Turns out that it’s hard to invest profitably when you’re wearing political blinders.
What counts in investing isn’t the world as you’d like it to be but the world as it is.
Yesterday, on the day after the evening when Democrats in the House succeeded in passing the Senate’s version of a health insurance reform bill, my e-mail box overflowed with predictions of a crash in the stock market, or of a rout in healthcare and drug stocks, and indeed of the end of just about everything.
Drug stocks crashed so hard they rallied. Bristol-Myers Squibb (BMY) climbed 1.8%. Pfizer (PFE) was up 1.4%.
Among the insurers WellPoint (WLP) was indeed down by 1.1% but Aetna (AET) was up 0.5%.
I guess the market will have to wait another day for the Nancy Pelosi apocalypse that some of my e-mail predicted.
Every investor has a political opinion, often passionately held. We all believe our community, the country, the world would be better if it went down Path A and eschewed Path B.
We get into trouble as investors when we allow that belief in Path A and that dislike for Path B to prevent us from seeing the stock market as it is.
 And lose sight of the fact that it is largely indifferent to our political passions.
You may think that the health insurance reform bill will be the end of the Republic, but the stock market looks at the bill and sees more government money for people to use in buying drugs. You may think that more government funding for this purpose is a bad thing but the market sees only that it means more revenue for drug makers. (And especially more revenue for the makers of cheaper generic drugs. Jubak’s Pick Teva Pharmaceutical Industries (TEVA) was up 2.2% today.)
Coming from another political perspective you may think that the bill is a cop out that doesn’t do enough to lower health care costs and that leaves too much of the healthcare system in the hands of private insurers. But the stock market sees more revenue for hospitals and hospital-based home healthcare services. Hospital operator oHHHealthSouth (HLS) was up 3.7%.
As an investor you face the danger of letting your political hopes and dreams, your joy and your anger color your understandig about how this piece of legislation or that will change the fortunes of these companies or that sector. It’s an especially great danger in this day and age when we all, left and right, tend to listen more and more to only those media voices that we agree with most.
Politics does influence the stock market because government is the great organizer of where the money and the profits go in systems as different as command economies and U.S.-style capitalist economies.
But politics, it turns out, isn’t a very accurate lens to use in trying to see the actual flows of that money.
Something to keep in mind as we continue our efforts to figure out who gets the money from this health insurance reform bill—and as we try to predict how the money will flow as a result of bills on banking reform, the FCC’s efforts to jump start the creation of a higher-speed Internet, a national energy bill (if not actual legislation on climate change), another and then another jobs bill, and on and on and on.
Healthcare Reform was supposed to have 2 objectives: 1. Make health care accessible to all Americans, 2. Make the heathcare establishment pickup a good portion of the tab. The current bill more or less achives the first goal but does nothing about the second. I have never seen any Republican (including ordinary ones)defending anything good for the ordinary people, so the fact that they are against the first objective does not surprise me. I also understand why they are against the 2nd objective (duh!). They are absolutely right about the cost this healthcare will add to the government deficit/debt. That’s why 2nd objective was in place.
So who is going to win in the end? Republicans who will show how burdensome this reform is or Democrats who will show how useful the reform is? I bet the Democrats will… Republicans were against Medicare too but today they cannot even imply its cancellation. Medicare is as American as apple pie. So will Health Care Reform. How are we going to pay for it? This is a question that will be answered when America hits bottom and all Republican ideas are discredited and a new generation of Americans will come to power with more progressive ideas. My guess is in a few decades…
Incredibly insightful and aware. You’ve described perfectly our blind tendency to project our passions, ideologies and lens of the world on everything we see. Once we’re aware that our view of everything is simply our perspective showing up all around us, then and only then can we absolutely view the world, the stock market, anything or anyone else as they actually are.
Thanks Jim. I couldn’t agree more.
From SmartMoney… 3 Hospital stocks favored by the Healthcare bill
http://www.smartmoney.com/investing/stocks/3-hospital-stocks-favored-by-the-health-care-bill/
Looks like the 3 of them rose yesterday, but may be worth watching.
Jim- one thing I’ve learned over the years about opinions: you can’t change anyone else’s.
Thanks for the insight tho- which I will try to take as a reminder and a warning. The feller on the other channel puts it this way: never let an opinion keep you from making a profit.
Ner your own, ner anyone else’s.
Great job Jim, as always.
JosephorJoe-
The individual still can make shrewd investment decisions , for example, buying stock in the huge corporations that are at the table with the ruling class, make money off it, and then use that independent wealth to buy time for them to champion changes to where we’re headed.
If there’s anything that the market hates more than bad news, it’s uncertainty. While there were healthcare stocks that did well yesterday, the Vanguard Healthcare Fund that has been a good investment for me since the late 80’s lost 1/2%. In the short term, all of the extra people having access to healthcare will probably have a beneficial effect on most healthcare stocks. In the long term, when the extra taxes are factored in and the reality of the country not able to afford the huge additional costs associated with this bill sets in, healthcare stocks will probably be hit..and not just the insurers.
Indeed, good points.
Those writers also display a lack of understanding about the forward-looking nature of markets.
Much of the likely harm to the markets to be caused by the current administration was priced into the markets in 4Q08-1Q09.
Even the passage of bad legislation can cause the markets to rise, if it is “less bad” compared to prior expectations.
Additionally, as our country continues its more than 100-year bipartisan stroll towards a more fascist/corporatist economic model, many firms that are at the table with the ruling class will benefit greatly. What is bad for society policywise is not always bad for established (typically large) firms. What is good for society is similarly not always good for established firms.
A good investor will keep in mind this distinction.
Jim, great points for both sides of the aisle. The healthcare “reform” bill, after losing the sole-payer/govt option, maintains the status quo with no threat to the industry’s profit margins. I suspect the ballyhooed financial services “reform” bill will likewise be watered down with little or no resulting change. Opportunities to make money will, as always, present themselves.
great points, Jim, as always.
I very much enjoy how non-political (most) financial news, research and opinion is. Its one thing to listen to Fox News’ (or MSNBC if your one of the 68 people who actually watch MSNBC) carefully crafted ideological narrative as entertainment or some form of fear induced catharsis, but its quite another thing to actually accept their programming as ‘information’.
My point is, learn to be a grown up if you want to be a successful investor. Worshiping space gods and creating a perpetual imaginary struggle between ‘good and evil’ isn’t helping your portfolio.
IMO, the health care bill does more to hurt small businesses, rather than the larger ones which make up the bulk of market capitalization in the equity markets. Unfortunately, small businesses are the main driver of economic growth. Welcome to a world of economic stagnation, ruled by a lot of “too big to fail” companies.