Clinton vs. Trump

Monday, October 10th, 2016

They sure have lit a fire! Over the last two months, a day doesn’t pass without one of our members asking me what I think will happen to “the economy” or “the market” if Donald Trump wins, or if Hillary Clinton wins the election!

Many of the questions have a bit of tongue and cheek mixed in, but some of them stem from genuine, deep seeded fear and concern.

On the election front, I agree 100% that this round is the craziest I can recall. Perhaps, I’m engaging in a bit of primacy and recency, i.e. the phenomenon of recalling intimate details about what just occurred, or what occurred at some point in time many years ago, but forgetting everything in between.

The extension of that is to place greater strength, impact, and importance on the most recent, thus distorting our recollection into concluding that whatever is occurring is the best, the worst, the biggest, the smallest, the most volatile, the most impactful, the craziest, etc.

With that said, it’s hard to recall an election quite like this one!

Beliefs and Philosophy

Based on our life experiences, education, and interactions, we all develop our own unique set of beliefs about what is just and what we value.

Over time, those beliefs morph into our own personal philosophies which, in turn, govern the way we feel about and react to various situations. A current example, of course, is the presidential election we’re in the middle of right now.

As many of you know, I have a very definitive philosophy on the role government should and should not play in our lives. Unfortunately for me, neither party or presidential candidate shares my philosophy! (I’m happy to share my thoughts with you any time, so please don’t hesitate to ask me if you’re curious.)

For today, however, there is a very important point that I want to stress for you.

While the reality of not having a political party or candidate who shares my philosophy is frustrating for me at times (it used to really bother me 30 years ago), it has no impact whatsoever on the way I live, how I run our business on a day to day basis, or, for the basis of our discussion, the way I invest. None.

There are many reasons for this which I’d like to share and have you consider because there is a dangerous mistake I’ve witnessed far too many retirees make during election seasons.

Election Season Danger

With respect to the financial confidence we all need, where the danger lies for all of us are the beliefs we’ve developed, and thus our biases, and the extent to which we allow those biases to carry over and influence our investment decisions.

For example, gone unchecked, many believe that the political party they affiliate with is better for the economy, and better for stocks.

You may very well believe that. However, when it comes to making investment decisions with your Retirement Bucket™ that must support you for the rest of your life, allowing those beliefs and biases to influence your decisions is deadly.

Here are some reasons why:
Campaign Promises: For as far back as any of us can remember, every presidential candidate has touted campaign promises and policies they would implement if elected. The reality, however, is that most of their plans do not get implemented, or they get watered down in the legislative process. Go back to the last six elections for great examples of this. Every president rode into office with grandiose campaign promises which went unfulfilled. The danger for all of us is allowing our biases, one way or another, to overrate these campaign promises and their future impact.
Congress: While the president has significant power, our founding fathers implemented a system of checks and balances in our federal government to keep presidential powers in check. If you can recall Bill Clinton’s first term in office in 1992, the democratic party had majorities in the Senate and the House for his first two years. In 1994, the Republican party took control of the House and President Clinton’s agenda changed dramatically from what he campaigned on. Getting back to our own biases, you may like or not like that President Clinton’s agenda had to be adjusted. But, it’s not healthy to allow that frustration to influence your investment decisions.
Historical Returns: If you study the history of market returns, you will find no correlation between stock market performance and the party affiliation of the president. It’s entirely random and it is certainly no predictor of future performance. There are far too many other factors influencing performance.
Private vs. Public: Our economy is still dominated by the private sector which makes up 87% of our economy while the public sector only makes up 13%. Whoever becomes the next occupant of the White House continues to have a limited ability to significantly impact economic output.
Entrepreneurs and Their Companies: As we have all witnessed time and time again, entrepreneurs, and the great companies they develop and run, whom you own shares of, figure out a way to create tremendous levels of value and flourish under both positive and adverse conditions. For fun, list out the ten companies whom you interacted with today (Microsoft, Apple, Amazon, Walmart, Toyota, Staples, Whole Foods, CVS, Novartis, Marriott, for example). Think about how successful they have been in spite of all the roadblocks placed in front of them. Legislative agendas of a new administration simply become another temporary market condition they have to deal with.

With all of this said, I don’t want to imply that presidential elections, and politics in general, aren’t important and they have no impact. Elections in democratic countries are critically important.

What I do want to emphasize is that, while you may like or vehemently hate the winner of the election, keep that emotion intact because the winner should have little or no impact on your investment decision making process.