Cocktail Investing

Chapter 5The Impact of Politics and Regulation on Investing

I don't make jokes. I just watch the government and report the facts.

– Will Rogers

If you have ten thousand regulations you destroy all respect for the law.

– Winston Churchill

Giving money and power to government is like giving whiskey and car keys to teenage boys.

– P.J. O'Rourke

Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.

– Groucho Marx

Successful investing requires keeping a close eye on government, yours and any other nation in which you invest or that trades with a region in which you invest. You've probably heard the phrase, “Don't fight the Fed” while watching the news. The phrase speaks to the ability of central banks and politicians to impact the economy, an industry, and the stock market. All the business fundamentals in the world won't save your investment if a politician manages to alter the tax code in some way that dramatically alters its industry's economics, such as the deduction on mortgage interest payments we discussed in the prior chapter. On the other hand, great fortunes have been made by accurately guessing which way the political wind is going to shift and how it will affect a particular industry, commodity, or company. Just look at how much wealthier many politicians are when they leave office relative to when they enter—it's not from salaries.

In Chapter 4, we showed how the political decision to increase home ...