Michael Lipper: lessons from November's political changes

There is a good chance that when we look back at November 6th to November 14th, 2012, the period that includes the US election and the Communist Party Congress in China, we will recognize an important secular inflection point.

The key was to sell

There are three time scale references that are useful in looking to the future. The first is that the media and other pundits focus primarily on the tactical or temporary time slots; e.g., when in last week’s post I recommended selling on the day after Election Day.

I was wrong that there might have been a relief rally on the basis that one unknown was now known.

The key to the recommendation was to sell because of the large number of remaining unknowns which were not likely to be decided until the spring of 2013.

On a short-term basis the decision to sell last week was correct.

Several astute investors have informed me that they reduced their 60% equity allotment to 30% on Wednesday. Another smart investor decided not to take advantage of the drop in stock prices as there were too many unknowns.

Cyclical periods

The second time frame (and the one most used by institutional investors and members of investment committees) are cyclical periods which go on for a few years.

Election cycles, crop cycles, fashion cycles, economic cycles and market cycles are examples of outside forces that somewhat predictably influence market prices and portfolio returns.

To participate in these cyclical periods, consultants like three years, older CEOs prefer five years and younger CEOs favor ten years as calendar periods to capture most of the other cyclical behaviors.

Always is a long time

For those of us who are managing money for succeeding multiple generations and/or institutions who believe in their eternal lives, secular time periods are more appropriate.

The demographic trends, the technological changes and long-term medical developments are some of the factors that impact secular growth rates and the attractiveness of various investments.

I have always been more focused on secular changes than shorter term phenomena, particularly today. I am writing the first draft of this post Saturday night, the 10th of November, the 237th anniversary of the US Marines Corps.