I recall during campaign season 1992, a good friend declared that if Clinton wins he's leaving America. He figured that life would be better lived outside a country led by a politician he viewed as a hard-left-wing ideologue. Well, Clinton of course won, and my friend stayed put and got to enjoy the fruits of a fabulous economy, fueled by the tech revolution. Yes, I give the tech-driven private sector of the '90s, not a politician, credit for the '90s economy.
Today is Election Day 2012. Like any ordinary day, the TV in my office is tuned to CNBC, I keep the sound off probably 90% of the time—it's easier to glance up at the indices than it is to pull the numbers up on my computer. If something captures my eye, perhaps a featured economist or analyst whom I'd like to hear, I'll turn up the sound. Of course today's theme—all over the financial media—being, what happens with the markets and the economy in either (Obama or Romney) event. I just received an email invite to an online video event titled The Post Election Economy, A Clear-Eyed Analysis of the Risks and Opportunities for Investors. In case you're thirsting for such analyses—wondering how best to allocate your portfolio for the years to come—here's our straight forward, un-sexy, view:
For starters, the winners and losers, by sector, will (I suppose) be different depending on who takes the White House. But, please, don't dare venture any guesses. Stay diversified across sectors and take no oversized bets based on any guru's prognostication. If you are our client, you know that last year we did recommend an increase in consumer staples stocks—which was inspired by what I'd call palpable global uncertainty. This is different than playing a sector based on some singular view of what one ever-wavering (that would characterize all of them) politician may or may not do during the course of his term.
Earlier this year, we suggested something on the opposite end of the spectrum—a modest increase in exposure to emerging market equities. This speaks to our view that many developing world stocks suffered mightily due to a flight to "quality" (the US dollar), brought on by palpable global uncertainty—and the prospects for years of growth where 85% of the world's population lives. Again, this would have absolutely nothing to do with who will occupy the Oval Office over the next 48 months.
We've also stayed, stubbornly, out of long-dated bonds—based on the sheer commonsense that while bond prices share an inverse relationship with interest rates, you don't hold bonds when interest rates are at history-of-mankind lows.
And going forward we will no doubt, as always, look to make sound fundamentally-(not politically)-based improvements at the margin. Natural gas, for example, is looking more interesting all the time.
Bottom line; smart investors remain diversified, rebalance periodically to some pre-determined target equity/fixed-income allocation, and never base their decisions on the whims of short-minded policymakers or the prognostications of those who absolutely cannot know what the future holds—as I illustrated with pictures in this brief fit of sarcasm, Beware the King(s).
Portfolio killing mistakes are virtually always the result of get-rich-quick thinking—which is, in essence, attempting to guess the utterly un-guessable.