Opinions on political news are everywhere – it’s hard to open a newspaper or online blog and not be inundated. Plenty of ink gets spent by market strategists and economists opining on the latest political developments and implications for markets.
If the last five years have taught us anything, it’s that political forecasting is hard. The track record of calling political events has been dismal, as has been guessing the associated implications for markets.
Does investment success require a crystal ball on politics?
No. Investment success doesn’t require a crystal ball on politics.
Over the last one hundred years we have witnessed stock market returns near 10% p.a. despite a plethora of political change. Even the last decade has seen an abundance of political upheaval – locally and globally.
Had an investor implemented an equities strategy on the basis of one party over the other being elected, they’d have likely missed out on some attractive returns.
Warren Buffett’s thoughts on investing and politics
Last year in 2019 Warren Buffett was asked his view on investing and politics. He replied:
All my life I’ve been hearing half the country say that if the person favoured by the other half wins, things are gonna go to hell. I pointed out in my discussion, I’ve lived under 15 presidents; 14 of them I’ve invested under. I didn’t invest under Hoover, I was a little young then. But seven were Republicans, seven were Democrats. After this last election in 2016 most of my friends were for Hillary and they thought, “You know, sell stocks. You know, dig a cave, do whatever it might be.” And I told them they’re crazy.
You do not want to have a political view in investing. And most people put it through a political prism, they just can’t keep their politics out of it. They can keep their religion out of it but politics, they just have to look through those glasses. And if you’d done that, if you’ve been a staunch Republican or a staunch Democrat through these 77 years you would have missed out on a lot of the party.
High quality businesses are resilient to politics
Over time the forces that drive business performance have far more to do with a business’s unique products and services, its people, the business model and industry structure versus political forces.
History has shown us that high-quality businesses prove resilient to politics; they adapt, evolve and grow.
The only certainty regarding politics is that the future is uncertain. It’s important not to let your own or the political views of others get in the way of owning great businesses.
When it comes to managing a portfolio we avoid letting political views blur our investment decisions. Instead we focus on the businesses we own, and stand ready to capitalise when a ‘political event’ affords us the opportunity to buy businesses we believe to be high quality at attractive prices.
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