There is a useful investing lesson hiding inside British politics, and it is not a trade. Andy Burnham arrived at Downing Street this week as the country’s seventh prime minister in ten years.
Seven in Ten Years
Burnham’s pledge is that a bigger, more muscular state can solve Britain’s economic problems and restore political stability.
Maybe it will. Maybe it will not. For a portfolio, that is exactly the point.
Seven governments in a decade is a policy environment nobody can underwrite — nobody can model it from a spreadsheet. The next reversal is always one leadership contest away.
When the inputs cannot be known, the smart move is to stop pretending you know them.
What the Market Did
Here is the remarkable part. Through a decade of political churn, British stocks mostly kept doing one thing: paying their dividends.
British equities spent ten years being a poor prediction market and a serviceable dividend market. That gap is the whole lesson.
Politics is the input investors most love to overweight — give too much importance to — and most consistently misprice. A decade of British churn is the cleanest proof available.
Seven prime ministers produced a stock market that mostly kept cutting its dividend cheques. That is a fairly complete argument against reorganizing a portfolio around any election.
Our Position
The correct response to unforecastable politics is not a cleverer forecast. It is breadth — owning the whole market instead of betting on any single outcome.
So sterling assets stay exactly where they are: inside the broad developed-market index funds of the Capital Wealth Growth Portfolio.
The correct portfolio response to the seventh prime minister is the same as it was to the first. None.
The temptation with political news is to translate it into a position. Most of the time, the correct translation is into a diversification rule you already follow.
We hold the sterling exposure at the index level and let the dividends do the talking while the politics does the shouting.