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How to Deal With the 2016 Presidential Election and Your Portfolio

By Posted on In Finding Confidence, Investment Behavior, Politics & the Economy, Uncategorized

It’s tempting to position your portfolio to take advantage of new policies being proposed by a new President before they have been elected or shortly after their election. Evidence suggests it’s better to wait instead of trying to time the market.

Here are a few strategies to keep in mind over the next few months:

  • Expect volatility as the election draws near. The markets do not like it when there are looming questions about the future direction of the country. Most likely this volatility is short term and will clear up as investors digest the implications of one president over the other. This will be especially true if the candidates target a particular industry (such as health care or defense).
  • Remember you are a long-term investor. Much of the noise and headlines will not have a long term impact on your investment future.
  • Stay the course with your investment strategy. The candidates, their respective parties, think-tanks, experts, pundits and the media will try very hard to rattle your cage to sway your opinion and to get your vote. They will use fear tactics or they will paint rosy pictures of the future. And unfortunately, many investors will make poor investment choices prior to the election. They will move to cash if they are afraid or they will move into an asset class they believe will soar if their candidate wins.
  • Any significant policy changes will take months to develop and potential a year to roll out.

Why We Shouldn’t Mix Politics and Investing?

By Posted on In Economy, Finding Confidence, Investment Behavior, Politics & the Economy, Uncategorized

We can’t help but hear about the election on the news. And when it comes to each candidates economic policies, we are quick to imagine how it will affect our investments. We assume that Trump’s determination to bring jobs back to the US could boost US stock prices and perhaps hurt foreign stock prices. We think that because Clinton has talked about reform on Wall Street, that financial companies would be hurt if she were elected President.

But the connection isn’t as clear as the media makes it out to be. Both politics and the markets are very complex systems with many, many moving parts. We are quick to arrive at various conclusions as to cause and effect. Or quick to identify patterns. In reality, it’s nearly impossible to predict how presidential policies will affect the stock market. We may think we see a pattern or understand cause and effect, but there could be more factors contributing to the expected outcome

All of these thoughts can be connected to a set of common investing errors that are discussed in a growing field of behavioral economics. The following article does a great job of capturing some of these elements

Comparing Chess To The Stock Market And The Election

By Posted on In Finding Confidence, Investment Behavior, Politics & the Economy, Uncategorized

The average chess player can see 1-3 moves ahead in a game of chess. But a grandmaster chess player can see 10 moves ahead and sometimes up to 20. More interestingly, when they look at the board they see shapes and patterns not number of moves.

Playing chess is like connecting the dots between the stock market and the election. The media, think tanks, special interest groups and the talking heads are focused on the implications of the election on the stock market and the economy. If Trump is elected, the pundits are predicting one outcome and comparing it to the hypothetical outcome if Clinton wins.

They try to paint a very clear, logical picture of the how one policy will help America and the economy. But the oversimplification does not properly consider the hundreds or thousands of variables that affect the economy or stock market. While these experts try to account for as many variables as possible, it’s simply impossible for them to do so with any sense of reliability or accuracy.

These supposed experts see one set of moves and believe that’s how it will play out. If they were playing chess, they would be an amateur chess player who could only see the logical progression of their agenda if their opponent performed exactly as expected. And when their opponent did something unexpected (which usually happens), their plan would be thrown out the window.

When it comes to listening to these experts talk about the effects of the stock market as a result of the election, keep in mind that there are thousands of variables that will affect the stock market. In fact, there is a lot of research that suggests the election has no effect on the stock market in the long term.

Britain Exits

By Posted on In Economy, Politics & the Economy

Sixty years ago, the nations of Europe began uniting under one European Union.  The first goal was to define themselves as Europeans instead of separate nationalities which repeatedly started a war with each other. The second goal was to integrate their economies to achieve greater prosperity for everyone. The European Common Market was formed and it worked for a while. Over time a total of 28 countries joined. The next major step was the creation of one common currency called the Euro. 19 of these countries discontinued their currency and adopted the Euro (the Eurozone).  The goal here was to further simplify financial transactions across Europe by using just one currency. While Britain was the second largest economy within the European Union, it never joined the Eurozone and kept its own currency known as the Pound.

Each European nation not only had its own national government, but also the new supranational government created by the European Union. Unfortunately this additional layer of government formed by the European Union grew and metastasized into an overreaching giant that regulated, interfered, and constrained all aspects of activity.  Due to this and many other reasons, the European economies are in decline.  This, in addition to the unmanageable flood of immigration mandated by the European Union’s open border policy, brought Britain to the edge. Last week the British voted to leave the European Union and all of its rules.

The question now is, will Britain leaving the European Union for the sake of self-determination bring economic calamity or long term prosperity? And what effect will that have on the rest of the world?

What Cheap Oil Means For The Shale Boom

By Posted on In Investment Behavior, Investment Strategies, Politics & the Economy, Trend Updates, Uncategorized

Shale oil production is more expensive than traditional oil production – It costs more to get shale oil out of the ground. So when the price for oil drops, like it has, it hurts shale oil production a whole lot more than with other production methods. Bloomberg estimates that the price of oil needs to be over $80 a barrel for US drillers to make any profit. Oil is hovering right around that figure now.

For more reading:

Bloomberg’s Quick Take

Oil at $80 a Barrel Muffles Forecast for US Shale Boom