Rational Investing: War worries overshadow economic outlook

Clark Davis is a 34-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money-management company.

Information overload wow! One of my many criticisms of the media has to do with the amount of instant information they bombard us with daily. One might even say usually, to the extent that it results in inaction on the investor's part.

One can assimilate only so much information before the tilt button lights up. All that news of the moment is difficult to keep in a longer-term perspective; hard to distinguish the wheat from the chaff.

Now, in addition to all the financial nitty-gritty, relevant and otherwise, investors are being fed, via cable news services and network break-ins, practically minute-by-minute war reports. Now the information overload is reaching critical mass, just shy of causing brain brownouts.

What is a person to do? How does all this factor into the investment equation? What's important and what isn't?

Changing a portfolio's structure because of the war is not likely to be particularly productive. It is an exercise that focuses on short-term events rather than on long-term trends. Of course, if one believes that the war in Iraq will be a long, drawn-out conflict, there may be opportunities as defense spending ratchets up in replacing weapons and systems.

We prefer to focus on companies that have ongoing positive sales and earnings trends that do not depend on the war effort; companies that serve us every day, providing homes, power, transportation, medicines, food and clothing the mundane, but necessary stuff.

That doesn't mean that investors should put all their assets in auto or housing or pharmaceuticals stocks, but it does mean that investors should look around and see the kind of products and services they use regularly and then check out the companies that provide those goods and services.

It make a lot of sense to us to know the companies we rely on than to try and figure out how long a war will last or which company will benefit most from it or its aftermath. (By the way, have you seen the excitement in the oil well fire containment company, Boots & Coots? From 6 cents to $2.55 and down to $1.07, as speculators have gambled on whether the company will get sufficient contracts for extinguishing Iraqi oil well fires in time to help them avoid bankruptcy. Hope springs infernal.)

Another aspect of the information overload that has so many addicted to television's war coverage is the impact on the sales of many companies. The more we sit in the family room and stare at the tube, the less we are eating out or going to the movies or shopping.

If the war is dragged out over an extended period, expect to see some retailers report lower same-store sales, theaters to have lower attendance, and restaurants to serve fewer diners. (But what about the pizza companies that deliver?) Those would be short-term consequences of the information overload, but the media won't necessarily treat them as such. Rather, expect them to be reported as further evidence of a bad economy.

We are staying with our basic investment philosophy and maintaining portfolios of issues that encompass the full range of asset classes that we have written about before.

Examples of some of the common stock issues we hold for clients (and ourselves) as of the date of this writing are: Chico's FAS, Borders, Home Depot, General Electric Washington Mutual, Citigroup, ACE Limited, Best Buy, Pfizer and IBM. The group is neither inclusive nor a recommended list for every investor, but an example of the kind of solid names that do not depend on the duration or magnitude of the war.

The portfolios are further balanced with allocations to laddered maturities of intermediate government bonds, investment grade and high yield corporate bonds, convertibles (bonds and preferreds) and foreign equities.

That's not an exciting concept, but one that will provide a broad participation in the recovering economy, an economy that is for the most part been overshadowed by the information overload of the war.

Oh yes, the tax cuts. As I wrote a couple of columns ago, the fight over the tax cuts will probably see the sacrificing of the elimination of double taxation of dividends.

The theme song of the liberals, that the tax cuts are aimed at the rich, is getting a verse added about it being too expensive in light of the budget deficit.

We'll have to see how this one plays out it's far from over, but odds are that compromise will mean that this aspect of the tax cuts has a short life expectancy. That does not alter the recommendation that investors should own a number of issues that have the ability to increase their dividends regularly.

Turn off CNBC and CNN and go out to dinner and a movie.