Why the Outcome of the Election Won’t Affect Most Stocks
Stocks closed slightly higher Monday as investors were reluctant to make major moves ahead of Tuesday's presidential election between President Barack Obama and challenger Mitt Romney, but Jim Cramer argued the outcome is likely to have little effect on stocks, at least if recent history is any indication.
"For the most part, when I look at individual companies, I see stocks doing better where management excelled and stocks doing worse where management failed to execute," Cramer explained. "From my vantage point, stock performance had almost nothing to do with who occupies the White House."
(Related: Election Eve Poll: Deadlocked.)
To illustrate his point, Cramer called attention to Hewlett-Packard and IBM, two technology companies that both decided to move out of hardware and into big data management, software and consulting at around the same time five years ago. In 2007, IBM traded at around $111 a share, but has enjoyed a 73 percent gain and now trades at roughly $193 a share. Five years ago, H-P sold for roughly $49 a share, but has since dropped around 71 percent to trade at $14 a share.
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"The political determinists out there would say that business will do better under Romney," Cramer said. "But I'd say that business did better under former IBM CEO Sam Palmisano than the various CEOs at Hewlett-Packard, including Mark Hurd, Leo Apotheker and Meg Whitman."
Elsewhere in the tech space, Microsoft's stock dropped from $33 to $29 over the past five years while Intel sank from $25 to $22. Apple's stock skyrocketed from $185 to $576 over the same time period, though.
(Related: Kudlow: Romney's Optimism Will Win.)
"Should Obama take credit for Apple's huge run? By the same token, the Romney surge began when Apple was in the $700s, does that mean Romney's gunning for Apple? Seems pretty stupid if you ask me," Cramer complained. "This difference is about management, raw brainpower and product differentiation, not politics."
From retail to banking, chemicals and more, Cramer pointed to several other examples that illustrated how politics was not tied to stock performance. The S&P 500 index did drop from 1,465 to 1,367 over the past five years, Cramer admitted, but he thinks the real damage was done during the year before he got elected. But Cramer argued the broader averages shouldn't matter to investors. Instead, he thinks investors should concentrate on finding shares of companies that execute well and are immune to Washington's antics.
"Politics is incredibly overrated is as a stock performance prism," he said. "What matters is management and the business model."