By Pierre G. Villere
Let me tell you about the profile of our client base, a cohort that can easily be described as a jeans-and-boots guy who drive a dusty pickup truck and has a copy of this publication on his dashboard.
Ours is the world of the independent producer who crushes rock or mines sand and gravel. And all embody the American success story: they own and operate businesses they started themselves, or that were started by their fathers or grandfathers.
They are typical of the businessman described in the popular self-help book of the 1990s called “The Millionaire Next Door,” a book I read many years ago to further understand the profile, and mindset, of our client base.
One Such Client. There is a story I like to tell about one such client. He and I were riding to the closing of the sale of his company for many tens of millions of dollars, and I asked him, “Just out of curiosity, do you have any other significant net worth outside of this business?” He replied, “Pierre, I don’t own a share of stock or a CD that is not in my 401K, and I have a mortgage on my house.”
That statement spoke volumes. It said to me, like so many others, that he had plowed everything he owned – and earned – back into the growth and success of his business. Nevertheless, I know there are many producers, and employees of multi-national companies alike, who care about the health of their stock market investments.
As I have said many times, the health of 401K balances is the biggest driver of consumer sentiment, which in turn drives 70% of our GDP. With the election behind us, I thought it would be useful to look back at the impact elections have had on investors over the past decades. The results were surprising.
Surprising Results. It appears that both Republican and Democratic presidents returned equally good results going back to Ronald Reagan, so the party affiliation of the sitting administration simply doesn’t have an impact on long-term investors.
Reagan and George H.W. Bush saw GDP grow at 3.5% and 2.2%, respectively, and the S&P 500 Index average annual returns were 14.2% and 15.7%, respectively. And then came Bill Clinton, a president many feared was unproven on the national scale and would pass tax increases that would sink the U.S. economy. But he left office with a budget surplus that would be the envy of any subsequent administrations, and under his term, GDP grew at an annual 3.9% rate, and the S&P 500 Index average annual returns were a stunning 17.2%.
In came George W. Bush, and his term saw stock market performance that was ahead of itself and lost steam; GDP growth under his eight years was still a healthy 2.2%, but the S&P 500 Index average annual returns sank to a -2.9% rate as his last years in office were impacted by the shock of the financial crisis.
Under Barack Obama, the market caught its breath, the economy recovered, and GDP grew at a modest 1.6% rate as we slowly climbed out of the famous Great Recession. But the markets during that era saw the headlights pointed uphill, and the S&P 500 Index average annual returns clocked in at a very healthy 14.5%.
Finally, Donald Trump had a good run, with GDP growing at a 2.5% annual rate until the Black Swan event of COVID-19, but the S&P 500 Index average annual returns still weighed in at 12.2%.
Good Advice. My advice to investors? Don’t fret if your favorite candidate didn’t get elected in November. The U.S. economy and stock market have generally marched higher through Democrat and Republican administrations alike.
Dramatic events such as 9/11, the global financial crisis, and the COVID-19 pandemic can cause sharp market selloffs – but our economy and stock market have historically been resilient to these types of shocks. And follow the advice of Warren Buffet: buy great companies and own them forever.
Pierre G. Villere serves as president and senior managing partner of Allen-Villere Partners, an investment banking firm with a national practice in the construction materials industry that specializes in mergers and acquisitions. He has a career spanning almost five decades, and volunteers his time to educate the industry as a regular columnist in publications and through presentations at numerous industry events. Contact Pierre via email at [email protected]. Follow him on Twitter @allenvillere.