RD's Picks

This week's question comes from one of your fellow Strategy Lab Open members, Duffbeer, who asked, "What are you planning to do with your investments with the upcoming 2008 election ??? ... Will you change your investment plans at all due to the election year?

I found it very difficult to keep my political opinions out of my answer and stay focused on the investment scenario. Then it clicked, that's exactly the problem an investor will face in attempting to adjust a portfolio to political events - you need to keep your political opinions out of the process and focus objectively on what, if any, impact government policies and programs might have on your investments.

The short answer to this question is I don't plan any actions in anticipation of the 2008 elections. I have some strong opinions about those elections, but also know the stock market has seen good and bad returns with the White House and Congress under D, R or split control. At this point in the election cycle it isn't possible to predict a winner and, even if you could, predicting which stocks would benefit or be hurt by specific policies would be like playing darts blindfolded.

For example, Senator Clinton has proposed a tax on oil companies to fund alternative energy research. At first glance, that doesn't look good for Chevron, one of my real and SLO holdings. However, even if events lined up to implement this program, there is no way to know how it would account for Chevron's investments in alternative energy technology (cellulosic ethanol research, battery technology, bio-diesel, etc.). Would the R&D spending count towards this proposed program? Could CVX be eligible for research grants or government contracts? Would they be able to pass any increased costs on to consumers? In order to factor election politics into my Chevron holdings, I need to make far too many assumptions about election results and details of a program that have yet to be defined.

Once the details of a policy are known, adjustments can be made. A good example here is the 2006 Pension Reform. That act makes it more beneficial for companies to shift from defined benefit to defined contribution plans. As a major provider of 401K plans, T. Rowe Price is a company that should be able to expand its business as a result of this legislation. Those smart enough to see that and act on it (sadly, not me) have seen about a 25% gain over the past year.

The best bets regardless of who wins the elections will be companies that have consistently shown they can perform in good times and bad and can adapt to a changing economic environment. I want to own companies like that last year, this year, next year,...

Comments: View Comments |  Friday October 12, 2007