Twice in the past few weeks, we have had unusual experiences as a nation.
First, Superstorm Sandy lived up to its billing as it shut down the New York Stock Exchange. This alone was rather significant as weather had not closed the exchange two days in a row since the 1880s.
This event caused a few clients to question what we thought would happen when the market re-opened.
For us, it was a non-event. Luckily, we were not in the path of the storm. Additionally, we never invest in anything that requires daily access to trading. We are not traders – we are long-term investors. Even if we only buy one share, we attempt to behave as if we own the whole company. This allows us to ignore daily blips or other noise and instead focus on the true economic abilities of a company to enhance wealth. As Warren Buffett has often said, investors would be well-served to buy companies they’d be comfortable owning if stranded on a desert island for 10 years. If one adopts this mentality, then a temporary market shut down is irrelevant.
Secondly, the presidential election is now behind us. Leading up to the election we received a variety of questions as to what investments were needed depending upon who won the White House. Although we find the political machine to be interesting – we never make investment decisions based upon a premise of successfully electing, or reacting to, a Republican, Democrat, Libertarian or other party. That is simply too hard for us to intelligently handicap.
As such, it is much easier to choose investments that will do well no matter who is in the White House.
This philosophy leads us to own a bunch of easily understandable and predictable companies whose products are in demand regardless of what is going on in the world. These are usually large, dominant global franchises.
Despite the often boring nature of these investments, they sell goods and services worldwide, which insulates them from political issues in any one country. They also derive payment for services in a variety of currencies which also protects them from the policies of any specific country. These types of investments intelligently allocate capital worldwide allowing our clients to maintain their purchasing power – something that is tremendously important to investors seeking income in a zero interest rate world.
Furthermore, we know that no matter who is elected to office, these types of companies will continue to find new and innovative ways to profitably sell their products every day.
As a final thought on politics and investing, it does no good to worry about things that are beyond your control. If you worry about it, your emotions will gain control, leading you to less-than-desired decisions.
It makes much more sense to focus on how much debt you incur, getting to work early and staying late, controlling your spending and continuing to invest in all markets. The individual controls these issues – and they are far more important.
Professionally, we will probably spend a bit more time thinking about tax policy and the impact of those pressures upon our investments.
Otherwise, our firm will function the same after the election as we did prior to it. Each day, we attempt to logically analyze a wide variety of investments that trade worldwide. After evaluating things like sales, earnings, cash flow, dividends, profit margins and debt, we are going to sift out only the highest quality ones. Then we will value them, placing the best ones in our portfolios. This is what we focus on every day – and what any good investor should be doing.
Finally, by adopting a long-term, politically neutral portfolio, smart investors will have lower turnover in their portfolio. Lower turnover results in lower commissions and lower realized taxes.
These are not hard things to do – just ones that require hard work and discipline – regardless of who is in office.
Dave Sather is a Victoria Certified Financial Planner™ and owner of Sather Financial Group. His column, Money Matters, publishes every other Wednesday.
Originally published Tuesday, November 13, 2012
Victoria Advocate