So far, 2020 has been mostly serene, and I expect nothing to change as the election approaches.
I kid, of course.
We’re 82 days away from the election, and somehow, everything is political. Infectious diseases. School openings. Football. Everything.
Some of our clients have been asking about our thoughts on the impact that the election might have on markets, so I wanted to take some time to share some evidence that can guide us toward a reasonable conclusion. The conclusion is: History has shown us that the market has little correlation with the party in power in the White House.
A couple of years ago I wrote a post, part of which discussed the fallacy of pretending to have any idea what elections mean for markets. I thought I’d revisit this with some more data.
The news over the past two weeks has moved at a brisk pace, to say the least. The state of the world from just one month ago is virtually unrecognizable at this point as we’ve made bold steps to control an invisible virus.
Our partners at Dimensional posted a video the other day to offer some perspective, and I think you’ll enjoy it. We also thought we’d share some additional perspective too.
The world now looks a lot scarier than it did in January or February, and that got me thinking.
I’ve often wondered how I would’ve reacted as an investor in 1929, when the stock market crashed and set off the Great Depression. In hindsight, it would’ve been great to say that I would’ve closely followed the rules of finance that have been developed through decades of research, but that would’ve been difficult for a couple of reasons:
As fears about the spread of the coronavirus continue to rile markets worldwide, I thought I’d provide another update into how we (and our clients!) are fairing.
First, I’m sure there are some clients who have had sleepless nights over the past couple of weeks, wondering when life will get back to normal. The other day, my wife asked me how I was holding up, and I told her that I’m fine but I’m more concerned for you, our clients.
However, I’m also incredibly grateful. For sure, we’ve fielded some calls and e-mails from clients who have some (valid!) concerns. But for the most part, our clients have been seeking out opportunities to accumulate more stocks at a discounted price.
Our trading systems and processes haven’t yet been stretched like they have for the past two weeks, and I’m glad to say that we’re doing just fine.
I’ve spent the better part of the last twenty years studying the capital markets, and trying to gain a better understanding of how they operate, and how investors react. As we ride through the current turbulence brought on by the news of the day, I thought I’d share with you some of the lessons that I’ve learned.
First, the nature of risk is that it’s unpredictable. And whether the cause of the turmoil is political, economic, health related, or some other nuisance, we know that the future, by definition, is unknowable.
Not long ago, the markets were deeply disturbed by the interactions between President Donald Trump and North Korean leader Kim Jong-un, and the potential for war between the United States and North Korea. Imagine having fallen into a coma in 2010 and awoken to see that as a headline.