We don’t see things as they are, we see them as we are.
– Anais Nin
We have fielded several calls from clients asking us our take on the election and how it may impact the market. Our simple answer is that it is impossible to predict. To paraphrase Salena Zito with The Atlantic, “President-elect Trump should be taken seriously but not literally.” That is, much of the rhetoric floated on the stump may not come to fruition.
Rather than waste time on what might come to pass, we maintain our focus on identifying great businesses, appraising them and waiting for their share price to fall to a reasonable discount to that appraisal before buying.
That being said, we are not agnostic toward macroeconomic factors. In fact, two metrics are essential to our appraisal process:
- prevailing interest rates, in particular, the yield on the ten-year Treasury
- Current tax regime, specifically, corporate tax rates
Businesses are worth more when prevailing rates are lower and less when rates are higher. The same holds true with corporate taxes – lower rates boost the value of businesses whereas higher rates depress their valuation.
These two metrics are known. What remains uncertain is the future direction of interest rates, inflation, estimated GDP growth and, last but not least, the stock market. While we have opinions about the macroeconomic backdrop, it would be a mistake to allow those views to influence our management of client portfolios.
Over the preceding eight years, we have invested under two administrations with vastly different objectives and yet stock market returns under each were remarkably similar. Two very different administrations yet good companies found a way to deliver. Seems people care about elections more than markets.
Regardless of your political leanings, keep in mind the trend of civilization is forever upward. Betting against the long-term prosperity of the United States has never been a good investment policy regardless of where you “see” things.
BWP Election Newsletter – Ignore the Noise
We don’t see things as they are, we see them as we are.
– Anais Nin
We have fielded several calls from clients asking us our take on the election and how it may impact the market. Our simple answer is that it is impossible to predict. To paraphrase Salena Zito with The Atlantic, “President-elect Trump should be taken seriously but not literally.” That is, much of the rhetoric floated on the stump may not come to fruition.
Rather than waste time on what might come to pass, we maintain our focus on identifying great businesses, appraising them and waiting for their share price to fall to a reasonable discount to that appraisal before buying.
That being said, we are not agnostic toward macroeconomic factors. In fact, two metrics are essential to our appraisal process:
Businesses are worth more when prevailing rates are lower and less when rates are higher. The same holds true with corporate taxes – lower rates boost the value of businesses whereas higher rates depress their valuation.
These two metrics are known. What remains uncertain is the future direction of interest rates, inflation, estimated GDP growth and, last but not least, the stock market. While we have opinions about the macroeconomic backdrop, it would be a mistake to allow those views to influence our management of client portfolios.
Over the preceding eight years, we have invested under two administrations with vastly different objectives and yet stock market returns under each were remarkably similar. Two very different administrations yet good companies found a way to deliver. Seems people care about elections more than markets.
Regardless of your political leanings, keep in mind the trend of civilization is forever upward. Betting against the long-term prosperity of the United States has never been a good investment policy regardless of where you “see” things.