September 11, 2020
Over time I have seen people lose a tremendous amount of money due to U.S. presidential elections. Convinced of a particular viewpoint and eventual outcome, they place bets on the stock market, sometimes incurring capital gains taxes if selling prior to an election.
It's a terrible idea.
The political-financial thesis that an investor espouses might be correct, but even if it is, it might not be a dominant driver. There is 1. No way to know if the thesis is correct in advance and 2. Really no way to know where it stands in the order of priority. These two problems are compounded by the fact that for most people, elections are emotional and they see their own values reflected in the outcome. It's a potent cocktail of error.
Markets dislike uncertainty, and close elections, particularly one where there may be a contested result, are not going to give the market giggles. In theory, once an election is over, the market, shall we say, "appreciates the stability."
Financially speaking, this fall parties will resort to familiar themes regarding stock market performance. Republicans will say they are better for the economy, jobs, and the stock market. Democrats will counter with the fact that the stock market has, since WWII, done better under Democratic presidents. (Democrats won't mention that the start and end dates matter a lot - for example decisions made by George H.W. Bush may have contributed to the Clinton boom.) Republicans will counter that control of Congress matters in the equation.
As a Vermonter, I feel compelled to point out that since 1923, our native, frugal Calvin Coolidge trounced every other president, by far, at 26.1% returns on the Dow *per year*1.
I don't love political parties, because their incentive is to perpetuate themselves in addition to, and sometimes rather than, serve the nation. As an example, Democrats and Republicans formed a corporation to control access to debates, restricting third-party candidates who might have new ideas 2. Duopolies will always favor themselves, whether in business or in politics.
Try to keep the investing and politics in separate mental buckets. Some things shouldn't mix.
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