In 2017 Warren Buffett appeared live on CNBC and said “I’ve invested my whole life and during half of that period there was likely a President in power that I didn’t vote for. That never stopped me from owning companies and I have obviously done very well.”
If you mix politics with your investment strategy then you are likely making a big mistake which is contrary to what most people would believe. As humans we make all the same mistakes over and over again. It’s in our DNA, it’s how our decision making behavior is wired. The fight or flight response which helped our ancestors to survive now drives investors to make costly emotional decisions and politics is one of the main arenas. This shouldn’t come as too much of a surprise because we are impacted in so many other areas of our lives as well. Think sports teams or even your favorite show on Netflix. In any case where you are emotionally invested there is a higher likelihood that you will not be able to be objective in decision making. It’s the reason why I scream at the tv when my Winnipeg Jets continue to give the puck away in their own end. Our cognitive biases are a systematic source of errors, it’s just how we are built and it’s the reason why most people are terrible investors.
Getting back to politics and why you shouldn’t invest with based on your politics we need only to look at recent history to prove this. In 2003, we had just gone through the dot com crash and the NASDAQ had been decimated, losing 78% of it’s value. In response, Federal Reserve Chair, Alan Greenspan took rates down to 1% while the Bush administration passed $1 trillion in tax cuts. At the time many democrats on Wall Street were highly critical of the tax cuts and concerns were that the cuts wouldn’t create jobs, would blow up the budget and essentially this was a give away to the wealthy. All of these concerns in my opinion were perfectly valid but that doesn’t mean that they were relevant to the value of businesses traded in the stock market. While many people stayed on the sidelines trying to figure out just how bad things could get, trillions of dollars found new homes in stocks and the markets headed higher. From 2003-2007 the S&P 500 jumped approximately 100% in USD terms. Unfortunately, many people were left on the sidelines as they predicted the end of democracy and feared what the economy would do under these policy moves. We have seen similar market reactions in recent years after the Brexit vote and the 2016 election in the US. In both instances, even had you predicted accurately how these votes would go, you were likely incorrect about your prediction for the market reaction which again left many investors in the dust and unable to ever recover the time lost.
I see that we are in a very similar situation today. In speaking with clients and the public I am hearing more and more comments and concern over how the upcoming election in the US as well as future Canadian elections will impact their investments. No matter what side of center you are on my best advice is to recognize your biases as it relates to your political views and do your best to not let it emotionally impact your investment decisions. If there are any cases in the past where your predictions have worked out then I would say congratulations, you are one of the lucky few. For the people that chose to sit out on the sidelines after an election didn’t go the way they believed it would and missed out on the market increase, then unfortunately I have to say shame on you. The cycle of booms and busts are regular occurrences in the market. In truth, what most people call “100 year floods” have occurred over 18 times since The Great Depression. In order to be successful in investing it’s important that you are in the market for the cyclical increases and if you are missing them because you are trying to avoid the cyclical downside you are likely destroying a great deal of your wealth.
Next time you vote, make whichever decision you feel best represents your values and what you want for our great country. But when you review your investments, try and leave your emotions out of it. You’ll be a far more successful investor if you do.
-Grant White, CIM®, CFP®
Grant White is a Portfolio Manager/Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning office as recognized by the Carson Group. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.
This information has been prepared by Grant White who is a Portfolio Manager for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Portfolio Manager can open accounts only in the provinces in which they are registered.