Wednesday, October 5, 2016

Assembling a Portfolio in Weird Times

Match.com
It may not seem the case, but not everything is really about the election— even five weeks out from November 8.

In fact, I've found what I do to be a stark relief from the endless round-and-round of posts and tweets, candidates and spin doctors, journalists and pundits, all trying to sell me on a reaction or a policy or a vote. Stock investing is frequently made out to be vulnerable to political outcomes, but it isn't really. Not usually.

I may be in the minority on this. There seem to be gobs of articles on how one industry or another will suffer if Clinton is elected, or what horrors will befall the broader markets if Trump gets the job. Most of it is hogwash. Truth be told, during each of the most recent four big-growth periods for the US stock market, the political affiliation of the American president has shown no favoritism: Eisenhower (R) in the 1950s, Reagan (R) in the 1980s, Bill Clinton (D) in the 1990s, and Obama (D) in the 2010s. Despite popular arguments, economic expansion or contraction during any given administration actually has more to do with the previous presidential administration's impact than with that of the current one.

Under Armour
Which is not to say that an election doesn't sway markets: it certainly does, but not in a way which matters to you and me. Right now, we're seeing big market swings day to day, in large part a reaction to daily news about who's in front, what was said at the debate last night and so on (as well as many factors totally unrelated: interest rates, China, Brexit ...). Not to mention that in 2016 there is one uniquely ill-informed and volatile candidate. All of which creates tremendous uncertainty about world order in general and the resulting business climate. But the difference is this: all the uncertainty and fear is short-term, and we invest long-term. What the S&P 500 does from one day to the next is immaterial if we are buying stocks to hold for a minimum of 3 years. Stocks overall rise over 60% of the time. That's 2 years out of every 3. Financially speaking, who cares what happens just between 9:30 and 4 tomorrow, or even for the next couple of months?

When investing in a business for years to come, it is essential to focus on the business. Don't try to time purchases to when "things calm down" or "the election is behind us" or "prices cool." That's an impossible task to carry out correctly, and amounts largely to guesswork. Who's to say that the election won't give stocks a huge push, increasing prices? Or that some international event doesn't keep things stirred up?

Taser
The better bet is to continue doggedly, season in and season out, to choose businesses led by bright, motivated, transparent people who care more about customers than about the stock price. Businesses with little debt and strong growth. Recognizable and respected brands with excellent products or services, whose competition is way behind. (Read last year's column, 6 Critical Criteria for Investing).

These businesses are not particularly concerned with who currently runs the government, as they are looking further out than four or six years. They shift the dynamic, and change the conversation. Do you not 'Google' the answer to every imaginable question? Shop first for a tricky item at Amazon? Drink Starbucks lattes, depend on an Apple or Samsung smartphone, communicate with friends via Facebook, put most every purchase on a Visa card? These companies change consumer buying patterns, reshape industries, sometimes even alter our very lives. They measure success in millions— or billions— of customers over decades.

Planet Fitness
They are visionary companies. They will dream up journeys to Mars (Tesla), demilitarize the police (Taser), and introduce us to our future loved ones (Match Group). They protect us from hackers (FireEye), keep us healthy on a budget (Planet Fitness), and take on international conglomerates (Under Armour). They will continue to perform and innovate and delight customers everywhere.

Even a frustrating and consuming election season is nothing but a blip. Don't let it impact your investment plan.


Drifting to Fifty | Random unrelated nugget

An asset is something which puts more money into your pocket every year, and a liability is something which takes more money out of your pocket every year. Which one is your house?

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