Investors in the stock market dislike change and uncertainty and nothing spells change uncertainty like politics.
Every two years new batch of Congressmen are elected to the House of Representatives along with some Senators. Then every four years we elect a president.
Thanks to modern polling data a certain amount of uncertainty has been removed from the process, since with accurate polling data it is possible to predict all but the closest races prior to the election.
Many people from both parties, Republicans and Democrats, bemoan the fact that bipartisanship seems to be a lost art in Washington these days.
Instead, there seems to be a perpetual war where scoring points for your team is much more important than thinking about the welfare of the country.
With each major election the pieces on the chessboard shift and the balance of power can change from one party and ideology to another.
While these shifts may in fact bring uncertainty in terms of economic policy, the truth is very little changes for the average American.
What can change are tax policies and regulatory oversight that may have an impact on business profits. The conventional wisdom is that business largely favors the Republican Party it sees as more "business friendly."
However, when Bill Clinton, a Democrat, was President with a Republican Congress, the economy experienced greatest expansion in modern history. The stock market soared on the wings of tech stocks and the national deficit was erased and a surplus created.
Unfortunately, is not quite as simple as this example may illustrate. Things happen that are unexpected such as a financial crisis that pushed the nation to the edge of a depression or wars in far-off lands that drain resources and human capital.
These events have profound effects on the politics of our country and equally important on the economy of our country.
The changes that can occur when one party gains dominance in the political system may benefit businesses in the short run but may lead to bigger problems in the long term.
One of the things that companies in the stock market and politicians have in common is they are judged on short-term successes.
The short-term mentality forces companies to make decisions that are good for earnings this quarter may put off or prolong a larger problem that needs attention for the company's future.
Likewise politicians can make easy decisions that are very popular in the moment but have long-term consequences that must be accounted for at some point in time.
One of the best examples of this phenomenon in politics is the country's infrastructure has fallen seriously far behind in maintaining itself and in creating new projects to accommodate population and business growth. Highways, bridges, water treatment plants, power plants, urban planning and many other factors often give way to short-term decisions that can produce immediate results in a quick political gain were often more costly in the long run.
Companies face same problems by being judged on quarter-to-quarter earnings and make decisions accordingly. Unfortunately companies have the same problem of needing to invest for the future at the expense of short-term profits.
Research and development, opening new markets and other strategies that may ensure long-term success often come at the expense of short-term profits.
The company's management must make the decision about balancing investing for the future and getting the quarterly numbers so the stock does not take a beating.
It is my opinion that companies that are willing to sacrifice current earnings for future growth and financial stability make better long-term investments than companies that are so focused on quarterly earnings that they don't position the company to move forward in the future.
The political process grinds on and it seems to be becoming worse and worse as years go by. Great companies can't afford to wait for the ideal political environment before making long-term investment decisions. There is always some risk in this, however it is my belief that the long-term political future is unknowable and will only cause companies to delay investments and strategies today that will pay dividends in the future.
Find great companies that are willing to invest for the future while maintaining a current competitive edge is challenging, but they are out there and you can find them if you're willing to look.
