Politics matters little to your investment outcomes.
This has been a theme of mine for nearly forever. I discuss this in presentations all the time. It was — literally — my first column for the Washington Post.
And yet the financial press simply cannot get enough of this stuff. They love a good narrative. While these story lines make for good copy, they also make for terrible investing advice.
Consider the market impact of the past Fiscal Cliff (none) and the Sequester (rally mode). Both of these events are relatively minor compared to past historical events of far greater import that also have had negligible impact on markets.
What has the overall effects been on investments of past historical events? Consider the attack on Pearl Harbor, which led the US to entering WW2; the Soviet Union’s launching of Sputnik into space, and starting the cold war arms race. (I can’t forget the Cuban Missile Crisis or the Iraq and Afghanistan Wars). There have been momentous events with U.S. presidents — the assassination of President John F. Kennedy, the resignation of President Nixon, the impeachment of President Clinton — none of which really impacted investment values much.
In none of the above, did the markets react unusually. At most they wobbled a bit, before resuming their prior trend. Even the horrific attacks of 9/11, which saw markets closed for almost a week, had a big selloff, followed by an even bigger snapback rally — followed by markets returning to the prior trend, which was the post-2000 popped tech bubble down slide.
The lesson investors should learn is while these events may transfix us emotionally, they have almost zero impact on corporate revenues, profits and valuations. They are what drive most of your investment results, aand not what is on C-Span . . .
Why politics and investing don’t mix (WaPo February 6, 2011)
How important is the fiscal cliff for investors? Hint: Not very (WaPo, November 20 2012)
Contextualizing the NFP Data (April 1st, 2011)
Wise Up to the Proper Flaws of Monthly NFP Data (May 4th, 2012)