeling right—is where a lot of investors lose focus.

The same pattern runs through two 29-story office towers in downtown Denver that sold for $5 million total, while the equivalent square footage five miles away in Cherry Creek would fetch over $63 million. Or Microsoft ($MSFT), which swung from $550 to $355 to $460 to $390 in a single year while its dividend grew at 10% annually without interruption. Price and value are not the same thing—and once you know which market you're actually in, the noise from every other market gets a lot easier to ignore. 

All kinds of “markets” can work. The investors who build wealth aren't necessarily picking the best one; they're staying committed to the one that works for them.
 

Topics Covered:

 [00:11] Introduction & 5th Year Anniversary
 [03:06] What Is "The Market"? Defining the Question
 [06:04] SCHD vs. S&P 500: Four Years, Two Very Different Outcomes
 [10:00] The Three Tiers of Dividend Investing
 [12:53] Denver Real Estate: Same City, Two Different Markets
 [19:28] Gold: A Market With Its Own Rules
 [21:35] SpaceX: When Valuation Defies Convention
 [24:19] Microsoft ($MSFT): Price vs. Value in Real Time
 [27:30] Takeaway: Pick Your Battles, Win the War
 [31:34] Close: Get on the Line and Stay on the Line (GDP Eventually Goes Up)

________

 📖 Free Book: Dividend Growth: The Quiet Engine of Wealth 

Dividend growth investing sounds simple, but doing it well for decades is not. That’s why we wrote Dividend Growth: The Quiet Engine of Wealth—a practical guide to building a framework you can stick with when things get uncomfortable. You can get a free copy here. 

📰 Monthly Newsletter: Observations on the Market 

📧 Questions or comments: dcm.team@growmydollar.com

________ 

Resources:

📅 Schedule a meeting: Financial Planning & Portfolio Management
📊 Getting into the weeds: DCM Investment Reports & Models 

________

If you found this valuable, subscribing and leaving a review helps more investors find the show.

Instagram | Facebook | LinkedIn | X

________ 

Disclaimer: Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risks involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.

Transcript

[00:00:11] Greg Denewiler:

This is Greg Denewiler, and you are listening to another episode of The Dividend Mailbox, a monthly podcast about dividend growth. Our goal is to stuff your mailbox full of dividend checks. When they grow over time, a funny thing happens: you create wealth.

[00:00:41] Welcome to episode sixty of The Dividend Mailbox. This is our fifth-year anniversary of doing the podcast, and it happens to coincide with our newsletter, which happens to be the thirty-fifth anniversary—never missing a month, putting out observations on the market. If you haven't looked at the newsletter, encourage you to take a look.

[00:01:10] But in this episode, this one's gonna be a little different angle. We're gonna ask a simple question: just what is the market? We're gonna look at the stock market, a few real estate examples, and just try to get a better handle, ultimately, on why it is so important to really get clear on what the definition of the market is to you.

[00:01:40] Because how you perceive the market can have a huge impact on your returns long term. Your main goal is to not let, quote, “the market in general,” seduce you into doing something you will regret later on.

[00:02:07] Just as a quick note before we get into this, dividend growth investing sounds simple, but doing it well over long periods of time takes discipline and patience. These episodes give you pieces of how we think about it, but if you're trying to build wealth, it helps to have a clear framework you can come back to when things get uncomfortable, which is why we wrote Dividend Growth: The Quiet Engine of Wealth.

[00:02:35] And ultimately, the real goal of it is to help you tune out the noise and make better long-term investment decisions. So, if that interests you and you'd like a free copy, you can find it in the show notes or at growmydollar.com/dividend-growth-book. With that, let's get into the episode.

[00:03:06] So, what I would like to do is just start with: what is the market? Have you ever wondered what exactly is the market? Is it the Dow, which is an index of 30 stocks? Is it the S&P 500, which is cap-weighted, meaning the highest-valued company has the most weight in the index, therefore has the biggest influence on it?

[00:03:32] Is it small companies? Is it the S&P 500 that's an equal-weight index, where every company has the same weighting and the same effect? Is it the total market, which is Vanguard's total market index, which you can invest in? And one thing that is really important to remember: on any single day, some stocks are up and some are down.

[00:04:01] So, depending on your definition of the market, it can have a significant impact on how you invest and, maybe even more important, how you react to what's going on around you. When news outlets or these internet financial sites talk about the market, most of the time they're referring to the S&P 500.

