Politics, Markets and You
As we commented in a recent letter to our clients, "To say that it's been a crazy election year would be a vast understatement." So, as November 8 draws nigh, we won't try to speculate on the outcome of all the excitement.
That said, we are in a much better position to comment on how important it is to not allow your political leanings to harm the investment decisions you have made or will be making in pursuit of your long-term financial goals. Regardless of how you feel about our next president, he or she really should not influence your own long-term investment plans. That's just not how our capital markets work. There are several reasons for why this is so:
Market Risks and Rewards: Markets prefer certainty and elections bring uncertainty. … especially this current one. So we can expect volatile times in the near-term, but in an interesting twist, it's that very volatility that ultimately drives expected long-term returns for investors who have the resolve to calmly ride it out. If you instead panic and sell in the middle of the confusion, you are more likely to generate damaging, "sell low, buy high" trades. As Berkshire Hathaway's Warren Buffett has famously observed, "[investors] should try to be fearful when others are greedy and greedy only when others are fearful."
Markets and Politics: It's also important to bear in mind that politics and politicians represent only one influence on market returns, among so many countless others that the results are muddy at best. The political volume may be loud at the moment, but we don't recommend lending it too much of your ear as an investor. For additional insights, read our recent client letter, in which we shared as follows:
"When you observe presidential election monthly returns since January of 1926 (and there have been 22 of them), whether Republican or Democrat, there is no apparent correlation between the months either were elected and subsequent market returns. In fact, there is no observable pattern that would lend one to think the market reacted more favorably for one or the other. Also, no matter which side of the aisle you may be on, one can observe that markets have been favorable for the long-term equity investor."
Markets and Business: Businesses also tend to do as businesses do, which in turn drives market growth, in all political climates. Whether there's a Republican, Democrat or Independent in the office, we're willing to invest on the assumption that tech firms will continue to innovate their gadgetry, energy companies will continue generating power, banks will keep lending, hospitals will keep admitting patients, and so on and so forth.
Markets and the World: Don't forget to adopt a global outlook as well with respect to our markets and economy. The U.S. represents just over half of the world's stock market capitalization and only about a quarter of the global GDP. We're not the only ones driving global returns – not by a long shot.
Markets and YOU: Last but not least, ask yourself: Don't you intend to keep living your life, buying, selling and transacting largely as you have? Remember that approximately 70% of our domestic GDP comes from basic household personal consumption related items.
In short, life will go on regardless of the political landscape. For example, my daughter's birthday will be a couple weeks after the election. I can assure you the expenses we've planned for her party are already set. Now, multiply that sort of market-driving consumption by billions of people all over the planet, and remember that if you're worried about the impact a single human being might have.
Stay the Course
We'll wrap with a few more helpful sentiments from businessman extraordinaire Warren Buffett. In his 2012 letter to Berkshire Hathaway shareholders (during the last presidential election), he observed:
"America has faced the unknown since 1776. It's just that sometimes people focus on the myriad of uncertainties that always exist while at other times they ignore them (usually because the recent past has been uneventful). American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor."
Now go exercise your right to vote, try to ignore the media hysteria and focus on matters of importance to you!