Investing Beyond Elections | AWM Insights #190
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Episode Summary
The complexity of predicting market reactions due to events or scenarios playing out can be perfectly proved by looking at elections. There has been no statistically significant data that has shown elections swaying markets in any direction.
Making investment decisions based on election results is a dangerous game to play. Long-term financial planning can create value while short-term trading strategies influenced by political events are more likely to destroy it.
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Episode Highlights:
00:00 Intro
1:42 - Complexity of Markets and Elections' Impact
3:40 - Gameplays and investments
5:08 - Long-term Investment Strategy
6:09 - Text us!
+ Read the Transcript
Brandon Averill (00:04): All right everybody, welcome back to another episode of AWM Insights. We're finally drawn to a conclusion. Seems a little premature given the election isn't until the end of the year, but we're already tired of talking about it. So we'll put a little bit of a bow on it for the time being. I'm sure we'll with the excitement of the election that's coming, we're going to bring this back up at some point, but we'll go ahead and beat this one to the death here and wrap it up. And really what we want to focus on is putting a bow on this concept of really not voting with your dollars, but vote with the ballot. At the end of the day as we've mentioned in past few episodes, it's silly to think that the president isn't going to have, or Congress or any other elected officials are not going to have some impact on the economy, even the markets, but really that the data just supports you don't know when or in which way.
(01:07) And I think we've had recent examples of that. Everybody, we can go back in recent memory, and I think I hit on this in a past episode, but you think about Trump being elected, that was a big surprise to a lot of people maybe not to some. But I think you could have guessed either way on what markets would've done, and I think a lot of people were surprised about what markets actually ended up doing and probably on the flip side when President Biden was elected. So yeah, I think just any concluding thoughts from you, Justin, as we put a bow on this.
Justin Dyer (01:42): Well, I'll go back to just some core tenets of how markets are structured. We either talked about this last week or the week prior. They're incredibly complex. The election and who is in office, the office of president who is in control of Congress. Those are variables that influence market outcomes. Predicting how to your point is incredibly difficult in isolation, let alone when you factor in all these other variables that are digested on a daily basis. Markets probably take on the magnitude, some amount of information in the trillions, if you will, depending on how you define it. But it is just incredibly complex is the point. Then this is another variable that goes into the market pricing, market functioning equation and not only predicting the future first and foremost, but predicting how the market is then going to digest that information is incredibly difficult.
(02:43) This is a unique event. This is, now, it happens every four years, so it's not unique in that aspect. It's unique in the sense that especially given in the timeframe we live in, the time we live in, it's incredibly charged. It's really going to challenge the behavioral side of investing, probably more so than it has in the past or maybe similar to how it has in the recent past, but how it has traditionally, excuse me. So those are some core things I definitely want to hit on and go back to as we leave this topic. Remember these things, markets are incredibly complex. They take into account all sorts of information, good, bad, indifferent. Guessing how markets are going to digest that information is very difficult. And guessing what that information's actually going to be is really difficult. And then combine that with this really charged behavioral environment that we're entering into that we've already entered into.
(03:40) It's going to be a challenging year. But reacting to that is not what we should do. Our good friend Brian Kane had a recent podcast, and I think there's an analogy here somewhere. He called out a number 153. It's the average number of plays in the average NFL game. How many plays you actually talk about after the fact. It's a dozen, maybe a half dozen, probably in all likelihood. Take the Super Bowl we just had. There's probably four or five that really were meaningful and stuck in people's head. The markets are no different. You know that every day the market's going to be open or every weekday. Every nonpublic holiday markets going to be open. Generally you have a 50/50 probability if it's going to be up or down. The magnitude is different. But then over time you know that it's likely going to be up. We have an expectation that we're going to have a higher return.
(04:35) But knowing when those big days happen, the five or six or whatever, the very small number out of the entire calendar when those big days happen, is incredibly difficult. So you don't want to miss out on those. It's incredibly damaging when you do. You miss the big plays. You miss winning the game, if you will, and you can apply that analogy directly to investing. Election years are no different. The same principles apply, and I think that's really the takeaway, especially with that headline. You hit on vote with your ballot, not your investment portfolio.
Brandon Averill (05:08): Yeah. And I think that's just such a good thing to remember. And I think the other thing that hit on me when you were talking there is just the short-term nature of all of this too. You're talking about a four-year presidential in office run at best eight years. That's still a pretty short window in the scheme of investing your money. So to bet on these timeframes and how things are going to move, really you're not making an investment decision, you're making a trading decision, and the data still doesn't support a really smart trade one way or the other. And we're talking about if you were making a broad market trade. I think I would also caution people into, hey, one party is going to favor a certain sector or another sector. Think about how that needle in the haystack starts to come down and how tricky that trade can end up being. So you're going to hear a lot of this, hey, defense is going to benefit because of this, or financial sector is going to benefit because of that.
(06:09) If this person's in or this person's out, just encourage everybody. Tune out that noise. Remember that your financial structure is really set up for the long term. This is why we identify your priorities. This is why we bring it back to creating a very highly customized portfolio for you, tax efficient, et cetera, is that we don't have to worry about all this stuff in the really short term. We build it so that way we have this boat that will always float. So at the end of the day, we hope this helps to put some things into perspective. We'll talk about it again later in the year because you certainly are not going to be immune. I don't think anybody is from the noise that we're about to hear. But again, just focus on that financial structure. Reach out if you have any questions. We'd love to talk to you about all of this stuff and answer any questions you have. But until next time, own your wealth, make an impact, and always be a pro.