[00:04:25] Sometimes the Dow is always shown, and just those two indexes alone can diverge pretty dramatically because the Dow is not as heavily weighted in technology. Plus, it's kind of a strange index because it's not the highest-valued company that has the biggest impact. It's actually the company that has the highest stock price.

[00:04:51] Those two things are completely different. And understanding that there are times when things are gonna diverge, and that can go on for weeks, months, years. And in our model portfolio, in just this year, it started out the first few months, it outperformed the S&P by more than ten percentage points. Then we went into March, and things started to close, and they closed rather rapidly.

[00:05:24] Then it went to a negative spread between—you know, the S&P was now outperforming our portfolio—and now it's swung back the other way and is roughly even. If you're watching the market and you're letting that influence you, it can have a pretty significant impact. And here's another thing I think is just a great example of: be careful how you define the market or what you're paying attention to. One index that's a good example of a dividend index is the, um, Schwab Dividend ETF, SCHD.

[00:06:04] And I bring this up as an example because it's close to representing what we do, although it is a little bit higher-yielding. Currently, its dividend is 3.2% versus the S&P at 1%. So, it's got a dividend yield that is significantly higher than the S&P 500. Well, look at how it's performed in the last four years.

[00:06:32] In 2022, the Schwab ETF was down 3%. The S&P was down 18%. So, dividends held up better, at least especially the Schwab fund. And then you get to 2023. Schwab fund was now only up 4.6%, while the S&P was up 26% in a pretty dramatic recovery from 2022.

[00:06:56] In 2024, Schwab ETF was up almost 12%, and the S&P was up 25%. S&P continued to have a lot of momentum. We move out to 2025. Schwab fund was only up 4%, and the S&P was up 18%. By this time, you might have been thinking, “Why do I own this fund when I'm gonna make a whole lot more money in the S&P 500?”

[00:07:25] Well, you get to 2026, and if you were letting just market prices influence you and, quote, what the market is doing, now Schwab is up almost 20% versus the S&P up a little less than 9%. So, you've got a pretty good recovery going. Now, all of a sudden, that gap starts to close. If you bought it in 2022 thinking, you know, dividends make sense, they're more defensive, and lo and behold, you were absolutely right.

[00:08:00] And one of the problems that you always have to remember is sometimes you're right for the wrong reason, and you just don't know it. Because if you continue to hold it for the next three years, things were not going well when you look at how SCHD performed with the S&P 500. Unless you're really disciplined and really committed to why you're doing what you're doing, you're potentially going to sit there and really, basically, just throw in the towel.

[00:08:31] Come 2026, you see what happens. All of a sudden, we're back to the races again, and the Schwab Dividend ETF started to really make up ground again. But if you gave up the ship, decided that, “You know what? I'm just gonna buy the S&P 500,” well, you kinda just shot yourself in the foot. If you wanna be in the dividend space and you wanna be in the, quote, “dividend market,” then you stay with it.

[00:09:02] And how long do you stay with it? As long as it takes. Because what you should have is a belief that, at some point, it's gonna work, and it's gonna work because there's cash flow there, and at some point, people are going to value cash flow. All through those years of the disappointment, the dividend of the Schwab ETF continued to grow.

[00:09:28] So, in fact, the market never really changed for you. It was always there. And what that should do is anchor you to, hey, you know, the thing is working. It's just that the price doesn't show it at the moment, but you have a belief that, sooner or later, prices will reflect what the income is doing. This example, we've talked about it in past podcasts.

[00:10:00] Just the dividend space alone has different segments to it. You've got the really low dividend payers, which is a lot of the S&P, where you've got well less than 1%, and a lot of them are growing fast. You've got just the S&P 500 at a, at a 1% dividend yield right now, and if you've listened to us, you know it grows at about 6% a year if you go back 100 years.

[00:10:27] Then you go a little above that, and there's where we basically live, the dividend growth space, because they tend to grow faster, but the yields are, say, 2% to 4%. That is a different space, and those equities tend to be more mature. They are paying out more cash flow, but they are still growing. So, those companies, from time to time, are gonna react totally different than a technology company that only pays a quarter or 1% or half percent.

[00:11:02] They're also gonna act different than the high dividend payers, where you got companies that are usually leveraged. They're usually more mature, maybe even a little bit of a decline stage. And as a rule, I'm just gonna use telecommunications—you know, Verizon, AT&T—very high yields, but the dividend doesn't grow by that much.

[00:11:24] They've got a lot of debt, and total return long term has not really been that great in that space. But again, what are you really looking for? If you're just trying to maximize income, total return is less important to you, then you wanna be in the high dividend market. If you wanna be more growth, you wanna be more in the middle, where you've got earnings growth, share price growth, and you have dividend growth.

