We are in the midst of one of the most difficult investment environments of the past 60 years. It may not seem like it, given how the market has charged upwards over the past few months, but enormous macroeconomic issues still linger in the background.
In one regard, I am a classical value investor. I seek out companies with strong fundamentals that are trading at discounts to their intrinsic values. This has proven to be an extremely effective long-term wealth creation strategy, but I’m also very cognizant that there are assumptions underlying value investment. When one of those assumptions gets undermined, what once looked like “value” can suddenly become very expensive.
There are numerous political currents that could undermine value in the next few years, including the ongoing troubles in the eurozone, Japan’s attempts to weaken its currency, and China’s fixed asset bubble. However, the one being most ignored by mainstream investors right now is the Patient Protection and Affordable Care Act, more commonly known as “Obamacare.”
The Affordable Care Act could have a destructive impact on employment, price levels, consumer spending, and overall economic growth in the United States in the upcoming years. At the very least, it will probably result in a relative decline in the growth rate for GDP, and at worst, could even push the US economy into outright recession in 2014.