Politics don't play out in market

Finally, the election is almost here. And all of the ads, phone calls and noise will stop — at least until the next campaign cranks up, which will be way too soon.

Hopefully, too, the media stock market jockeys who intone various states of Armageddon or euphoria, depending on who wins, will also stop flooding the media with their assorted crystal-ball ramblings, at least for a little while.

I last wrote about the election frenzy in early March, as primary season was heating up. At that point, it was still Obama versus a Republican field. Now it's Obama versus Romney, and the situation has been complicated by the rapidly approaching fiscal cliff.

There are a lot of statistics about how the markets have performed during various presidencies. For example, from 1901 through 2008, the Dow Jones industrials index rose by an average of 7.2 percent a year during Democratic administrations, versus just 3.7 percent a year during Republican administrations.

Some say that's because Republicans are generally more comfortable owning stocks. So they hang on, despite Democratic presidents. By contrast, Democrats get more upset by Republican presidents, so they sell.

Others say Republican presidents have to clean up the messes of Democratic presidents, so stocks do more poorly during Republican presidencies.

Conventional wisdom also says certain sectors will do better, depending on which party wins. Defense stocks are a favorite.

Well, it's not necessarily so. Take military contractor General Dynamics. As I pointed out in March, its stock fell by 60 percent during Bush II's presidency. Sure, there was the economic collapse near the end of Bush II's second term. Still, General Dynamics rose by almost 19 times during Bill Clinton's eight years.

Yet investors continue to place bets for and against certain stock sectors, depending on who they think will win.

Solar power was big in anticipation of the Obama presidency. First Solar, a large maker of solar panels, was hot in the spring and summer of 2008 when oil soared to $147 a barrel. And government subsidies for solar, wind and other alternative sources of energy were plentiful.

First Solar's stock topped $300 a share, before returning toward earth as the price of oil fell. By Election Day in November 2008, it was trading at about $160. By May, 2009, as Obama trumpeted alternative energy investment, it was back over $200 a share.

But as cheap Chinese solar panels flooded the market, and economically stressed governments around the world began to yank subsidies, the stock plummeted. At this writing, it trades at about $24 a share, and doesn't pay a dividend. During the last year, it's dipped below $12. So much for a solar power investment thesis based on an Obama presidency.

Meanwhile, ExxonMobil, which investors expected would suffer from increased taxes and environmental scrutiny by the Obama administration, traded at about $67 a share just before Obama's 2008 election win. It now trades at over $90. And it pays a dividend yield of 2.5 percent. Further, ExxonMobil has increased its dividend by 43 percent during Obama's four years in office.

Investors not only failed to anticipate the collapse of the solar panel market, they didn't understand the dimensions of new energy discoveries, particularly natural gas, in this country or abroad. Nor did some investors understand the ability of large, integrated energy companies like ExxonMobil, Chevron and ConocoPhillips to invest heavily in alternative energies, like biomass, geothermal, wind and hydrogen, as well as solar. During Obama's term, ExxonMobil announced a $600 million investment in research on algae as an energy source.

None of this is an endorsement of either party or candidate. It's simply to say that it's the fundamentals of companies that determine long-term investment success, not which party is in the White House.

(Disclaimer: my firm owns some of the stocks mentioned above on behalf of our clients.)

Barry Paster owns Bridge Creek Capital Management LLC, a fee-only stock and bond portfolio manager. His column also appears on www.capecodonline.com. He may be reached at P.O. Box 648, West Barnstable, MA 02668; by phone at 508-362-9566; and by email at management@bridgecreekcapital.com.

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