The gigantic elephant in the room for investors is, I think, the upcoming presidential election in the US. All my training and experience argues that politics never matters and that anyone who starts off an investment discussion with politics basically has nothing useful to say. This time is different (another alarm-bell phrase), I think, but my guess is that we’re months away from Wall Street beginning to discount the negative consequences of a Trump win.

My first boss as a portfolio manager stressed the the idea that by the time you catch and deal with an underperforming stock, you’ve done enough damage to offset the good that will come from three winners. I’m not sure she’s right about the 3x ratio, but there are certainly times when looking like the index is not a bad thing. I think we’re in one of those times right now, where the overall market will go sideways until we see whether there’s enough oomph in the economy to drive stock prices higher.

I’ve been thinking about the auto industry lately. Of course, this could be another warning sign. Generally speaking, and especially in the US, this has been an area to stay away from for as long as I can remember. GM, a shadow of the dominant domestic firm of a generation or two ago, has been an epic business school case study in dysfunction and financial ineptitude–this despite US automakers enjoying continuous government protection from foreign competition for many decades. The EU isn’t much better, with automakers only beginning to recover from their collusion to falsify emissions data from diesel engines. The worldwide industry has also been plagued by chronic overcapacity for as long as I can remember.

The basic factors I see to consider are:

–combustion engines are on the way out

–engine technology and design/brand names are the major intellectual property of current automakers. Most of the components, ex engines, have long since been farmed out to third-party suppliers–one of the reasons, I think, that most controls are pretty similar from brand to brand

–electric cars are much easier and less expensive to manufacture and maintain because they’re basically giant batteries with software + third-party stuff taped to them

–this calls into question the long-term value of dealer networks, suggesting incumbents must deal with the thorny question of how to disengage.

The obvious manufacturing stock is TSLA, which I owned shares of some time ago …and sold much too soon. Issues I see, though: the stock’s current PE is 75; there’s competition, especially from China; post-purchase dissonance may be an issue (I know of no evidence either way, but I don’t think anyone is talking about this yet, either); repairs may also be a problem; Elon Musk’s political/social views may cause some potential buyers to shy away.

More tomorrow.