Don't Politicize Your Porfolio

 | Nov 02, 2016 | 4:00 PM EDT
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The stock market really hates uncertainty. And the current political environment offers more uncertainty than ever before. Presidential elections have always created a bit of uncertainty, but the 2016 election is unique for obvious reasons (I assume readers have not been living under a rock the past few months).
But no matter what news channel you watch, papers your read or polls you watch, do not politicize your portfolio. One camp will tell you to own stocks that only do business in the United States if a certain candidate wins. Others will tell you focus on clean energy stocks or infrastructure if the other candidate wins. Ignore it all. The stock market has been around during all manner of economic conditions, presidential elections, presidents on opposite extremes and, in the end, the fundamentals carry the most weight.
I would bet that years ago, no one would have suggested to invest in gun manufacturers given the hot seat guns were facing due to the vicious acts of gun violence that took place. Yet over the past five years Smith & Wesson (SWHC) shares have increased in value by over 750%. Clean energy stocks were seen as beneficiaries of the past political rhetoric yet the group as whole has been an under-performing investment class.
So when it comes to politics or what your hear on the campaign, ignore its value when it comes to the stock market over the long-term. Politics is infamous for pivoting as the mood sees fit, so it is a fool's errand to allow such discourse to influence your investment selection. Let's not forget that the United States is a democracy in the most meaningful sense of the word: Decisions are made by representation of the people, not by a single individual. So making investment decisions based on the viewpoints of one person seems rather absurd and irrational.
Of course, when politics creates tangible evidence affecting business then a serious look is in order. A continued commitment on defense spending is useful information, as is the passage of a comprehensive infrastructure spending program. Those are situations where a detailed look into the respective industry makes sense. From there, the tenets of intelligent investing kick in: Quality, shareholder oriented management, strong balance sheet, and a reasonable price.
Otherwise, next week, as we do every four years, a CEO of the United States is chosen to serve another four years. And like all CEOs, there is no blank check given to manage the country. Politics need not play a role in your long-term investment thinking.

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