How to profit from the rolling political upheaval of the next 18 months

The next 15 months is going to be heaven for political junkies (and hell for everyone else, you might say).

In Britain we’ve got the referendum on Europe, the Scottish elections next May, and constant speculation over another independence vote. On top of that, you’ve got lower-profile but still important races, like the London mayoral contest.

Oh, and there’s the small matter of the presidential election in the US.

Any or all these could have big implications for your investments.

However, for one industry all of these elections are a potential goldmine.

I’m talking about the polling industry of course…

It’s pretty clear that pollsters lack crystal balls

Political polls have acquired a bad reputation over the last few years. Put bluntly, they’ve been way off the mark on several of the biggest recent election results.

In the 2012 US election, most polls on the day suggested that it would go down to the wire. Republican hopeful Mitt Romney’s own polling led him to be convinced he was going to win. Yet the incumbent Barack Obama won by a relatively comfortable margin.

Last year’s Scottish referendum polls briefly put the ‘Yes’ campaign ahead, prompting a last-minute flurry of concessions. In the end the ‘No’ side won by a comfortable ten points.

Finally, there was May’s debacle where the Conservatives pulled off a shock outright victory, rather than the hung parliament that virtually every pollster had been predicting.

The latter was so surprising that it led to calls for the polling industry to investigate what went wrong, with some even suggesting some sort of regulation.

But these failings don’t seem to have dented demand for polls. Even though we don’t even know the date for the EU referendum yet, the papers are full of polls being reported with solemn-faced reverence. And while Gallup, the oldest surviving US polling company, has said that it will stop offering ‘horse race’ polls, plenty of new rivals have entered the fray.

Polling is about a lot more than just electioneering

Of course polling isn’t just about elections. While the political work is high profile, the big pollsters get their real money from firms who pay them to do market research.

After the financial crisis, this was an area that got hit badly. It was seen as an easy cut to make at a time when consumer spending was falling anyway.  But now, with the economy growing again, they have enough money.

More to the point, they can see the point on spending it. Attitudes are changing towards market research. In the past, managers have been sceptical, trusting their instincts rather than the psychobabble of market research.

But the rise of ‘big data’ as a buzzword means firms are far more comfortable with trusting the numbers, even when it goes against what their guts are telling them. As a result, they want to have all the information available before making a decision, and ‘objective’ market research data is a key part of that.

Meanwhile, polling firms are also broadening their expertise, adding big-data style analysis to the list of services they offer. One of the fastest-growing fields in opinion and market research is detailed analysis of social media platforms, such as Twitter and Facebook.

These provide companies with a vast array of data about people’s views on various issues and products. Indeed, some believe that in the future they may supplant traditional polling altogether.

But you can’t just take the raw data from these sources. Both platforms tend to be skewed towards specific audiences. As a result, firms are realising that they need to bring in experts who can tell them what to accept, and what to ignore.

Since a lot of polling and market research involves separating signals from noise, polling companies are in a prime position to help with this task.

How to invest in pollsters

One option for investing in polling is YouGov (Aim: YOU). The Aim-listed market research company was the first to focus almost exclusively on the web, as opposed to the traditional telephone calls that were previously the mainstay of the industry.

As a result, it has bypassed one of the biggest problems for traditional pollsters – how to cope with the fact that fewer and fewer people use landlines. A recent survey suggested that only 60% of Londoners know their phone number, suggesting that the UK market is going the same way.

YouGov’s revenue is growing by double digits, with the US now accounting for a third of revenue. On 15 times 2016 earnings, it’s perhaps not as cheap as I’d like, but it’s one to keep an eye on. We’ll be looking regularly at other ways to profit from the political upheaval of the coming months – and the threats to watch out for – in MoneyWeek magazine.

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