Every four years, a United States Presidential election is held. As the election nears and the tickets have been established, there are only two possibilities for the next President in such a dominant two party system. The Democrat, or the Republican. The new administration will bear policy change and vested interests, which can help or hurt companies in which you own stock. An administration can be in power for up to eight years in the United States, don't manage a Democratic portfolio during a Republican term, or vice versa. The performance of your portfolio will most definitely suffer from such mistake.
Mould your portfolio to benefit from the administration in power. Annually, listen to the State of the Union speech to absorb the objectives of the administration. This will shed light on the direction of the economy. Beware of confliction the administration may incite with industries. Negative events could unfold that would certainly place the companies involved under much stress causing the stocks to under perform.
Apply common sense when examining a new industry attempting to emerge. If the product or service the industry offers is controversial to conservatives, and the current administration is loaded with conservatives, the odds of emergence during that administration's term does not have a very optimistic outlook.
When politicians are bias against an emerging industry, prolongation may occur in the emerging phase creating a stagnant industry. The industry will remain in this stagnant state until circumstances change and the prejudice is abolished or financing runs out, thus killing off companies one by one in the stagnant industry.
In the United States, a peak period for stagnant industry emergence is at the conclusion of a two term administration. This is especially true when parties switch control of the White House. Policy change will ripple throughout the US economy. Industries may have been restrained from emergence due to impeding endeavors by the previously controlling government. As the executive branch of government is expunged, the industries may finally come to fruition.
The legislative branch, can play an essential role in whether or not an industry successfully ends stagnation, by emerging into the growth phase. Congress, guardian of the purse, has the power to kick an industry into first gear. There are required preconditions for an industry to receive government assistance. An industry must be attempting to provide a need based product or service, and suffer from prolonged stagnation. If an industry can succeed independently, Congress will not open the purse.
Government funding takes form in various subsidies such as tax incentives, consumer rebates, award contracts, etc. Congress, in an attempt to spur the solar industry, constituted rebates to lower the cost of photovoltaic applications, or solar panel systems. By lowering the cost, new consumers can afford the product generating revenue for the companies. That revenue, will be reinvested by the companies back into the industry.
As the technology evolves, and manufacturing costs decrease, the retail price will fall. The solar industry needed assistance establishing a market by reaching the price range of more consumers, therefore, Congress wrote the check so to speak. Eventually, every person in the world will produce their own solar energy.
As emerging industries succeed in establishing markets, consumer enlightenment takes place. The population will become aware of the new product or service. Large corporations may have ignored the market in small scale, but as the market expands, they will begin to take notice if it rivals an existing product or service in their pipeline. They may allow one company a free pass. Flying solo, the production from one company of a new product or service may not impact their share of an existing market. As other companies emerge producing a similar product or service, the loss of market share is inevitable. At that point, large corporations take a defensive stance.
Large corporations feeling threatened by a new product or service will attempt to stem emergence of the industry. Naturally, if the emerging industry fails to establish a growing market, the large corporation will not forfeit any significant market share. The flexing of corporate muscle in this manner is nothing out of the ordinary. However, there is one recent example that stands out offering a great lesson to all investors of the power large corporations possess.
Case study, electric vehicles (EVs). As electric vehicle enlightenment struck California regulators in 1990, they passed the "Zero Emission Vehicle mandate". This meant, if auto makers wanted to continue selling cars in California, some would have to be cars with no exhaust (pollution free) known as electric vehicles. EVs were developed and ready for the world. As word spread of these available modern electric cars, consumer demand increased for electric vehicles (EVs).
Beginning in 1996, at the reality of losing their monopoly of providing transportation fuel, oil companies put the kibosh on the emerging EV industry. A pseudo-consumer organization called "Californians against utility company abuse", funded by oil companies, would attend local city council meetings in California to discourage EV charging stations claiming "It's a waste of tax payer dollars". Oil companies went farther by purchasing editorials in national publications stating, "The environmental benefits of EVs are dubious".
Meanwhile, the inventor of a revolutionary battery which enables electric cars to travel 300 miles on a single charge allowed General Motors to buy a 60% controlling share of his company, Ovonic Battery. He sold the innovative battery to GM as he assumed they would utilize it in the "EV1", the electric car General Motors manufactured at the time. Instead, as performance levels of the battery proved to be ground-breaking, Chevron-Texaco purchased GM's controlling share of Ovonic Battery, and crushed the technological breakthrough.
Mysteriously, on April 24th, 2003, California killed it's electric car mandate. Preventing alternative methods of transportation has always been a top priority for oil companies. The documentary, "Who Killed the Electric Car", offers a great depiction of large corporations buying politicians to not only sabotage the emergence of a promising industry, but enslave Earth's entire population of 7 billion people to an archaic, destructive, and poisonous product while stopping at nothing to continue the enslavement.
As corporations buy, or "contribute" to politicians, you'll witness an amazing transformation. It's similar to a caterpillar spinning a silk cocoon, to one day emerge as a butterfly. Only in this case, the large corporation spins the politician in a greenback cocoon, and what emerges, is known as a lobbyist.
Micro and small-cap companies, do not have the luxury of influencing politicians to lobby in the way that mid in large-cap corporations can. They lack the equity power to protect their interests relying on non-corrupt politicians to act as shields from large corporations and their lobbyists hindering progress. If such protection is not seen, the dynamic-duo will stampede the growth of the emerging industry. Sadly, even with protection from strong willed politicians, large corporations can still triumph. With deep pockets, they can harvest the companies by purchasing a controlling share, then destroy them as seen in the electric vehicle industry.
Typically, large corporations will harvest emerging companies to gain market share in a growing market. An emerging industry experiencing success and rapid growth is very appealing to a large corporation involved in numerous mature industries. They want some of the action. So, they acquire one of the companies. It's a fair and common strategy implemented by all large corporations. They secure future growth, and those involved with the acquired company receive compensation.
Unfortunately, not all large corps behave in this way. Stingy large corporations will use the guinea pig tactic. Once pioneer companies have done the guinea pig work proving a market, the large corporations make their move. Large corporations advance like Hyenas into new industries with ease because their infrastructure allows them to. They may already have a sufficient manufacturing facility enabling the production of a very similar product or service for pennies on the dollar.
By undercutting all previously running businesses, they steal the market from pioneer, or guinea pig companies. Unique resources for a company to be in the market is a great feature for the security of emerging companies as it prevents the large corps from using the guinea pig tactic. It forces them to acquire the company, or patents to gain market share.
Adequate time to scout and monitor an industry from the very early-stage emerging phase, grants insight to how individual societies, politicians, and large corporations will react to the first word of a new product or service. It's your politicians and large corporations that set the rules for young companies. Emerging industries that have no controversy politically, and that don't step on the toes of large corporations can succeed with a sound business plan.
Ignorance to the power politicians and large corporations hold over small companies will eventually catch up to you. Applying a political, and corporate filter in your stock analysis will help prevent the mistake of investing in a penny stock facing bias. A transparent understanding of the key players in government is important to enhance your penny stock analysis. Know your politicians in power, their backgrounds, religious beliefs, liberal, or conservative, and overall tendencies. Research political contributions, this offers a tell-tale sign of the stance a politician will take on important issues. Politicians lie, contributions don't.
When investing in mid to large-cap stocks, you do not fear politicians as they work for you. For penny stock investors, political analysis is a required form of analysis while managing a portfolio of micro and small-cap stocks. Exists, is a unique combination of principles, rules, and analysis applicable to penny stocks that is irrelevant for mid to large-cap investing.