Don’t Like Trump? Your Financial Analysis Might Be Biased
Partisanship should have no place in a corporate-credit rating. A new study says it does.
Bloomberg, December 3, 2018
The dangers of political bias for investors has long been one of my favorite rants. Politics is tribal, opinionated and typically one-sided. These are emotional hot buttons that lead to biased thinking. And as we have learned from both behavioral finance and decades of experience, those affectations are the enemy of good returns and smart investing.
As a reminder, partisans warned us that if Donald Trump were elected president, the market would tank. (It didn’t). Instead the Standard & Poor’s 500 Index rose 37 percent, from Election Day to its September 2018 peak. And recall the warnings that Trump’s predecessor, variously described as a socialist, Kenyan or Muslim, was “killing the Dow.” (He didn’t). Instead, the Dow Jones Industrial Average more than doubled during the eight years of Barack Obama’s presidency.
Despite the obvious lessons, admonitions to investors to keep their politics out of their investing seems to fall on deaf ears.
Now, thanks to a recent study reported on by my Bloomberg News colleague Sarah Ponczek, we learn that partisan bias also affects the decision-making processes of financial analysts as well . . . Continues here
I originally published this at Bloomberg, December 3, 2018. All of my Bloomberg columns can be found here and here.