[00:11:56] If you want really high growth, then you wanna own growth-oriented names, companies that, over the last year, have been a big part of the S&P 500 performance. That's where you wanna live. Know the market you're in, and then you're less likely to be surprised when other, quote, markets are doing something dramatically different than where you're at.

[00:12:25] You're gonna be less concerned when you know that the space you're in is delivering what you want, and prices you have no control over, but eventually, they tend to revert to the mean. Just looking at the market alone, it can really seduce you into doing something that maybe, long term, is not where you wanna be.

[00:12:53] Well, switching over to a different example, but same concept. In the last few podcasts, we've talked about Denver real estate, and I find this kind of fascinating because between commercial, residential, the condo market, and where the property is can make a big difference in how they're actually performing.

[00:13:16] And two examples I would like to bring up is just recently, two buildings that are 29 stories tall at the end of the 16th Street Mall, downtown Denver, which was the Denver Energy Center, recently sold for $5 million. They had a total of 900,000 square feet. Basically, the buildings were given away.

[00:13:45] Occupancy rates are around 35%, so vacancies are extremely high, and the income coming off those buildings don't even really pay for the cost to maintain and keep the buildings open. Just from the outside, downtown Denver is having a real problem in office vacancies. But then you turn around and go about five miles southeast, and you hit Cherry Creek.

[00:14:17] There, it's a whole new world. Some of the office rents are now up to $70 a square foot. It's an extremely strong market as far as commercial real estate. If you just go through the exercise of, of 900,000 square feet at $70 a square foot, that is $63 million. What a gap in what the definition of the market is.

[00:14:46] And just to really top this off, the Denver condo market, condominium market, is also fairly weak, and it's been publicized that condos are very challenging right now. But lo and behold, you have a building they're putting up in Cherry Creek North. It is the Waldorf Astoria building. Obviously, a very prestigious name, but in a market overall that's weak, they have 70% pre-sold the condos.

[00:15:23] They expect to complete it in 2028, so it's still a year and a half plus out before you can even move in. And the condos are selling for a minimum of $2.3 million, and $2.3 million buys you a 690-square-foot condo. That equates to about $3,200 a square foot. Just to kinda, I think, prove my point, if you pay $2.3 million for a seven—basically a 700-square-foot condo, when you include taxes, homeowners association, and insurance, you probably have to generate about at least $12,000 a month in rent. It seems to me that it's pretty hard to get somebody to pay 12 grand for a 700-square-foot apartment.

[00:16:22] And if they do, I would have to ask, you know, let me meet them at a bar because I have some swampland in Florida I wanna sell them. When you look at Cherry Creek, really what that is, in my definition, it's the lifestyle market. You know, you buy a house up in Aspen, you're in lifestyle. You buy a condo in Vail, you're in lifestyle.

[00:16:48] You buy a condo in North Cherry Creek, you're in lifestyle. It doesn't have to make economic sense, and in fact, it probably doesn't because you want the lifestyle. You want to be around other people that basically want the same thing and can afford the same thing. They're just different markets. And just circling back to those two Denver Energy buildings bought for $5 million, if you walk by them, on the first floor, there's a big advertising up, and it basically says, “Imagine Rooftop,” and it's got a picture of a very attractive rooftop environment.

[00:17:31] It's got “Lounge.” “Imagine,” and then “Lounge.” And it's got “Imagine Condominium.” It's got “Imagine Screening Room,” where you can actually watch movies. And all of this is getting you to not think about a basically bankrupt office building, but to think about now this is gonna be a high-end condominium project, and lo and behold, the value's no longer $5 million. It's something way north of that.

[00:18:03] The market for that building, when its use is commercial real estate, is extremely weak. If you turn around and look at it from a standpoint of maybe this building becomes a residential condo, and the views up there on the twentieth, twenty-fifth, twenty-ninth floor, the definition of the market for that building completely changes.

[00:18:31] When you buy 900,000 square feet for $5 million, you're in the total game of speculation. You're looking at really creating value and repurposing it, and then you're back to, hey, this thing will generate an income. Investors will buy it. Institutions will buy it for the income because now it's back to an income-producing asset.

[00:18:59] Right now, it's a speculative asset, totally betting on the come. Value is in the eye of the beholder. It can make a huge difference in what you own, and that applies to the stock market the very same way. Well, the next thing I would like to just take a quick look at is gold. It's kind of fascinating from my standpoint.

