Where Have You Gone, Peter Lynch?
Peter Lynch has always been, and still remains, one of my favorite investment gurus. His book Beating the Street was published in 1993, the same year I entered the investment profession.
I am the first to admit that what we're experiencing in today's markets is unprecedented; whether it changes investing forever or not remains to be seen. However, some fundamentals have not changed. First, investing in companies that produce goods or services that people want to buy - and in return the companies make a healthy profit - has not changed. Second, the current financial mess we're in was caused by the packaging of B-paper, variable rate mortgages, then selling those packages to the investing public and institutions: extremely esoteric and untested investment vehicles. These were pushed into the investment world by investment banks eager to promote something new and "sexy." (One of those investment banks was Goldman Sachs, which was run at that time by Hank Paulson, but I digress.) The mortgage crisis makes me return to Peter Lynch's "Peter's Principle #3: Never invest in any idea you can't illustrate with a crayon." I believe this even more today than I did fifteen years ago.
If we return to the basic ideas of investing, and look at the industries that would expect to make profits during an Obama administration, we can find some ideas to illustrate with the crayon of common sense.
Materials: If infrastructure turns out to truly be the key focus in Obama's administration, then that would lead to higher demand for raw materials to build the infrastructure.
Industrials: Again, infrastructure build-out would certainly utilize some private sector contractors. Combine that fact with alternative energy being a focus and a case could be made for investment in industrial firms.
Health Care: Unlike the Clinton health care plan which hurt the sector tremendously, Obama's plan of increased coverage through affordable health care insurance could mean higher volumes for health care and pharmaceuticals. Plus, new FDA leadership and government grants could boost biotechnology firms.
Consumer Staples: One of the election factors that weighed on my decision to vote for Obama was his plan to limit farm subsidies.
From his website: "'Too many family farmers are being squeezed as big agribusiness takes up larger shares of federal subsidies, takes up more market share, manipulates prices and contracts, makes it harder for family farmers to control how they run their own farms,' Obama said. He said his plan is strong because it was put together almost exclusively from the feedback he and his campaign got from rural residents." The website goes on to say that farmers believe that caps on farm subsidies would create a level playing field because too much of the subsidies are going to big corporations that are not really involved in farming.
What does this have to do with investing in consumer staples? I would argue that lowering farm subsidies could lower food and grain prices, and that any fiscal stimulus that helps low- to middle-income families could boost profits for consumer staples companies.
As I cautiously invest my long-term money next year, these are the industries that I will be watching closely, crayon in hand.