ballotboxWith the Canadian election only a week away, candidates and their parties should be aware of some of the specific economic strategies and policies which long term value investors will  look for from a new Canadian government.

I carefully add the phrase ‘long term’, because often short term value is created in distress situations – being situations where there is a short term variance between the intrinsic value of an investment and its price based on superfluous, external factors to the core of an investment opportunity (such as external natural disasters, or rumours).  These short term, value gaps represent trading opportunities for the value investor, but are not to be confused with long term value holdings.

Specifically, value investors will be looking for a long term economic strategy geared toward building a viable industry presence in leading-edge businesses such as technology, healthcare, biology, and engineering.  This is because these are the industries that will provide employment and economic growth in the future for the country.

Other sectors such as natural resource development, industrial manufacturing, and services, of course, are important components to the Canadian company and will require stable operating environments and low costs to remain viable and compete globally.  However, it is unlikely that these sectors will drive immediate economic growth (and concomitantly, employment) in today’s global low growth environment.  When the global economies pick up steam and start demanding our country’s natural resources, our higher-cost manufactured product, and our niche economic services (to the extent they exist), the federal government can put more emphasis to policies in these sectors.

It is important for politicians to recognize that it is jobs policy that is most crucially needed today, particularly in the middle class.  Employment is the number one financial issue for Canada today, not inflation or interest rates or the value of the dollar.  To the Bank of Canada’s credit, they have recognized this and have been managing monetary policy with this at the core of their attention.  Now we need politicians to present fiscal policies to match.

Given that optimum jobs growth will come in the leading-edge businesses noted earlier, there must be government incentives put in place to develop more, and better qualified, risk-takers, entrepreneurs, and participants in these industries.  Specifically, the government should look to boost the education sector’s role and effectiveness in educating and training the right cadre of graduates to create and operate in these growing industries.  Similarly, there needs to be specific policies directed to entrepreneurs who are establishing business in these industries (such as appropriate access to funding at reasonable costs, tax incentives for research and development costs, and so on) and existing small business.

An attractive feature of companies in these leading-edge businesses is that they can be established anywhere geographically.  This is particularly attractive to re-building employment in smaller, lower cost towns and cities across the country.  Operating costs in these leading edge industries tend to be lower, but there is a great deal of risk taking incurred, and value investors need to see government policy that mitigates this risk as best as possible.