With the completion of the Super Tuesday primaries, the final grid for the 2024 U.S. presidential election appears to be set. While it is always possible that some surprise will lead to a different lineup on one or both cards, our country is now on track for a rematch of Biden v. Trump. The election date of Tuesday, November 5, is less than eight months away.
Given the philosophical differences between the two leading candidates, most voters likely have a strong emotional view of their choice and of the “other” candidate. Given the stakes involved and the media’s drive to attract attention, we anticipate that we will see an “unprecedented” volume of hype and propaganda in this election season. And, the closer we get to that date, the higher the volume.
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This ever-growing gravity well can readily consume investors. One common error is to lose the ideal of emotion-free investing, and instead get caught up in the emotions of politics. Another is to mix “what I believe needs to happen in America” with “what will likely actually happen.” An investor may have a strong opinion about how to fix America, but there is a vast distance between that belief and where things actually go. And, it is easy to assume that if one’s favored candidate wins then all will go exceptionally well, but if the other candidate wins then all will collapse. Such extreme outcomes haven’t happened yet and there is no reason to believe an extreme outcome is imminent this time, either.
A frequent error is to pick stocks based on how companies and industries might benefit or be harmed by the election outcomes. First, the winner of the presidential election is probably unpredictable. Second, a winning president may need majorities in both the House and Senate to pass their agenda, but the outcomes of Congressional elections are also unpredictable. And, there is no accurate way to foretell what policies the elected president will choose, or when, or in what form. Closely related, there can be a wide spread between a candidate’s campaign promises and the elected president’s legislative success.
Brokerage firm strategists will almost certainly engage in data mining to predict how stocks will perform. Expect to see statistics that show how the S&P 500 historically does in an election year, after an election year, in Democrat-winning vs Republican-winning years, and when an original AFL team wins the Super Bowl. Statistical predictions about stocks remind us of the quote from the movie Anchorman: The Legend of Ron Burgundy in which newscaster Brian says, “Sixty percent of the time, it works every time.” Predictions based on the historical relationship between stocks and elections may sound compelling, but the only sure bet is that none of the predictors will be held accountable when they are wrong.
So, investors should work extra hard to keep their investing lives separate from their political lives. Not only will this likely protect their investing results, it may also help them see opportunities if other investors fall deep enough into the political-emotional rabbit hole to create mispriced stocks.
As value and contrarian investing specialists, we focus on specific stocks of companies that have “the right stuff.” We do all the extensive idea searching and analysis to help you benefit from out-of-favor stocks. Our capabilities save you time while boosting your chances of profitable investing.
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