Not Blurring the Lines

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Jason’s Random Words

Almost every newsletter, blog, or investing social media influencer I follow has had something to say about investing and politics, how markets have done under Republican and Democrat administrations, and generally all with the message that the best thing to do is just keep doing what you’re doing. As Travis Hoium of Asymmetric Investing put it in a recent title, both everything, and nothing, has changed. I think that’s true, but as always there’s more nuance.

First, the best, most optimistic truth that has not changed: The U.S. remains exceptional, and our brand of capitalism is still the best risk-taking, disruptive, effective — and most importantly, accessible — wealth-building tool in the history of humanity.

What’s changed? Well, we don’t rightly know just yet. Sure, we might have some ideas based on the first Trump administration. I’m not going to foray on the social aspects of that. No matter your or my (or Jeff’s) leanings on those issues, we aren’t a political blog, so don’t take our silence as support or dissent.

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Focusing on us, not them

In periods of extreme divergent emotions, we see markets get volatile, and extreme bets in different directions. And whether you’re biased in any direction about politics (hint: You probably are) it’s always a good practice to take time out to check whether your inherent biases are affecting your investing in a negative way.

I can offer two stocks as examples. Shares of Axos Financial (NYSE:AX), which has gained some notoriety as “Trump’s bank” surged 24% last week following the election. At the same time, shares of beleaguered solar company Enphase (NASDAQ:ENPH) fell 24%.

One is run by a supporter of the president-elect (plus: falling interest rates and a business-friendly administration is good for banks) while the other is a solar company, and a Republican-controlled Congress and Trump administration will gut the solar industry’s tax incentives (the main source of Enphase’s positive cash flows during the residential solar downturn).

Both seem reasonable, right? Maybe. We don’t really know what will happen next, and whether either will really benefit/suffer as predicted. Economists are concerned Trump’s economic policies will hurt the economy (banks) while Trump’s biggest supporter has seen his car company (pg. 26, “Automotive regulatory credits”) earn about $2.5 billion — the bulk of its free cash flow — from government-mandated programs over the past year.

In other words, we really don’t know what will happen when government applies its large hand to markets. Like the stock market and economy, there’s a lot of complexity that makes it really hard to predict what will happen.

Back to basics

When things get really noisy, it can get hard to focus on the signal. For me, that’s when I get back to what matters, and in my case, it’s refocusing on my portfolio as a tool to build and maintain wealth to support my family’s need and wants, in that order.

So we build frameworks that force us to focus on what we do well, and make the things that could harm our returns harder to do. Thinking, not reacting. It’s easy in these periods to let the lines blur between our politics and investing. Greed and fear are just as powerful when our chosen candidate wins or loses. Not letting those lines blur is hard, and important.

The moral arc of the universe

I don’t know what happens over the next four years, but I never have. I’ll maintain enough cash and bonds to backstop my portfolio, and keep making contributions along the way. I also don’t know precisely what happens over the next decade, or the four beyond that. But what I may lack in precision, we still have in direction and momentum. The things that have made American capitalism such a powerful wealth-building tool in the past are still in place.

Whatever your political bent, the future of America is bright, whether you feel it brighter or less so following last Tuesday’s outcome. As Unitarian minister Theodore Parker, and later, Martin Luther King, Jr. said, “the moral arc of the universe bends towards justice.” I think this is also true of capitalism.

Jason