How do you factor in impending politics into valuation?
I am curious about how you all factor in impending political events into valuation. For example, if you think that the GOP/Democrats will become dominant in the senate (just an example, also curious about things like changes in Fed Chairman, world politics, natural disasters), what would you change in a DCF? Tax rate, perpetuity growth rate, etc.? By what amounts would you change inputs and how would you decide that (news, historical trends of when Party X was dominant, or just maintain what those inputs are now because those things are certain)?
I have asked basically interviewer this and have gotten cool answers, but would love to know what your approach is. I also understand that intrinsic valuation is very assumptions-based and that you can do anything, so long as it is logical/defensible, but want to see if there is any consensus on pure approaches.
Specifically with regard to politics, I don’t mean for this to sound snarky but if a person knew how politics impacts stocks he’d be a billionaire. There is nothing intuitive about how stocks perform based on Rs and Ds in power.
For example, maybe your tax rate goes up under the Ds but your discount rate goes down because the Fed lowers rates to counteract higher taxes, thus inflating equity prices during an anti-growth administration.
Trying to estimate how that will all work itself out is the fallacy of accuracy. I’d focus more on how a specific piece of legislation could impact a particular industry and a specific stock.
You multiply everything by 0 if a socialist gets in office
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