Times They Are A Changin’ – Your Investment Strategy Should Not
by Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, October 19, 2011: Issue #1624
“There’s something happening here. What it is ain’t exactly clear.” – Buffalo Springfield
It’s been very easy to dismiss the Occupy Wall Street movement as a bunch of pot-smoking hippies ironically protesting capitalism while texting on their iPhones. The media has been having a good time poking fun at the protesters, often referring to their scent as “patchouli smelling ” or “badly in need of a bath.”
The Occupy Wall Street movement hasn’t yet solidified to a concise message. But it would be wrong to ignore the emotion behind the movement.
When the Tea Party first started, some members of the media labeled it a racist movement. Whether that element was there, it is still highly debated in the media. But the group soon found its message and became a viable political force, calling for lower taxes and less government spending.
The mainstream media is ignoring the very real emotion behind Occupy Wall Street, instead trying to impress viewers with snarky remarks about the movement, which has grown beyond the media’s wildest imagination.
And while the message may not yet be clear, it still resonates with how many Americans feel.
The Focal Point of Occupy Wall Street’s Anger
I don’t think the protesters’ issues are “other people are rich and I’m not and that’s not fair.” Or even a protest against capitalism. Other than those who are true socialists, most people believe that the capitalist system works and can lead to fulfillment of the American Dream.
What I see as the focal point of their anger is the belief that the American Dream is no longer attainable. That it has been hijacked by those who head up big corporations and by politicians.
As Nicholas Kristof wrote in The New York Times on Saturday, “The banks have gotten away with privatizing profits and socializing risks…” That isn’t capitalism. I’m going to guess that if the banks (and their executives) that made the bad loans actually suffered as a result, the way capitalism is supposed to work, there would be no Occupy Wall Street.
The banks (and other corporations) have gotten away with it because they’ve bought Congress and the White House. They own it, plain and simple. All that’s missing is the title.
So even though politicians offer all kinds of promises about changing the system, the truth is they want to keep their jobs just like most Americans. Perhaps even more so with their lucrative pensions and first class healthcare benefits.
The way to keep their jobs is by getting along, taking the lobbyists money and doing their bidding. And if their constituents actually are aware of what’s going on and try to vote them out, the lobbyists’ money will buy a lot of campaign ads that belittles their opponent’s military service or makes you believe the challenger is an imbecile or a crook.
Call me naïve, but I believe most people in this country aren’t asking for a handout. They want to get up every morning, grab their briefcase or their lunch pail and do an honest day’s work for an honest day’s pay. They want the opportunity to succeed at their job/career/business.
Economic Growth Curtailed by Bailed-Out Banks
What is maddening for these people is the idea that growth is being curtailed by banks sitting on billions of dollars that they won’t lend. Particularly when those banks were bailed out by taxpayers for really stupid business decisions. Even worse is that many of the executives whose blunders caused the collapse are still in charge and collecting seven- and eight-figure salaries.
Most people are intelligent enough to understand that a struggling business can’t bring on more employees. But how do you explain Hewlett Packard’s (NYSE: HPQ) ousted CEO Leo Apotheker taking home $13 million in severance, during a period where the company laid off employees? Keep in mind that revenue, earnings and cash flow are the highest they’ve been in years.
Bank of New York Mellon (NYSE: BK), which also has reported higher revenue, earnings and cash flow, plans to lay off three percent of its workers, but still found $17.2 million to hand to outgoing CEO Robert Kelly.
Even the wildly ineffective Yahoo! (Nasdaq: YHOO) former CEO Carol Bartz got a check for $10 million when she was shown the door, while other laid-off co-workers, who were presumably better at their jobs than she was, received significantly less.
The sense of entitlement isn’t just among the incompetent, but also in the criminal. KV Pharmaceuticals’ (NYSE: KV.A) former CEO Marc Hermelin is trying to collect $37 million in retirement benefits despite serving jail time for mislabeling drugs, having KV’s business shut down by the Feds for shipping oversized morphine pills and an investigation concluded Hermelin didn’t act in the company’s best interests.
I don’t believe the Occupy Wall Street movement is about begrudging successful people their wealth. It’s about not permitting just a very few to hold all the power over the government, corporate America and ultimately our lives.
If that is not yet the concise message, that’s what it should evolve to.
So what does this all mean for your investments?
If you own some of the big banks, the protests might ironically increase profits. If the politicians truly get fearful of the populace, they may start to force banks to stop being so stingy and get some of that money out on the street. More loans should lead to more earnings and may actually spark the economy…
Healthcare and Dividend-Paying Stocks: Two Sectors Immune to Change
But two areas should be relatively immune from any change that the protestors are able to bring about – healthcare and dividend paying stocks.
Yes, healthcare is big business and could eventually become a target for protesters as well, particularly companies that charge high prices for critical medicines. But no one is going to create new therapeutics, diagnostic tools, or provide services unless there’s a profit incentive.
Wanting to cure cancer is a great motivator, but it’s an expensive proposition. Trying to find investors to put up money to fund innovative companies will be tough if their opportunities for profit are curtailed.
Look at mid-size but profitable healthcare companies like Myriad Genetics (Nasdaq: MYGN) or Watson Pharmaceuticals (NYSE: WPI).
Also, consider companies that have raised their dividends annually for at least a couple of decades. That proves they have the staying power to withstand all sorts of economic, political and global changes.
Consolidated Edison (NYSE: ED) has been raising its dividend every year since 1974. Clorox (NYSE: CLX), a member of The Oxford Club’s Perpetual Income Portfolio, has increased its dividend each year since 1977. Over the past 10 years, the dividend has grown by an average of 10 percent per year.
These companies have products people use every day and will continue to use every day whether they’re taking it to the streets or going to work.
We may look back upon this period as a time when America changed for the better – when two political movements emanating from opposite ends of the political spectrum made both our country and its citizens more financially sound.
What will likely remain the same though, is the performance of the stocks of quality companies that provide needed services and products.
Times may be changing, but the performance of investments that have withstood the test of time, likely won’t.
Good investing,
Marc Lichtenfeld
Article by Investment U