There are roughly 100 days until the fall elections. Over that time, investors are likely to experience abnormal swings in financial markets. We have witnessed such moves in past election cycles, and we expect that this year will be no different - if not worse. Nevertheless, The Ross Group believes investors should ignore any market volatility caused by political emotion; over the long run, great businesses succeed regardless of which side has control of Capitol Hill and the White House.
Excellent companies achieve success due to factors that are outside of politics. The reason their success exceeds the political spectrum is two-fold: business structure and time horizon. Quality businesses are structured with strong balance sheets, rising cash flows, and heavy investment in research & development and marketing & branding. The government - regardless of who is in control - does not mandate that a business embody the above characteristics that create exceptional companies. Next, strong businesses have a much longer time horizon than the political world. Our political arena shifts every two years. Great businesses, on the other hand, do not have two-year time horizons. They make investments that might not bloom for many years in the future. If a business operated with a two-year mandate, we do not think it would be a success. Overall, investors should not equate the political climate with an investing paradigm.
The Ross Group believes investing with political emotion is an unwise decision. It might allow investors to feel better in the short-term, but it will ultimately hurt their chances to achieve long-term prosperity. Great businesses outlast political regimes, and there is no better example than those companies that have paid a rising dividend over many decades. They have been able to increase their dividend despite ever-changing political climates. Embodying this idea is the quote by Benjamin Graham, Warren Buffett’s mentor and professor. Graham said, “In the short-run, the stock market is a voting machine. Yet, in the long-run, it is a weighing machine.” Graham’s quote is intended to remind investors that long-term investing is about science (i.e. weighing) and not about emotions (i.e. voting). Dividend increases, balance sheet strength, and investing for the future are measured with numbers and should outweigh our short-term emotions. Investors would do well to remind ourselves of this over the next 100 days.