The Fiscal Cliff and the End of the World
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
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The ancient Mayans
The End of the World
We know now that the world didn't end like some people had predicted based on some esoteric interpretations of Mayan calendars. That's the good news, but what about politicians? They are more powerful than the Mayans, and they seem to be doing their best to destroy the world, starting of course with the economy.
I'm not only talking about US political leaders who can't seem to reach a deal regarding the fiscal cliff, hence creating all kinds of uncertainties for consumers, business leaders, and investors. The same kind of paralysis has been observed in Europe when it comes to solving the debt crisis. And don't even get me started about Asia or Latin America, where political corruption and anti-capitalistic policies have been an endemic problem through the decades.
This is not only a matter of money of course; technological innovation, medical progress and all kinds of important aspects of human development depend on a strong and growing economy. If the world is going to end anytime soon, it won't be because of Mayan predictions, but due to the insistency of world politicians in hurting economic growth and human development.
Uncertainty Means Opportunity
Fortunately, economic development doesn't depend exclusively on politicians. Entrepreneurs and business leaders continue with best effort to create desirable products and services, while consumers reward those who bring those valuable things to the market. At the same time, investors do their best to allocate capital towards the most deserving businesses, guaranteeing in that way their access to the money required for growing and thriving through the years.
The private sector produces valuable goods and services and generates economic growth in spite of all the noise and interferences manufactured by politicians, so this can be our best defense. The fiscal cliff is a real problem which could have serious consequences for the economy, but even under a dire economic scenario, the best companies will continue growing and rewarding shareholders with a fair compensation for the risks assumed.
Even better for investors, economic insecurity and stock market volatility can usually create some very attractive buying opportunities, and purchasing high quality stocks at discounted prices is a time proven investment strategy for superior returns.
Companies Built to Last
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) for example, won't fall from any fiscal cliff. The company is a collection of many of the strongest and most resilient businesses in the world, selected by Warren Buffett himself over the years. In a clear indication about the stock's attractive valuation, Berkshire is buying back its own shares, and this should provide some downside protection for investors at current levels.
Coca-Cola (NYSE: KO) is the biggest position in the company's portfolio, and it provides a great example of the quality of Berkshire's holdings. Coke is the most valuable brand in the world according to Interbrand. With a gigantic distribution network and wide international diversification, the company will continue growing through all kinds of political and economic environments.
Apple (NASDAQ: AAPL) is much more risky as an investment than Berkshire or Coke, mostly because it operates in a more dynamic industry. But at the same time, this produces better opportunities for growth and innovation. Besides, the company is protected by more than $120 billion in balance sheet cash, more than enough to survive any economic hurdles.
As long as Apple keeps producing high quality gadgets which make our life better, investors will benefit from its profitability, especially considering that the stock is trading at an almost ridiculously cheap valuation with a P/E ratio blow 12.
Amazon (NASDAQ: AMZN) is not an investment which can be justified on the basis of earnings or valuation ratios, the company is so aggressive in its low price strategy that razor thin profit margins make the income statement pale in comparison to Apple or other tech leaders. But make no mistake, Amazon has completely disrupted the retail business, and it has built a rock solid competitive position due to its size advantage and amazingly low prices.
The world needs efficient retailers, and Amazon has rewritten the handbook of efficiency in the retail industry, so the company will be fine in the long term, with or without a fiscal cliff.
Mayan predictions nor political uncertainty are going to cause the end of the world, or the end of long term economic growth for that matter. The fiscal cliff negotiations and other examples of political incapability around the planet are a serious problem for the world economy, but all this uncertainty can ultimately generate some very attractive investment opportunities, and that's where investors need to focus their attention.
acardenal owns shares of Apple, Amazon and Berkshire. The Motley Fool owns shares of Apple, Amazon.com, and Berkshire Hathaway. Motley Fool newsletter services recommend Apple, Amazon.com, Berkshire Hathaway, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!