Ritholtz on Investing Via Politics

Barry Ritholtz over at The Big Picture has some interesting comments on letting one's political philosophy get in the way of investing:"

"{W} we were having dinner onboard with a table of HNW investors. One of the women at the table went off, spouting nonstop about politics and the upcoming election. She had missed a 109% rally in equities due to her politics, and was convinced that if her candidate won, all would be right in the world.

Sure it would.

What she really needed to do was see the slides 16, 17, 18 and 19 in that presentation about mixing politics and investing (alas, she chose to miss it). The slides shows how Democrats and Republicans alike who invest based on how they vote miss enormous opportunities. They under-perform so badly you would think they were a Day Trader circa 2001.....

All of which is to say I indulged my confirmation bias and enjoyed Mike Santoli’s column this weekend (Less Than Meets the Ear) a great deal. Mike points out in the quote above that neither candidate is likely to make any wholesale changes to any major policy, and that your tax rates are likely to be higher regardless of the election outcome. I agree.

One last point worth making: Too many observers Confusing Cause & Effect when analyzing politics and markets. When the economy is doing well and profits are expanding, stocks tend to do well also. These conditions work to the incumbent’s advantage. When the economy does poorly and earnings suffer, it works to the challenger’s advantage. There are some issues with timing and lags, but that is the general relationship.

The usual tail-wagging-the-dog suspect gets this relationship precisely backwards . . ."

Link:  The Dangers of Investing Via Politics