Politically Incorrect Investing

Five Years and Counting:

For the last 5 years, the OHFG investment team has consistently messaged to our clients and prospects that its best to leave political bias out of your investment decisions. Republican or Democrat, conservative or liberal, investing along politically biased rationale is usually a great way to lose money at worst, and underperform the financial markets at best, more often than not.

The 2024 Presidential election rhetoric will be ramping up in the second half of 2023, but I want to quickly remind my audience, as early as possible, that more often than not, its best to invest opposite the policies of our political appointees not in line with their agendas. Whether we favor who wins in Washington politically or socially ourselves, they are usually quite good contrary indicators if one is trying to optimize your public market financial returns.

I going to quickly give you a walk down memory lane of some of the biggest “stereotypes” and thematic missteps an investor would have made the last 20 years by following the standard media messaging around political agendas at the time.

Just after President Obama took office in early 2009, the financial media was out in force messaging that 1) you couldn’t invest in the US stock markets because President Obama and his appointees represented socialism. The press promoted the story that “Obamacare” would destroy both the HMO business and the healthcare sector.

That the healthcare industry was uninvestable due to increased government involvement. That socializing our economy would destroy their businesses. What happened? United HealthCare’s stock, UNH, returned over 500% over the next 8 years versus the S&P500. Over President Obama’s tenure, the S&P500 had a stellar return of about 150% over 8 years. Back in 2009, the uninvestable healthcare group as well as the entire stock market turned out to be quite profitable for those who did.



Alternatively, fast forward to 2016 when Donald Trump was elected. The conventional thinking back then was that defense stocks would do great under President Trump’s term because he was going to be tough on China; he would up the US defense budget, and he would force our allies to shoulder more of the financial burden of protecting their own countries.

What happened? While the S&P500 rose over 65% during President Trumps 4 years, a good compound return, the defense stocks were bluntly, two words, underwhelming and underperforming. The best of the group was Lockheed Martin, but it returned only 42%. It lagged the SP500 by almost 25% points. Raytheon (RTX) returned an even more paltry return of barely 10% over 4 years. Conventional thinking surrounding political policies were? Wrong when it came to producing superior public investment returns.

My third and final example of politically incorrect investment thinking centers on the common strategy being touted by financial media post-President Biden’s election. The most common theme back then was the Biden administration was pro-ESG and pro-green energy and those industries would be great places for investors to put their savings. Fossil fuel producers? Those were dinosaur companies, stay away from them the messaging was widely in the press.

Well, I hope you didn’t follow that common line of thinking. Why? Let’s take Tesla as the poster child for Green energy or ESG investing, and Chevron as the example of the evil empire in the Biden administration’s line of thinking, fossil fuels. Since the end 2020, Teslas stock has declined -30% (and that’s with the huge bounce it’s had this year), the S&P500 has returned just short of 10% the last 2 years, and Chevron? The evil empire for green investors, what’s it done? What’s that stock returned? 104%+ over barely 2 years.

Viewers, we all have political thoughts and ideas. We all have causes we want to champion. However, when it comes to your public investments, it’s best for your investment returns that you check those feelings, emotions, and political biases at the door. Your money cares about the marginal return on invested cash that companies make. It isn’t colored blue or red. It’s colored green.

Historically, regardless of whom and what party is running the country, the stock markets have proven to not be political, and companies have learned to quickly adapt to policy changes and to grow and expand along with the economy.

However, two events this week stand out as noteworthy news items when it comes to political policies. The first, the rapid rise in energy prices being vilified as “unworthy” by many pushing clean energy agendas.