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