Stock Picks in the Time of Political Unrest

Tim Collins is the writer and stock picker for Stirling Strategic Investor.

Investing requires time. Trading requires timing.

Fundamental investing requires time to research. Technical trading requiring the understanding indicators have on the timing of price moves.

They can be used together, separately, or in parts. One thing noticeably absent is politics.
That’s not to say politics don’t matter, but they only do so in terms of policy.

Policy matters while politicians simply talk.

During times of political unrest, especially domestic, or times of political controversy, investors and traders need to keep capital in check. That means emotional and monetary capital.

You can easily be drawn into a security or a mindset based on a political belief. Again, policy not politics. While the words of a Congressman or the highest office in the land may make your blood boil, investing based on those emotions will often leave you trying to understand why you own something months down the road. Without a fundamental foundation or technical trigger, an investor could fall into a trap of creating a justification for owning a position when none exists.

Wall Street Faces the Tweet

Social media is not making the environment easier.

When politicians and Fed members have access to communicate via social media, or their every word is transmitted seconds after being spoken, markets can have a tendency to overreact; to shoot first and understand later.

That’s another dangerous game to play, but investors still must be aware of not only their own possibility of being dragged into the fray but others as well, as it may have a short-term impact on a fundamental long position or technical trading position.

Like Technology, Smaller Is Better

An investor seeking to mitigate the impact of overheating politics should consider minimizing to minimize exposure, preferably on both sides of the capital coin.

In terms of physical capital, simplifying trade structures and reducing trade size is paramount. That can be as simple as it sounds: invest and/or trade smaller. If you normally invest $5,000 in a position, then cut it by a third or in half.

Tackling emotional capital is more challenging.

Stepping away from television, radio and social media is an optimal start, but not realistic for most of us. So, assuming that isn’t an option, then we’d add trade structure to the reduced size. Stagger the reduced-sized trades over a period.

With the availability of online trading and discount brokerages, the days of high commission are long gone. Breaking a $5,000 position into two trades of $2,500 or even three trades of $1,675 have no discernible impact on the end results in terms of cost. An investor could buy a portion of a position today and then complete the purchase a week or two, or maybe even a month, after the initial trade.

Reactionary Trades Will at Least Be Limited

Resist the urge to buy based on a social media post such as a tweet. Policy can’t be discussed in 140 characters. Without context, the implications for macro or microeconomics can hardly be ascertained, let alone the impact on a single company and its stock.

On the off chance a reactionary trade can’t be avoid, at least it will be limited initially, giving an investor time to cool off and consider the trade thesis supporting the position. If it were emotionally driven, then an investor should retain the ability to close the position without a significant impact on capital.

The challenges of heightened political tensions can challenge even the best investors. It’s vital to keep emotions in check and maintain a grounded investment strategy.

At Stirling Strategic Investor, we prefer a fundamental approach with clear catalysts, macro implications on a company’s story and a strong technical picture. Politics remain on the outside looking in and that suits us just fine.

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