[00:19:28] If you look at gold in the last year, it was doing extremely well. The whole definition of gold was, well, you invest in gold when there's political uncertainty, when there's inflation, when there is a war going on. Well, we've got high inflation, we have political uncertainty, we have a lot going on in the world stage, but gold is down 25% from its high.

[00:19:59] So, you wonder, well, what—you know, what is that market? Is it a, is it an inflation hedge? Is it just an alternative asset? How are you gonna define why you own it? Really, I think it's pretty simple. You either wanna be in the gold market or you don't. Gold investors usually are pretty religious about owning gold, and they're willing to own it for a long period of time.

[00:20:30] Sometimes it takes years or even decades of poor performance, but lo and behold, gold comes back, and you can't get a good return if you don't own it when you get the recovery. If you wait for the recovery to get back into it, a lot of times you miss a significant part of it because you're just waiting to make sure that this time is really different.

[00:20:59] Gold is definitely in its own market, and people own it for a totally different reason. For some, when you have the S&P 500 turning out 10%, 15%, 20% a year, it can wear on you, and if you're not a true gold bug, it's probably going to break you down, and you're not gonna stay in it. But if you've been in it long term, gold has had a huge move, so their definition may be gold has been a great investment, even though it's backed off from its high.

[00:21:35] What's the point of where this is trying to get to? It really matters how you define the market. If you're looking for growth, if you're looking for more high-tech exposure, that can be dramatically different than gold, real estate, or a dividend growth portfolio. And there's probably no story out there that is more widely known right now than, than SpaceX, and the anticipation for it has been really off the charts.

[00:22:12] The amount of wealth that's already been created in it is really phenomenal. But if you look at the prospectus, the thing is trading over 100 times revenue. Revenue from a year-ago quarter to the most recent quarter is up about 15%. Expenses are up much more than that. CapEx is up well over 100% from last year.

[00:22:37] I believe they have about $100 billion of assets, but they have more than a $2 trillion valuation as of the close today. You look at the numbers, and it makes no sense at all. Well, you own SpaceX not because of what they're doing today, but because, really, they're first in several of these markets. You know, according to their prospectus, they wanna put over 100,000 satellites into space.

[00:23:09] They have Starlink. They basically dominate that space. They clearly are in rockets. You're really in SpaceX not for what it's doing today, but for what Elon Musk has shown he's got the capability of doing long term. This guy has created markets where nothing existed before. You understand that it doesn't make any sense, but in the end, the guy's done a phenomenal job of making it make sense.

[00:23:42] It's pretty hard to value that, but you can almost bet with certainty that the day-to-day market price of SpaceX is gonna be all over the place. If you want into the really developing space, SpaceX is probably your play. But in full disclosure, I doubt we'll ever own it, and SpaceX may become a great lesson in: figure out what exposure you want, the confidence that you have it's actually achievable or not.

[00:24:19] Try to assess, you know, what's the risk I'm taking here, and is it worth taking? Do you look at Microsoft? Talk about a ride. You know, Microsoft has been one of the most successful companies in the last decade, just the company itself and then also as a stock investment. But in the last year, Microsoft hit a high of five hundred and fifty, then traded as low as three hundred and fifty-five, then back up to four sixty, now back down to three ninety.

[00:24:55] So, what is the market for Microsoft? Well, Microsoft's dividend growth, five years, it's growing at about 10% a year. Ten years, it's growing at about 10% a year. The dividend growth is there, and there's no signs of it slowing down because their payout ratio is very low. They have unbelievable cash flow.

[00:25:20] They're around a hundred billion in cash. The dividend is nowhere near that. Azure is, is continuing to grow at 20%-plus growth rates. They have a diversified portfolio. They probably have more diverse—a more diversified portfolio of any of the big tech stocks, and that is, at the moment, maybe a little bit of their liability because they are perceived to be a potential bigger threat of AI could take some of their business.

[00:25:52] But it's hard to see where they cannot continue to be extremely successful with all the different moving parts that they have. If you want a broad-based exposure to tech, you want the different pieces that Microsoft offers, then you don't worry about it when it goes from five fifty to three fifty. The growth is still there, at least at the moment.

[00:26:19] And I mean, on anything you buy, growth is never certain. But one thing is pretty much for sure: the stock is not going to zero tomorrow. It's not a high yield, but it's been a very aggressive dividend growth story. I mean, the cash of this company is, is huge, so it quite likely is going to become a better dividend income story down the road, just as it matures and what, what do they actually do with all that cash?

