It’s often said that the market hates uncertainty.

One advantage of the quick election result is removing a giant unknown that could have weighed on the market.

Thus far, investors have enjoyed a nice rally in response, possibly due to the expectations of Trump's policy proposals, though nobody can say for sure.

In any case, if you have any reservations about the next few years or decades from an investing standpoint, I have a thought experiment I'd like to share with you today.

But first, did you catch this week's podcast episode?

How to Invest in Emerging Markets Emerging Markets are the world’s primary drivers of global growth. What are they? Should you invest in this asset class? And why is "freedom" an important metric to focus on? Listen Now →

Investing Thought Experiment

Suppose you owned the following companies in their entirety:

• Amazon
• Apple
• Walmart
• Verizon
• Visa
• Home Depot
• Costco
• Berkshire Hathaway
• Toyota

Or, more realistically, we could say that you own a collection of incredibly successful pizza shops, auto part stores, or whatever.

The key is that you own these businesses in their entirety.

Let's further assume that, due to your ownership of these successful businesses, you have enjoyed a stream of profits (earnings) and dividends that have grown relatively consistently over the years.

Assuming that is the case, I'd like to pose a question:

Let's think about a few recently popular scenarios…

• Would you sell due to a presidential election that didn't go as you desired?
• How about due to a change in the Federal Reserve's interest rate strategy?
• A slowdown in global economic growth?

When we zoom out and think long-term, are we to believe that people would suddenly stop buying the goods and services we sell due to a presidential election result?

A change in rates? Some other scenario?

All our life experiencse indicate that this is doubtful, at best.

Given this experience, we can probably assume that the stream of earnings and dividends we’ve enjoyed to this point should, in all likelihood, continue into the future.

And if you think that your earnings and dividends will continue to rise over time, I’m guessing there isn’t much that could happen that would cause you to sell your businesses.

They’re simply too important to your near-term and long-term financial well-being.

Assuming you follow that logic, it's worth asking a follow-up question:

It’s easy to forget, but when we buy a stock, what we are really buying is a piece of a business.

And, as a shareholder (owner) in our collection of great businesses, we are entitled to our pro-rata share of earnings and dividends, just as if we owned the businesses outright.

That’s an incredible benefit because if we look at the trend in earnings and dividends, it’s pretty clear that our partial ownership has been handsomely rewarded over the long term.

Below is a visual of the historical earnings and dividends of the S&P 500 since 1960.

While we all know that stock prices can be quite volatile, you can see how resilient earnings and dividends have been over time.

As it goes, dividends are less volatile than earnings, which are less volatile than prices.

Of course, that’s not to say that earnings and dividends rise every year.

They certainly don’t, just as the graphic shows.

But the key is that the trend is up. And, as long-term owners of these great businesses, this trend is our friend.

Bottom Line

In the end, I believe that investors who focus on the earnings and dividends their businesses produce (as opposed to stock prices) are likely to be quite successful over time.

As an additional benefit, they may also enjoy rising stock prices as well.

Stay wealthy,

Taylor Schulte, CFP®