Tuesday, November 13, 2012

Before You Sell In Anticipation of the "Fiscal Cliff", Watch This

I had the opportunity this morning to listen to a prominent investment strategist at a large brokerage house.

Articulate, well-read, and seemingly connected to everyone who is important on Wall Street, this strategist urged his audience to think about paring back stock positions in anticipation of political gridlock in Washington.  Based on his read of the political landscape, he felt fairly certain that there was not the political will to come up with any coordinated political solution to the "fiscal cliff" by year-end.

At the same time, the strategist acknowledged that conditions in corporate America were actually not all that bad.

Low energy prices; competitive wages; efficient manufacturers; low interest rates; and legal protection of corporate interests all combined to make the United States one of the most attractive places to do business on the planet.

In short, while he was short-term bearish, he was longer term quite positive on stocks.

To me, this advice seemed, well, a little short-sighted.

No one knows how the political situation will play out over the next few weeks in Washington, or whether some combination of tax increases and spending cuts will actually be enacted.

What we do know, however, is it is highly likely that most market participants are very aware of the ongoing debate between Congress and the President.  One could also pretty easily surmise that any anxieties over the issues are probably already priced in the market.

More important are the points the Warren Buffett mentions in the video above.

If you own a piece of a quality company, whatever near-term concerns that you have regarding economic or political events should not cause you to sell. Good companies will do well in many different scenarios, so selling a position with the expectation of lower prices is probably not the wisest course of action.