[00:26:53] So, Microsoft is another example of there's price and there's value. Our definition of value is good dividend growth. 10% definitely fits that bill, a strong cash-flow-generating business, room to continue to grow it. That has never changed, but price has changed a lot. You have no control over it, but in the end, it's the value that they create that matters, and so far, nothing has really changed there.

[00:27:30] We've owned it for a long time, haven't put any new money in it for a while, and as it comes down, this may start to become a story to look at again. But as we've gone through these different examples, different markets are driven by totally different events. Different things affect them. So, if you're not sure of which markets you wanna be in, you're really opening yourself up to being seduced into moving away from the exposure you want, i.e.,

[00:28:07] the markets you wanna be in, when it may be the absolute time when you actually should be buying more of it. Figure out which battle you wanna fight and then fight it, because that's how you win the war. Sometimes you lose a battle, but that doesn't mean you lost the war. All these markets can work, and people build wealth in all of them.

[00:28:32] But usually, the difference is the people that build wealth are the ones that have the discipline, the staying power, they're patient, and they know why they own what they own. It really helps to give you confidence when the downside shows up. Every market, no matter what you're in, is gonna have downside.

[00:28:55] We were looking like superstars back through the end of February, year to date. Then, all of a sudden, we looked like we, we should've been a horse that was taken out behind the barn and shot. And now we're back looking relatively good again. Well, in the end, it shouldn't matter because the underlying portfolio income has already grown from last year because several of these companies have already raised their dividend, and that is the whole point.

[00:29:24] There's gonna be periods where different asset groups do very well, and some assets don't do very well or actually do poorly for a while. The tide goes in, and the tide goes out. But if you're not committed to what you're doing, it's gonna lead to all kinds of problems. People tend to compare things just based on price, but the reality is value drives the bus.

[00:29:58] Somebody's definition of the market may be, “Well, Denver commercial real estate is in the tank.” But another person's definition may be, “Not my property in Cherry Creek.” Or in the stock market, you know, gold, if you've been in it long term, gold has had a huge move. If you're looking at dividend growth, well, you've heard the story of Philip Morris, basically the top-producing stock in the S&P 500, period, if you go back 50 years.

[00:30:30] Well, that market's doing just fine, even though it hasn't had a 100%-plus move in the last 12 months. If you're in technology, who knows where the ultimate winner is, and it will probably change, as it's changed in the past. Because older investors may remember some company called Eastman Kodak. IBM's gone through several major changes.

[00:30:59] You've got Xerox, which went from a huge winner in the '60s to now it's almost gone. And a lot of these companies had great technology, but somebody else came in and utilized it much better than they did. So, as we close, in the space of dividend investing, the market, in our definition, is all about cash flow.

[00:31:34] We just happen to look at it as if that dividend grows, then chances are total return is going to be positive long term. These are companies that are growing at GDP plus 1%, 2%, 3%. They got dividends that are growing at 1% or 2% more than, than what the S&P 500 is doing. Our real anchor is the phrase that we came up with, really, several years ago, and it's: get on the line and stay on the line.

[00:32:09] We haven't talked about that much for a while, but the line is GDP, and long-term GDP goes up. The S&P 500 tracks the economy, earnings track the economy, dividend growth tracks the economy. They all really merge, and they're all growing at about 6% a year. The challenge is the components of that line are changing all the time.

[00:32:37] It's extremely difficult for a company that is on top one decade to stay on top the next decade. You go out two or three decades, it's not impossible because there's been a few that have done it, but it's extremely difficult. So, just yesterday, the Dow was down almost 1,000 points. One day later, the Dow was up 900 points.

[00:33:07] From day to day, when you hear, “Oh, you know, market was down 900 points,” is that the end of the world? Does it really matter? Depending on how you define the market and what you're trying to achieve in it, it may be a big deal or it may mean absolutely nothing. I think one of the things that you really should try to focus on is getting to a point where you really understand what you're doing and why you're doing it, so that it just doesn't matter anymore.

[00:33:41] Because in the end, you have the confidence there's value here, and over time, I'm going to see it realized.

[00:33:59] If you enjoyed today's podcast, please leave us a review and subscribe. If you would like more information regarding dividend growth or our investment strategy, please visit growmydollar.com. There, you will find previous episodes and also our monthly newsletter. If you have any questions or anything to add to today's episode, please email Ethan, E-T-H-A-N, at growmydollar.com.

[00:34:31] Past performance does not guarantee future results. Every investor should consider whether an investment strategy is right for them and all the risk involved. Stocks, including dividend stocks, are volatile and can lose money. Denewiler Capital Management may or may not have positions in the publicly traded companies mentioned herein.