By: Dividend Sensei
Every time we have a presidential election pundits, and other talking heads trot out lists of stocks that are likely to benefit if one candidate or another wins. Each of these articles lays out a plausible sounding reason why it makes sense to change your portfolio based on the outcome of the election.
For example, here’s an article outlining why Apple (AAPL), Exxon (XOM), and Smith & Wesson (SWHC) would all benefit under a Trump administration.
Similarly, here’s a list of supposed companies ready to rock if Clinton takes the White House including: Lockheed Martin (LMT), HCA Holdings (HCA), and Aetna (AET).
And while it’s certainly possible that one candidate or another’s proposals might indeed provide a tailwind to certain industries, consider this:
1. Presidents don’t make laws, Congress does.
While me may pelt candidates with all manner of questions for their policy views, as well as the unavoidable question of how they plan “to fix the economy” or “create jobs”, the fact is that the President’s job isn’t to control the economy, nor for that matter is it the role of the government at all. And since its up to Congress to actually convert ideas into legislation, the fact is that most of what the candidates propose on the campaign trail is irrelevant; simply because a grid locked Congress will get very little done.
2. The track record of such “Event driven” strategies is terrible.
For example, in 2008 numerous articles proclaimed that if Obama won you should:
Sell: Big banks, such as Bank of America (BAC), and Wells Fargo (WFC), (because of much harsher coming regulations), Oil stocks (environmentalist in chief Obama would bankrupt the oil industry), and gun makers (he’s coming for our guns don’t you know!?)
Buy: solar stocks and big auto makers (because GM and Ford will get bailed out by the government to protect Obama’s Union allies)
Well how exactly did these recommendations fair?
Since inauguration day (Jan 20, 2009): S&P 500 total return (includes dividend reinvestment) is up 217.4%.
BAC: + 237%
What about oil stocks? Well despite Obama’s supposed hatred of the oil industry, up through the start of the oil crash in Mid 2014, Obama oversaw the largest increase in US oil production since the 1970’s, courtesy of the fracking revolution and shale oil. That saw massive profits for numerous oil companies.
And as far as being anti-gun, well thanks to fears that Obama is going to “take our guns” Smith & Wesson stock is up 944% since Obama took office.
And what about the sure-fire winners? The union dominated auto makers and alternative energy sector?
Well GM actually went bankrupt wiping out shareholders. When its shares finally started trading again in 2011?
S&P 500 total return: 118.8%
What about eco-friendly companies? Well the Guggenheim Solar Index is down 63.7% since Obama’s inauguration. What about all the growth in solar over the last 7 years? Well that’s thanks to the price of solar panels collapsing, which has meant numerous bankruptcies in the industry.
What’s the moral of the story? A quality dividend growth stock should be owned for the long-term, ie decades. That means that it needs to be able to adapt to changing political, economic, and interest rate environments. In other words, if it matters to a company you own who wins in November, then you probably shouldn’t own them at all.