Never in my thirty years as an investment manager have I sensed as much anguish over a presidential election as this year. I have heard from many of you very strong opinions of dire economic results, regardless of who wins. My hope with writing this update is to calm some of those fears and give you some sound reasons to separate your financial expectations from political outcomes. As can be said of every presidential election since the last Reagan landslide of over thirty years ago, our nation has been fairly evenly split for most recent elections. The outcomes have been both Democrat and Republican, but the margins have been close and, unfortunately, the “toxic tone” of the opposing side (whoever that may be) just keeps getting worse. One thing I know for sure, even prior to the conventions, is that fifty percent of us will be disappointed after the election! But why do we think a political loss equates to a financial loss?
“A worried man could borrow a lot of trouble with practically no collateral.” – Helen Nielsen
I plan to use several Warren Buffet examples in this update. One, because he is the most successful, disciplined investor of our age. Two, because I have recently reread many of his essays and the material is fresh in my mind. Warren Buffet is supporting Hillary Clinton in this election; he has publicly said so. However, if Donald Trump is elected, he will not leave the country, will not go to all cash and will not buy nothing but gold (in my opinion). Mr. Buffet will continue to invest in great companies with great managers. He will look for ways to compound his growth from the cash flow and reinvestment of dividends in his current portfolio of company holdings. He will maintain substantial amounts of cash, even at low interest rates, so he can take advantage of investment opportunities when they present themselves. Mr. Buffet has been investing for over sixty years. His first significant investments were made when Eisenhower was president. The beginnings of Berkshire Hathaway were being founded when Kennedy was president. He did not “quit” investing when Kennedy was assassinated on 11/22/1963 or when Nixon resigned as president on 8/9/1974 (my 12th birthday). Certainly it is arguable that those two events were as turbulent, maybe more so, than those of today.
“My life has been filled with terrible misfortune; most of which never happened.” – Michel de Montaigne
Mr. Buffet was asked a question many years ago, back when we had an inflation problem: was he worried about the impact that inflation might have on his Coca-Cola stock? Paraphrasing, his answer was no. First, he realized he had no control over inflation and, secondly, he had faith in the excellent managers at Coke. He thought it was their job to worry about the impact of inflation on Coke; why should he? There are at least two takeaways from that story. One, other than casting your vote and campaigning for your candidate, you cannot control the outcome of the election. Two, we employ for you primarily active managers, not passive indexes and ETFs. Although many claim passive indexes are better than the “average manager” and less expensive, we do not hire average managers; we look for the best. If we end up electing a “poor decision for president,” I want an active manager who is in control of his/her holdings and has the ability to change them as needed. Let the experts worry about the impact the election may or may not have on their/your investments.
“It is unfortunate we can’t buy many business executives for what they are worth and sell them for what they think they are worth.” – Malcolm Forbes
If you substitute the word politicians for business executives, the quote above would still be just as relevant. I would like to think that our republic, which was birthed in revolution and has survived civil war, world wars, etc., can survive Bernie Sanders, Hillary Clinton, Donald Trump or anyone else. Our country has a wonderful system of checks and balances. Most senators are reelected 90% of the time and congressional persons at an almost similar rate. The judiciary changes very slowly; the federal bureaucracy (civil servants) probably more slowly. As much as you may want change or do not want change, this one election will not change much. Plus, in literally less than three years, we will begin the presidential election process all over again and have the ability to correct our prior decision, if necessary.
“We must beware of trying to build a society in which nobody counts for anything except a politician or an official, a society where enterprise gains no reward and thrift no privileges.”
– Winston Churchill
The reason Mr. Buffet likes to hold cash is not so much from a position of extreme caution, but having some cash to invest when others do not. Just as firemen rush into a fire when most of us flee, Mr. Buffet rushes into situations of economic distress that he thinks will present long-term success. In the ninety days after Lehman Brothers failed, when stock markets were crashing and many major firms were facing bankruptcy and bailouts, Warren Buffet invested $15.6 BILLION into the markets. He had the cash, the nerve, the prior research and his belief in the longevity of US markets to guide him to make incredible investment buys when most were selling. Say your concern about a potential presidential candidate is at such a high level that you feel the need to raise cash and be in “safer” investments. If your prediction is correct and markets go lower under this person, will you have the conviction to take advantage of the situation and buy into the markets?
Again, Mr. Buffet ran towards the fire and bought into an economic collapse just months before a national election. He was investing for the long term, not just on who would be president for the next four years. Regardless of who is president, we all need to save, we all need good investments, we all need to be flexible and adapt, even if it is uncomfortable. Do not confuse political outcomes with business outcomes. They can be and usually are very different animals. As a father of six children and one grandchild, I worry greatly about our country and the future it may take politically, but I do not let that cloud my investment strategy. I save, save, save and invest in great things with good cash flow and then let that compound.
“What we anticipate seldom occurs; what we least expect generally happens.” – Benjamin Disraeli
What if, after this election, some company or companies found a cure for cancer? What if breakthroughs in technology made our country 100% solar powered? There is a chance the next four years could be great. Our advice is to stay invested with great managers. Holding some cash (“dry powder,” per my old boss) is smart if it is to be deployed in uncertain times for potential long-term gain. I sincerely hope your candidate wins, but again, the day after the election, a significant portion of us will be disappointed. Do not let that deter your investment strategy and discipline. Warren Buffet’s strategy and discipline has allowed him to grow his wealth, and those of his investors, through 11 (including Gerald Ford, never elected) different presidents of both political parties. We will strive to do the same for you.
“While there is a chance of the world getting through its troubles, I hold that a reasonable man has to behave as though he were sure of it. If at the end your cheerfulness is not justified, at any rate you will have been cheerful.” – H. G. Wells
Have a great summer.
Chief Investment Officer
Bill Few Associates, Inc.