Value Investing and the Trump Growth Agenda

05/19/2017 2:50 am EST

Focus: STRATEGIES

Kelley Wright

Managing Editor, Investment Quality Trends

The narrative that has developed since the election has become known as the “Trump Growth Agenda,” observes dividend and value investing expert Kelley Wright, editor of Investment Quality Trends.

The primary thesis of the Trump Growth Agenda is there will be an economic explosion because of the fiscal stimulus provided from health care reform, corporate and individual tax reform, and significant infrastructure spending.

“Economic explosion” on Wall Street means increased earnings and profits. Now apply an appropriate “market growth multiple” to those increased earnings and you get higher stock prices.

It is important to remember that the above is a thesis that has yet to be proved. Of course, the stock market hasn’t waited around for any proof, that isn’t what the stock market does.

The stock market moves on what it thinks will happen, and deals with the outcome, or lack thereof, later. In other words, the stock market makes a lot of guesses, some of which prove to be good, and some not so much.

I mean seriously, if you were going to buy  a business on Main Street, would you do so because you guess it might be profitable? I forget the proper attribution but I recall a quote that suggests something akin to “a fool and his money are soon parted.”

Indeed, in a roundabout way, I have managed to arrive at my point: Investing is not about guessing the direction of a market or a stock’s price, you invest in companies to participate in their growth, which you realize through a return on your investment.

If you put money into the stock market for any other purpose you are merely speculating, or guessing if you prefer.

Don’t get me wrong, I think it is great that the stock market is up about 10% since the election. Also, I applaud the optimism and confidence of the consumer and business communities alike. A positive outlook is definitely more attractive than a negative one.

As a value investor, however, rampant speculation and guessing by many market participants makes it difficult to find shares of high-quality companies with outstanding economic fundamentals, and most importantly, which offer good value.

In its infinite wisdom, the stock market has placed it faith, and apparently, its money, on the five hundred and thirty-seven people who make up the House and Senate to move the narrative of the Trump Agenda from a thesis to reality.

I wonder what the over/under odds are that they will get any of the three major initiatives accomplished in calendar year 2017?

Our job as enlightened investors is to ignore the noise of the markets and not fall prey to the siren song of the prevailing narrative. The market is a cyclical beast, which requires patience and discipline to wait for stocks until they are undervalued and worthy of investment consideration.

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