Handling the election results

My mother taught me there are three things you don’t discuss in polite company: religion, politics, and money. When it comes to our clients, we’ve been pretty successful with the first two, and we have a decent excuse for making an exception on the third.

There are two reasons we are reluctant to talk politics with investors we work with: (1) there’s a decent chance we’ll eventually disagree on something; and (2) when it comes to long-term investing (the only kind we do), politics don’t make much of a difference anyway.

Why do I say that? For starters, the investment performance of the financial markets has been remarkably consistent regardless of which party is in charge, with a slight advantage – but not enough to act on – to Democrats.

I would also remind you that we don’t spend much time thinking about the “stock market” because we don’t invest in markets to begin with. Our clients each own a diversified collection of successful businesses with several common traits, among them the regular payment of cash dividends that have consistently increased over time faster than inflation. And even as you read this, the people running these businesses on behalf of their owners – that’s us – are figuring out how to continue innovating and adapting and growing under a new administration and Congress. Most if not all of them even developed contingency plans months ago for every possible election scenario.

By contrast, the “markets” will always merely reflect the daily whims of short-sighted, emotional “investors,” and that seems likely to result in some turbulence for a bit. But it’s our hope, based on history, that the stock price of each of our high-quality businesses will eventually reflect what each is truly worth based on its respective fundamentals.

Now, I’m guessing you didn’t care much for at least one of our last two presidents, and you might not be enamored with the next one. Some of you celebrated the recent election results with pure joy, and I know from some recent conversations that a few of you have been borderline depressed by it.

But let’s all remember a few things that are easy to take for granted:

• Our nation – the one that gave you and me a say in how it’s run – will turn 250 during the next administration.

• The U.S. Constitution and its unique Bill of Rights – despite occasional threats against them – remain the law of our land.

• Legendary investors, from J.P. Morgan to Warren Buffett, have correctly cautioned us never to bet against America.

• In the last century alone, we have survived presidential assassinations and resignations, a world war, the 9/11 terrorist attacks, the collapse of the housing market, a global financial crisis, and most recently, a pandemic that claimed more than a million American lives.

• Whether you see it as a crisis or an opportunity (or both), people are lining up to come to the United States, in some cases risking their lives. This is not a problem we share with Russia, China, or North Korea.

• Our military remains the envy of the world, as does our education system, although it might be argued they both need much more of our support.

• The U.S. economy is still the world’s largest, and the dollar remains the world’s reserve currency with no credible challengers.

• We consistently outpace other countries when it comes to innovation, the result of a financial system that rewards innovation and prudent risk-taking. We invented the airplane, the internet, microchips, cell phones, email, personal computers, air conditioning, supermarkets, and the assembly line. Take a look at Time’s Best Inventions of 2024 list and you’ll notice we’re still leading the pack.

Financially speaking, in just the last quarter century, we’ve seen four bear markets, two of which were the worst since the Great Depression. If you knew somehow that would happen, would you really have wanted to invest your retirement savings in stocks 25 years ago on the eve of the tech/telecom crash?

And yet, over the past 25 years:

• Stock prices (S&P 500) have more than quadrupled

• Dividends have increased even faster, by a factor of 4.5x

• Consumer prices, despite the recent spike in inflation, have yet to double.

  
  

To reap those gains, all equity investors had to do was sit back, hold on through the bad times, and watch the companies they owned to what they do – regardless of who was in the White House or which party controlled Congress.

Let me be the first to admit that we have no idea what the next four years will be like, much less the next 25. We won’t waste time and energy trying to handicap the process by trying to pick the “logical” winners based on the changing political environment. As I’ve said too many times, we don’t predict the future; we plan for it.

We will continue to be patient and stick with what has worked. And somehow, in the end I think we’re all going to be okay.

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Any opinions are those of Mike Brown and not necessarily those of Raymond James. This information is intended to be educational and is not tailored to the investment needs of any specific investor. The information contained in this report does not purport to be a complete description of securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including asset allocation and diversification. Past performance is not indicative of future results.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary.