Since election season may be upon us, I thought this is a pretty good share.
During this time, we tend to start seeing financial commentators or bloggers trying to show their authority by explaining how the election will turn out and what are the good stocks that will benefit from this.
Then they will pitch you their masterclass courses.
Sometimes, I wonder how much a change in president matters. Based on some of the things that I read about the influence of the presidential election may not be so much. This is because the decision making that would shape policy is not down to one man but also his or her interaction with the senate and congress.
One of my favorites writer Morgan Housel shared something interesting in an interview that he did on a Financial Independence podcast.
Morgan was asked whether the presidential election matters in investing and if it does, to what extent.
Morgan tells the story that in 2010, he has the opportunity to hear a great banking lobbyist talk.
This person have been involved with presidential elections for the past 30 years.
The banking lobbyist made a statement that in every election that he has been involved in, people said that this is the most important election ever. He made a joke that at some point, some of these election stop becoming the most important election ever.
Morgan reflected that he is not immune to this. Back in 2016, he truly felt that the election was the most important one. And today, it feels like this upcoming 2020 election is going to be the most important one.
There is a tendency for the incumbent party to threaten that if the other party wins, the country’s economy will collapse.
Overtime, this have been shown to be not very accurate.
Franklin Roosevelt, the 32nd President of the United States by and large is viewed as one of the most successful presidents of the United States. But back in 1932, his appointment was so controversial.
Many people really thought that his appointment would usher in fascism and communism into the country.
There is also a long tradition of investors saying if this political party wins, by these stocks. These folks tend to have the worst track record of any tradition.
When George. W. Bush won in 2000, there is a very rational narrative that the government will de-regulate the banks, so the smart thing to do is buy the banks. They are also going to do a tax-cut that should benefit the airline stocks.
If you fast forward to 2008, the financial crisis have resulted in the banks and airline stocks going almost bankrupt.
When Barack Obama was elected in 2008, a common narrative was to buy the solar companies because there is going to be a big push for green energy. Within years, most of the solar companies went almost bankrupt.
We all remember that when Donald Trump won, there was a general consensus that this would be terrible for the stock market and the economy.
It is very easy to look back and see all these events turning out to be the exact opposite.
People tend to give the president or the political party on each side more credit, or more blame than they deserve.
The general idea is that, in the list of variables that matter to the performance of the stock market, the president may be so far down the list then we imagine.
Each of us have strong political beliefs but the sound way may be not to let that belief dictate our money management too much.
Morgan explains that if you like your portfolio today in September, you should also be comfortable with this portfolio in November.
By and large, the outcome of this election will matter less to the performance. (If it does affect the performance, it is likely we are looking at it through the short term lens or that we are inferring the wrong things.)
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