It’s an election year…does it matter?

Jim Steffen |

Every election cycle we get a handful of clients inquiring about repositioning ahead of voters going to the polls. Our advice is virtually always the same, if your time frame and investment objectives haven’t changed, neither should your positioning. 

I’ve seen no empirical evidence of any discernable market trends during election years. In fact, Warren Buffett kicked off the 2018 Berkshire Hathaway Shareholder meeting earlier this year by discussing how its historically been a big mistake to make investing decisions based on contemporary events, political or otherwise. 

Buffett began the annual meeting by illustrating several front pages of the New York Times for issues printed in early March 1942. This was only about three months after the attack on Pearl Harbor. The headlines were not rosy. The Nazis were dominating in Europe and the Japanese were moving aggressively throughout the Pacific. Buffett chose to highlight these dates because not only did the world seem to be in chaos, but it also happened to be about the time he bought his first stock at age 11.

Buffett went on to make the point that despite the vast uncertainty and fear across the world in 1942, had an investor put $10,000 into the equivalent of the S&P500 (the largest 500 companies in the US) and reinvested all the dividends, by the end of 2017, they would have accumulated approximately $51 million.

Buffett also pointed out the number of democratic and republican presidents since 1942…what would you guess? Answer: Since 1942, there has been 7 democrats and 7 republicans in the White House. 

Finally, to emphasize the folly in trying to predict the market, we only need to look back to 2016. Leading up to the presidential election that year, it was widely accepted that not only would Clinton win, but should Trump, the financial markets would crash. Both of these predictions, which were broadly accepted across the political continuum, turned out to be dead wrong. 

It is crucial for investors to remember one of the key principles of value investing: stocks represent ownership in a business. What really matters most over time is if the companies you own are generating more sales and profits. As Warren Buffett emphasized, since 1942 (and long before), American businesses have found success regardless of what political party controlled the government. As the polls roll in next week, I think most investors can take comfort knowing that this is unlikely to change.

This commentary is provided for informational and educational purposes only and is not to be considered investment advice nor a recommendation of any investment product. Trott Brook Financial, LLC (“Trott Brook”) is a registered investment advisor and provides investment advice to clients on an individualized basis. Advisory Persons of Trott Brook may also offer securities through LaSalle Street Securities, LLC (“LaSalle”), a FINRA/SIPC member broker-dealer.  Trott Brook and LaSalle are unaffiliated separate legal entities. Information contained in this commentary may be opinions or forward-looking statements, which may not occur as suggested.