Elect Wisdom


We know…just know…that there are at least two things on your mind;

  1. What’s going to happen in this very interesting Presidential Election?
  2. Which way is the stock market going next?

To be clear, if you KNEW either one of those things, you’d be in a class all by yourself.  To be further clear, if you bet on either one as happening, you may win but it would be pure speculation.  Wisdom, by definition, is not speculation.  Thus, let me share some items that would be more in the former category than the later.  Two very interesting, and interrelated, data sets are included here and we can learn much from them.

First, the election of a President is always an important matter for our country.  But I posit to you there is no way you can predict what will happen with the stock market simply DUE TO an election.  On average, in the year OF an election stock markets go upward.  How much higher depends on where you are in the world (US S&P 500 – 11.2%; International Developed countries (called Europe, Australasia and Far East (EAFE)) – 6.5%; and Emerging Markets a very moderate 2.7%).  In the year AFTER the USA election, the upward movement in prices is actually kind of dramatic: Both here and in overseas markets they all move 9% or more higher.  There is also no clear predictor on market directions if the winning candidate is Democrat vs. Republican.  Why this is so might be the better question.  We think two reasons exist; (a) Public companies have to make money and it doesn’t matter who is in the White House.  Shareholders can throw CEO’s out whenever they want and that sentiment doesn’t operate on any 4-year cycle, and (b) markets do not like uncertainty.  Say what you will but an election is uncertainty, and they mostly feel relief when it’s over.  All the above data, and by year of election, are summarized in the attached document that I include for your reading pleasure.  The take away from this section; You cannot make investment policy out of presidential politics.

Our second point is one related to prescience.  Foreknowledge of financial markets daily / monthly / annual movements, a phenomenon that is so innately seductive in thought, is a fateful attraction.  To wit I give you a sad but personal story to emphasize this fact. I was recently introduced to wonderful prospect – a high value person in all ways, certainly not just financial.  He came to me reluctantly because he was embarrassed; he is recently retired and after “reading so much in December and January” took himself out of the market on exactly that fateful day of February 11th when the Dow Industrials hit their lowest point in 2016.  As you know, the USA market has been straight uphill since then (roughly a 12% recovery on the S&P 500 Index through March 31st[i]).  With abundant self-flagellation, he “could not have timed it better” and, sitting in cash since then, has done nothing but lose sleep at night.  I was deeply empathetic, and none too happy at his current Advisor who provided absolutely inappropriate solutions to his dilemma.  If one were only to ignore the large commissions the ‘new solutions’ would generate I’d say it was a loss all the way around. Fortunately he didn’t make those decisions and we are now going to do a full financial plan for him and his great wife.  I think it will lead to peace, but I know that the plan will be built on wisdom and not the dual portfolio Big Mistakes of fear and greed.

We cannot control the elections or the markets, but we can control our emotions.  Wisdom is the key, and having learned from our past mistakes and being educated by years of research, we know that wisdom will lead us to greener pastures and greater wealth.

[i] S&P 500 Index-  Rising from 1829 to 2059, respectively