TCS Daily

A Bull Market for Donkey Shares?

By Steven Hayward - December 29, 2004 12:00 AM

I'm a contrarian investor. My favorite buys are good companies temporarily pummeled by bad news or a mistake that causes Wall Street to overreact. So I snapped up Tyco at 8 (it's at 34 today), Home Depot at 27 (42 today), JP Morgan at 18 (39 today), El Paso at 8 (11 today), and McDonald's at 22 (32 today). It doesn't always work out as well as these; Tenet Healthcare is still stuck in the mud after its 2003 collapse, and the mud may be hardening faster than the arteries of Tenet's patients. But I seldom lose money with this strategy.

This is preface to proposing that if the Democratic Party were a publicly-listed company, I think I might be tempted to buy a few shares. It is great fun watching the torment and back-biting going inside the Democratic Party right now. But as Benjamin Graham and John Templeton taught, the best time to buy a stock is at the moment of maximum pessimism, and that moment is right now for the Democratic Party.

Its "market share," that is, its share of voters who claim allegiance to the Party, is at its lowest point in more than 70 years, at about 30 percent according to Gallup. Guess what? Republican identification among voters stood at the receivership level of 18 percent in 1974, which marked the beginning of the Republican Party's ascendance based on a new generation of leaders and products (ideas).

Like a depressed blue-chip stock, the Democratic Party still has a high "book value," or tangible political assets such as labor union and other interest group organizations, a historic brand name, Hollywood money, and media sympathy. The political equivalent of the business cycle -- the problems and stumbles of the incumbent majority party -- will usually create opportunities for a comeback. To be sure, Dems Incorporated has to develop a new strategy and product line. One factor that would deter me from buying Democratic Party shares is its current excuse that its recent market failure was mostly a problem of marketing, rather than its product line, which is about as blind as Ford would have been if it had blamed the failure of the Edsel on bad marketing.

A more apt business comparison for the Democratic Party might be Kodak, the venerable company based on the century-old technology of developed film. Once film photography began to be overtaken by digital photography, Kodak suffered badly and is struggling to adapt by developing a whole new business strategy and marketing mix. Kodak's market value is still less than a third of what it was 10 years ago, but at least the downhill slide has been stopped, and it has readied itself to compete in the digital world. (I still haven't bought Kodak shares, however.)

A few Dems understand that it is their product line that stinks. If the two parties were burger franchises locked in mortal competition like Burger King and McDonald's, one might suggest the Dems have decided to compete while staying closed for lunch, and refusing to offer hamburgers for dinner. Democrats are not seriously competitive on national security ("closed for lunch") in the way they were under Franklin Roosevelt, Harry Truman, and John F. Kennedy. (Or if they are open at all, they only offer chicken strips.) And their disdain for religion would be like McDonald's refusing to offer hamburgers to customers at dinner. Among Franklin Roosevelt's many religious utterances was, "Freedom of religion has no meaning to a man who has lost his God." A prominent Democrat who talks this way today risks being shunned; verily, we are seeing that freedom of religion has no meaning to a party that has lost its God.

If the Democrats could figure out a way to remedy these product deficiencies, the natural cycle of politics will create some opportunities for them to regain market share and the stock would become a table-pounding buy. Until they do, however, I would rank their stock as "speculative, for risk-tolerant investors only."

And no, Hillary Clinton doesn't look like the political equivalent of Carly Fiorina.

Steven F. Hayward is resident scholar at the American Enterprise Institute.


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