Investing in the Wake of the Greek Elections
"What about Greece?"
That was in an email from a friend on Sunday, but it was far from the only time I was asked about the sticky situation in Southern Europe over the weekend.
Today we know this much: The New Democracy party in Greece "won" the election, and Antonis Samaras may have ended up with the least enviable job in the world. We also know that the nightmarish Greek-implosion scenario has been averted -- at least for now.
But it may have been a CNNMoney headline that put it the best: "Uncertainty is the only certainty."
Anybody who has claimed knowledge about the outcome of the Greek situation has been blowing smoke. This brouhaha isn't like a roll of the dice in craps -- seven is a big win and 12 craps out the worldwide economy. Instead, this is a massive, global game of Texas Hold'em.
With each turn of a new card -- a socialist elected in France, a G-20 meeting, or the latest Greek vote -- bond and stock investors, world leaders, economists, banks, and countless other stakeholders all stare each other down, trying desperately to figure out what everyone else around the table is about to do.
In the case of Greece, the "bad" outcome of the Syriza party winning might not have been the apocalyptic picture that many had assumed. Prior to the elections, Syriza's Alexis Tsipras reiterated scorn for austerity, but expressed confidence that Greece would stay in the euro. And perhaps it would have -- if, from her seat at the table in Germany, Angela Merkel stared down at bond investors, saw them ready to bet big against Spain and Italy, and worried about a disastrous spiral. She may well have cracked and been willing to renegotiate the bailout terms.
Likewise, the "good" outcome that we ended up with could prove to be less than great. The Greeks still need to form a coalition government, and they've already lost a lot of time in getting to the benchmarks agreed to as part of the bailout. Some sort of renegotiation of the bailout terms is inevitable, and if the terms aren't inspiring to bond investors, then we could see bond investors continue to flee Spain and Italy.
Or everything along the line could go "right" and bondholders could continue dumping Spanish and Italian debt simply because they're fed up with the muddling in Europe and crave more certainty or reduced eurozone exposure.
In short: "Uncertainty is the only certainty."
So what do we do?
There are plenty of investors who invest primarily on macroeconomic factors. Figuring out the moving parts in Europe is the bread and butter of their investment approach and getting the outcome -- or, at least, the probability-weighted outcome -- right is the kind of thing that will make or break their portfolio.
I'm not that kind of investor.
For my portfolio, I focus on businesses. I keep an eye on factors like competitive advantage, whether a company provides products or services that we'll still be using in five years or 10 years down the road, and whether that company is well managed by trustworthy individuals.
I don't assume that the success of individual companies will be unaffected by global economic developments. Indeed, classic American companies such as McDonald's (NYS: MCD) and General Electric (NYS: GE) do a huge amount of business in Europe. But I've recognized that for the time frame of my investments, finding the right businesses to back trumps trying to guess economic moving parts and --more importantly -- investors' reactions to those economic developments.
In the case of Greece's elections and, now, the fallout from those elections, I've stuck to my knitting. I have some diversified exposure through low-cost index funds such as Vanguard Dividend Appreciation (NYS: VIG) . I also continue to own stocks such as Intel (NAS: INTC) . I don't pretend to know the exact eurozone effect on demand for Intel's chips, but I like the odds that Intel's products will continue to power desktop and server-farm boxes and, with a little luck, mobile devices as well. I also continue scouting out companies such as Portfolio Recovery Associates (NAS: PRAA) that could be great buying opportunities if the broad market slides on continued eurozone worries.
Should you do the same? That depends a lot on your personal situation and what investing approach you're comfortable with. But if you're ready to take a look at some companies that have endured through decades of ups and downs in the global economy and are among the most-respected companies in the world today, check out The Motley Fool's new special report "The 3 Dow Stocks Dividend Investors Need." You can get a free copy by clicking here.
At the time this article was published The Motley Fool owns shares of Portfolio Recovery Associates and Intel. Motley Fool newsletter services have recommended buying shares of McDonald's Corporation S, Intel, and Portfolio Recovery Associates. Motley Fool newsletter services have recommended writing puts on Portfolio Recovery Associates. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.Fool contributor Matt Koppenheffer owns shares of Vanguard Dividend Appreciation ETF, Intel, and McDonalds, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.
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