How to Profit from the Obama Stocks

I had an idea: I wanted to study how the nexus of politics, public

policy and specific stocks could provide a big edge to readers.

Almost two years ago, I launched a Web site, ElectionStocks.com,

and hired some staff support. Since I watch political news and the

markets for most of the day, I feed ideas to the team; I also write

some pieces and review the work. 

We started by covering about 20 candidates from both

parties. We identified issues and stocks for each of them. As the field

narrowed, we focused on stocks that could work regardless of who was

elected. I was looking for names I could suggest as good stocks with

great potential political drivers.

The Best Advice?

Sometimes the best advice is a warning against any particular

action. We had no precedent for an election and transition in the

middle of an economic crisis. Many analysts and researchers were going

on TV with their "Obama stocks" at the time of the election, at the

start of the year and on the day of the Inauguration -- the election

cycle offered three chances for publicity.

The cold reality? This time was really different. Even when the

election results were certain, no one could know which of the Obama

proposals would survive in the Senate, nor how quickly they would be

passed.

More important, a single issue dominated all others: dealing

with the "toxic" assets. The new administration did not seem to

understand that this was the keystone for all problems. The first

approach to the problem of price discovery was Treasury Secretary Tim

Geithner's maiden voyage ... and a stock market disaster.

The biggest Obama mistake has been the failure to deal with

this problem; no one on the team appreciated the significance. The

result? We are getting the announcement about the particulars of the

Public-Private Investment Program on May 15, more than six months after

the election; Hank Paulson went to Congress in September. This will go

down in history as one of the worst responses to a financial crisis,

partly caused by the transition in administrations.

Simply put, this was not a time to buy stocks because of the

winning candidate's positions. Those who did so had big losses, because

the general economic questions overwhelmed any specific stock ideas.

I've been watching elections for 40 years and studying how the

election cycle affects stocks for more than 20 years -- I taught

political science and public policy for 13 years before entering the

investment business in 1987. I also devoted particular focus to this

cycle -- I'm confident that I'm among the most qualified analysts on

the subject -- and still I refrained from pushing the investment ideas

our team developed.

It was not right, and I knew it.

How to Make Money

Part of investment success is avoiding losses. I hope that readers of my commentary on Obama policies have shared my caution.

When the stimulus package was passed, we identified some stocks

that would benefit. As is often the case, the problem was the time lag.

While the market attempts to look ahead, there are very few experts on

government spending. It is very complicated.

I follow everything said about Obama and stocks and filter the

prospects through almost 40 years of training and experience. Here is

my general conclusion:

• Initiating new policies is more difficult than you think -- much more difficult. Be skeptical.
• I always look for the "default policy" -- what will happen if nothing changes in the law.

Now Is the Time

It may seem silly to some, but now -- 100 days into the

administration -- is the correct time to start thinking about Obama

stocks. Here's my reasoning:

• The stimulus package was widely dismissed by market pundit, mostly

  because it did not do what they preferred. The actual spending is

  starting to hit, and will show up in corporate earnings.

• The budget process is prolonged. The Street hated the proposals as

  "too liberal." We are now about to learn -- for the first time -- what

  will really get passed. It is time to pay attention.

• We are getting policy details. People do not realize how long it

  takes to make a transition. The new secretary of Health and Human

  Services was approved just yesterday; how could we project health

  policy before this? The Specter party switch also affects prospects,

  especially for every health stock.

Unless you are monitoring factors like these, you are out of step with reality.

What to Buy

Over the next few weeks I plan to highlight several different groups of

stocks, each of which may benefit from Obama policies. I will downplay

those where I think congressional prospects are poor and emphasize

those where prospects are good.

Meanwhile, my team has constructed a stimulus package

portfolio. We have carefully monitored opinions from a wide range of

experts featured on financial media. (RealMoney's own James Altucher's ideas are prominent in the portfolio.)

The portfolio has had a positive result, but the results are nothing

special so far. That's good -- most people bought the Obama stocks too

early, got discouraged, and bailed out. This relative loneliness in the

space provides a good opportunity.

Here is a preview of our coming

articles:

Stay tuned for more specific picks and how you can use Obama's policies as you craft your portfolio.