So we all woke up today and went about our days like we usually do in spite of the inauguration of a new president yesterday. The same thing happened four years ago when the previous president was inaugurated. Funny how life, business, investing and everything else continues to move on in spite of all the consternation and handwringing that has accompanied the past several elections in our great nation. We all tend to think when our chosen candidate is in office that life is better financially, socially civically, etc… but reality often differs from our perceived notions.
Surprisingly, and contrary to supporting empirical evidence, many of us allow our political views to drive our money and investment decisions. It has been demonstrated numerous times that presidents don’t have much impact on the broader economy and the stock market, contrary to popular belief. Just look at the charts below.
During my lifetime economic growth and stock performance have fared better during Democratic presidencies than they have under Republican presidencies. That’s not to say one is better or worse for the economy and stock market than the other. Cycles, monetary policy, actual timing of policy implementations and other important factors are what drive economic growth, which tends to drive stock prices.
Certainly, debilitating tax increases and/or regulations can negatively impact segments of the business community and the stock market, which can be detrimental to local communities and economies. However, we can’t automatically assume that if the person or party in office is not our chosen candidate or party that the economy and stock market are going to come crashing down. If that were true the stock market wouldn’t be up nearly 12% between election day and inauguration day this election or up over 8% between election day and inauguration day last election.
Politics, along with religion, are probably the primary sources for the majority of the biases we hold. Biases are the kryptonite to investing well. Too many people allow their biases to dictate whether they actually invest and/or how they invest. This always leads to suboptimal outcomes. In the end, if the economy and stock market come crashing down it’s not going to be the result of an individual president or political party. It’s going to be the result of an accumulation of bad policy decisions across multiple presidencies and both political parties. If you want to invest well, don’t mix your politics with your investing.