Vail Valley Voices: Can’t vote on the markets
October 31, 2012
On Nov. 6, you and I will vote to decide the man who leads our country. We’ll choose our commander in chief, our most visible icon, our head of government. We’ll vote for the next president of the United States. One thing we won’t be doing, however, is voting to decide what will happen in the markets. We won’t be voting to determine whether the markets go up or down. We won’t be voting on what will happen to your investment portfolio. The markets, thankfully, are far too sophisticated to be determined by one person or one event. Recently I’ve seen a lot of hand-wringing from investors worrying about this November. In fact, too often I’ve heard the words, “I don’t want to do anything until after the election.” The thinking goes that once we know who our next president will be, we’ll be able to predict the effects on the markets. Only then should we make any decisions. But this reasoning is flawed. Here’s why: No one actually knows what will happen to the markets after the election. Whether the winner is Barack Obama or Mitt Romney, we can try to predict what the effect will be, but no one will actually know. That’s because …We don’t know what each candidate will do in office.Guesswork is a risky business. While we can guess what Gov. Romney will do if he wins the White House, or what President Obama will do if he keeps it, no one knows for sure. It’s possible the candidates themselves don’t know, as both men have become infamous for not disclosing many details about their plans.Then, too, presidents have a habit of saying one thing on the campaign trail, then doing something different while in office. That’s because ideology often gives way to practicality once politicians actually have to get things done. Compromises have to be made, and unforeseen circumstances responded to. In other words, campaign promises often take a backseat to political necessity. The markets respond to more than just who occupies the White House.Let’s pretend for a moment that we do know exactly what each candidate will do. Sounds great, right? We can make all the right decisions based on that knowledge. But here’s the truth: Investing in the markets, and understanding the economy, is based on far more than that. In fact, it’s often based on the unexpected. Life is full of the unexpected. Companies could go bankrupt with little or no outside warning. That affects the markets. Natural disasters happen. War could happen. All of that affects the markets, too. On the other hand, the unexpected doesn’t have to be bad. It could be good, too. There could be breakthroughs in medicine or technology. Events could happen that uplift the national mood and bring people together, even on different sides of the political aisle. The point is so many things happen every day that dictate whether the markets rise or fall. The president is just one person. An important person, yes, but no person is so important that all decisions should be based around him or her. Similarly, the election is just one event. An important one, true, but the markets react to thousands of events throughout the year. One event doesn’t control them, just as we shouldn’t let that one event control us. There’s another reason why some people refuse to act until after the election. It’s called …Emotion.Making financial decisions based on emotion is never a good thing. But too often, we let emotions get in the way. Emotions can prevent clear thinking and make us react impulsively. They should never take the place of planning. They should never replace rational thought (at least when it comes to your money). So when people say, “I’ll wait till after the election,” they’re making an emotional decision, not a rational one. I think their main emotion is fear. Fear that their preferred candidate will lose and the other guy will win. Fear that everything is going to be doom and gloom. Don’t believe me? Let’s take a little quiz. Below are the last seven presidents of the United States, with their political party next to their name. Look at each name and guess whether you think the markets went up or down during the first 12 months of their presidency. Write your guess in the space provided, if you like.President, party, markets up or down: Richard Nixon (1st term), Republican Richard Nixon (2nd term), Republican Jimmy Carter, Democrat Ronald Reagan (1st term), Republican Ronald Reagan (2nd term), Republican George H.W. Bush, Republican Bill Clinton (1st term), Democrat Bill Clinton (2nd term), Democrat George W. Bush (1st term), Republican George W. Bush (2nd term), Republican Barack Obama, Democrat Now, maybe you’ll score 100 percent on this quiz. Maybe you remember what happened after each election. Maybe you have no political preference, or you don’t let your preference bias your judgment. If so, that’s great. But many people do, so the answers often surprise them. Speaking of which, here they are:President, party, markets up or down:Richard Nixon (1st term), Republican, -10 percent Richard Nixon (2nd term), Republican, -7 percent Jimmy Carter, Democrat, -17 percent Ronald Reagan (1st term), Republican, -8 percent Ronald Reagan (2nd term), Republican, +13 percent George H.W. Bush, Republican, +23 percent Bill Clinton (1st term), Democrat, +13 percent Bill Clinton (2nd term), Democrat, +27 percent George W. Bush (1st term), Republican, -13 percent George W. Bush (2nd term), Republican, +4 percent Barack Obama, Democrat, +2 percent Anything there that you didn’t expect? Maybe Reagan’s first year was worse than you thought, or George H.W. Bush’s first year was much better? Even one surprise should be food for thought. If we can’t guess how the markets did in hindsight, how can we accurately predict what’s going to happen in the future? Every president on the list above had their strengths and weaknesses, but the numbers next to their names were the result of far more. They were the result of all the events, big and little, that they couldn’t foresee and couldn’t control. And that’s why waiting for the election is a mistake. Don’t let one man or one event control your thinking. Don’t let emotion get in the way. Don’t sit on the sidelines and wait. Because the markets are still moving. Things are happening right now. Opportunities to reach your financial goals could be lying within your grasp. Don’t neglect those opportunities by waiting until November. Make your decisions based on facts. On solid reasoning, on a plan. That’s the way to control your financial future. No one else controls it for you … not even the president of the United States. Fraser M. Horn is the branch manager of the Edwards office of 1st & Main Investment Advisors. He can be reached at 970-926-2500. Registered representative of and securities and investment advisory services offered through Berthel Fisher & Company Financial Services Inc. (BFCFS). Member FINRA/SIPC. 1st & Main Investment Advisors is independent of BFCFS.