We’re entering election season at full-speed and with it comes much uncertainty and worry. Each side, of course, fears the election of the other’s candidate. But both sides face concerns about high interest rates, high inflation, runaway national debt, illegals overwhelming local resources, and bad guys freely crossing our southern border.
You may be asking yourself whether the stock market can endure and survive all of these problems. This is a legitimate question, and it provides a good context for two timely reminders: one relates to the stock market and the other relates to our three foundational principles.
The Stock Market—Now is a good time to remember that, although you may own individual stocks, mutual funds, or ETFs (exchange-traded fund), you do not own “the stock market”. What you own are shares of individual companies (either directly or indirectly), each with executives and employees striving to earn a profit, developing workarounds to existing and new obstacles, and innovating toward new and better solutions.
Not all businesses succeed during tough times, but “all the historical evidence suggests that whatever the crisis, superior businesses ultimately find ways to work around it as opportunistically as possible and go on to further success.” (Nick Murray Interactive, June 2024, p4.)
Three Foundational Principles—As you know, we call the investment philosophy of The Planner’s Edge The Serious Money ApproachTM, and this Approach rests upon three foundational principles that we try to follow always. It is easy to follow these principles when an upbeat market “raises all boats.” But when we are wading knee-deep in turbulent waters, we may need some mental and emotional help to navigate through to easier times.
Let’s review these principles as they relate to this summer’s election season:
Faith in the Future—this foundational principle states that, although we don’t know how a problem will be solved, we believe that it will be solved. This principle rests on the historical evidence that our major problems in the past were solved, even when no one knew how they were going to be solved.
One might respond with “hey, this time is different, we’ve never had to deal with A, B, and C before.” That may be true, but we had to deal with D, E, and F before and we muddled our way to resolution. So, it is accurate to say that today’s problems are novel, but it is also accurate to say that past problems were novel in their time, yet look where we are today, with markets at or near all-time highs.
Patience—this foundational principle is a variation on the first: although we don’t know when a problem will be solved, we believe it will be solved. The late Charlie Munger, famous co-manager of Berkshire Hathaway along with Warren Buffet, said his most important investment rule was “patience.” He said that making a good investment decision isn’t so rare and valuable as “sticking with it, not getting shaken out, [and] letting it unfold over a very long period of time.” He also believed that “patience sometimes requires more strength of character than does action.” (Chris Davis’s tribute to Charlie Munger, May 2024.)
I would only add that sticking with your investment strategy and not getting shaken out of it probably applies in spades to this year’s election season.
Discipline—our third foundational principle recommends that we stick with ideas and strategies that have always worked and avoid (new) ideas and strategies that have never worked. So, we’ll want to avoid the temptation to try to “play the election” by trying a new strategy, instead relying on time-and-crisis-tested strategies that have always worked over the long haul (e.g., buying at lower prices and selling at higher prices, avoiding “entrance risk” by dollar-cost-averaging with periodic deposits, and using mutual funds and ETFs to diversify risk).
I’m guessing that it will be a wild, confusing, upsetting, unpredictable, and unsettling ride this summer and fall. Let’s use these timely reminders to help us hang in there together.
Until next month, JR