Much Ado About Nothing?

by Jeremy Bryan, CFA

After significant media attention that led to hand wringing and warnings of pending doom, the US government appears to be headed toward an agreement that would extend the debt ceiling beyond the next election cycle in 2024.  Compromises and concessions were made by both sides, but in the end, the debt ceiling issues will likely resolve without a significant negative influence on companies or individuals in the near term.

It is our belief that political trends and their short term influences are typically not compatible with actions regarding long term investment planning.  The reason is two-fold:  First, predicting political events and trends is fraught with peril, and second, predicting the market reaction to these events is completely independent and equally as difficult. 

So, while a US default would have clearly had ramifications regarding the economy and our ability to finance our future debt, it is a difficult proposition to make substantive changes to investment plans based on these potential concerns (and in this case, their resolution). 

This is important because the debt ceiling is indicative of future issues investors will face between politics and portfolios.  We will certainly face more issues on the political front in the future, including an election in 2024 that will be likely be both highly contested and very contentious.  The early indications and polling will change, revert, change again, and the potential ramifications of different elected officials based on their future plans will be dissected thoroughly. 

For many investors, these gyrations can often lead to the feeling of a need to act.  Most likely, these actions tend to be based on worries regarding the “other party” and a need to prepare for the forthcoming doom and gloom if those parties were to be elected.  

We completely understand how this can happen.  Often, political information can be overwhelming and the discourse can be filled with predictions of catastrophe.  The closer we get to actual results; the level of noise tends to increase with higher and higher levels of “urgency required”.

In these times, we rely on tried and true methods of investment planning and diversification.  A well thought out investment plan includes the following:

  • An objective – and this objective is usually based on a life goal and is usually not tied to political affiliation
  • A consideration of risk – measured in the ability to take risk and the tolerance to accept risk. This includes both known and unknown risks to ensure a safety net against adverse conditions.
  • An understanding of time horizon – acknowledging that money needed in the short term should be invested very differently than legacy initiatives that may have decades to appreciate.

Note, what we do not incorporate into these plans is our prediction on which political party will be in power and an allocation based on policies that are likely to pass or not pass in the coming years.  This is not how we perceive asset allocations and is very rarely part of the decision making process of investment selection. 

We invest in businesses and we select investments based on fundamental data that includes the health of the economy, the health of businesses, and the valuation (or amount we must pay to invest).  Businesses across the globe function as part of the economic and political ecosystem, but good businesses are adaptable and find ways to satisfy customers and build efficient operations regardless of political entity.  Some regimes make this more challenging than others, but history would tell us that US businesses in particular are some of the best managed and capable to adjust and thrive under changing conditions.  These are the businesses which we look for when investing and provide the backbone of the assets that are used in executing on the well-defined investment plan.

As political winds swirl, and the noise becomes deafening, it is our goal that a return to the basics will provide the ability to stay the course to achieve the objectives for your money.  We will also provide commentary on current issues but with a rational analysis and reasoned approach for investment decision making. 

To expand on these Market Commentaries or to discuss any of our investment portfolios, please do not hesitate to reach out to us at 775-674-2222.

Posted on June 5, 2023
Call Us: (775) 674-2222