Here we are on the day of another important election. While political shifts and the new policies that could follow from them can impact financial planning and taxes quite a bit, neither elections nor politics factor into Hesperian’s investment process.
Is Hesperian Planning Any Portfolio Adjustments Based on the Election Outcome
No! Any individual event does not have a lasting impact on markets or long-term returns. Even elections! I focus solely on the three factors I believe do influence long-term returns:
- Valuations (the price we pay);
- The economic environment (inflation or recession risk); and
- Price trends (over the past 12 months, not the past 12 days!).
The reality is that the repeating medium- to long-term business, credit, and market cycles, driven by human behavior, are the predominant drivers of markets.
Event-driven investment decisions are extremely dangerous. Consider this election. Even if a time traveler appeared and told me who was about to win, that wouldn’t be enough. I would also have to predict how that result—and the policies that may or may not be implemented because of it—would affect stock and bond markets in direction and magnitude. And it is not immediately obvious what laws and regulations would be passed and what the impact on financial markets would be. I don’t think either candidate would be great for the federal budget (which influences the dollar, interest rates, and growth), but whose agenda is worse, I can’t tell.
Supposedly, a well-known hedge fund was able to obtain 2016 election results faster than the market, but the bet they placed was in the wrong direction and they lost hundreds of millions of dollars! They knew President Trump had won but they thought stock markets would fall when they rallied instead. This kind of experience is very common: Speculators often embed their predictions in prices well before events occur and unwind their trades suddenly after the result, leading to very counterintuitive market movements. It also could have been that the market thought Hillary Clinton was bad for markets and then were surprised when Trump won. It was a flawed bias perhaps to think Trump would be bad for stocks. So even an institution with a multi-million-dollar research budget and dozens, perhaps hundreds, of analysts can’t successfully navigate event-driven investing.
Traders, politicians, policymakers, economists, and pundits may kid themselves, but cyclical forces are strong. They are beyond all our control and trump (no pun intended) any individual event, no matter how important one may appear to be in the moment.
If you have any questions at all about your portfolio, how political and tax changes could impact your financial plan, you are always invited to call me or schedule a Zoom to talk.
All content presented in this article is for informational purposes only. Materials presented should not be interpreted as a solicitation or offer to buy or sell a security or the rendering of personalized investment advice, which can only be provided through one-on-one communication with a financial advisor. The content reflects the opinions of Hesperian Wealth LLC (HW), except where cited, which are subject to change at any time without notice. The information contained herein has been obtained from sources believed to be reliable, but the accuracy of the information cannot be guaranteed. All information or ideas provided should be discussed in detail with a financial, tax, or legal advisor prior to implementation.
Investing involves substantial risk, including the potential loss of principal. HW makes no guarantee of financial performance nor any promise of any results that may be obtained from relying on the information presented. HW may analyze past performance, but past performance may not be indicative of future performance.