Let's not bury the lead huh?
The answer is: Nothing.
(Yes, you can stop reading now, if you want. But don't.)
I'm sorry to be the bearer of bad news to the commentators who'll breathlessly cover the election's impact on markets.
I'm sorry to be the bearer of bad news for those ideologues – on both sides – who desperately want the result to be some sort of proof of their own political preference.
But let me be clear:
It. Won't. Matter.
Which isn't the same as saying 'there won't be volatility'.
It's not even the same as 'the market won't take a particular view for a while' either.
But, for investors – defined properly as people who buy stakes in companies with a view to holding for the long term – have nothing to fear, or cheer, from this election.
Let's count the ways.
First, we can't know who'll win.
Yes, yes. You know who you think deserves to win.
But that's not going to change the result.
Yes, yes. The pollsters have a view on who they think will win.
But then, that doesn't explain Trump 2016 or Morrison 2019, does it?
You can take a punt on who you think will win, if you want. But what are you really punting on?
And that takes me to my second point:
We can't know how the winner will impact the market.
The research suggests there is very, very little correlation between the party that wins the White House and the subsequent performance of the share market.
And then, it's not like 2020 is an ordinary year.
2021 will hopefully be less dramatic, but the economic recovery, when (not if!) it comes, will be largely independent of the affiliation of the occupant of the Oval Office.
If, right now, you're mentally starting with the 'yeah, buts', I'm going to respectfully suggest you're trying to make the facts fit your narrative, rather than the other way around.
If you're a Trump fan, you're telling me how much he's done for the economy.
If you're a Biden supporter, you're telling me that Trump's success is either because of the Obama legacy or is less impressive than his supporters say.
(If you are in one of those two groups, a reminder that I can't hear you, no matter how loudly you shout!)
So, if we don't know who'll win… and we can't know how the eventual winner will impact the stock market…
Doesn't it make sense to stop trying?
Yeah, I thought so, too.
It's kinda like the impact of 'ethical investing' – wanting it to be true just can't make it so.
You know – when you want something to be true so badly that you engage in a little magical thinking so you don't have to confront the reality?
Yes. That.
So, if history suggests that the office-holders in the US don't give us a sense of where the market will go (and even if it did, we don't know with any certainty who'll win), what should we focus on?
I'm glad you asked.
The answer is deceptively simple. In fact it's so simple some people just can't help but try to make it harder.
Just. Invest.
I know, right?
That's what they pay me the big bucks for – stating the bloody obvious.
Except that, if it was obvious, everyone would already do it.
There is a huge gulf between what 'everyone knows' and what 'everyone does'.
"I know I should just invest long term, but what stocks should I buy before the election" is something I hear more than I'd like.
Humans just can't help trying to make this investing caper more complicated than it needs to be.
And it drives me a little nuts.
Seriously, there's nothing better, in my experience, than the combination of time, and regular dollar-cost-averaging.
Nothing.
Now, that doesn't mean you can't improve your results – you are just really unlikely to do it, sustainably, trying high risk speculation.
Instead, I'd be looking for quality businesses. Trading at attractive prices.
The ones that are likely to either grow more quickly than the market assumes, or the ones the market is leaving for dead that, well, aren't dead.
Kogan.com Ltd (ASX: KGN) is a good example of the former. Nine Entertainment Co Holdings Ltd (ASX: NEC) was a good example of the latter. (I own shares of Kogan, for the record)
No, neither was a guaranteed winner, but investors seemed to miss the compound growth – past and potential future – of Kogan, even before the coronavirus pandemic. The company was adding customers and growing sales at a rate of knots. It had turned profitable, and had (and still has) very attractive economics. But investors were too shy to pay up.
Nine was about as different from Kogan as you'll find. Sales weren't growing. The industry was challenged. And, well, COVID-19 hit during that time.
Yet, in our view, Nine had been left for dead, share price-wise. It was beaten down. Unloved. Which smelled like opportunity. Turns out it was, and we recommended our members sell for a 57% gain in a little over 18 months.
Kogan, by the way, is up 471% and 210% since each of our two recommendations. It's still a Buy, too.
Each could have gone badly, by the way. We possess no perfect crystal ball.
But we've found – both by experience and the results of our scorecard – that getting the process right is likely to lead to impressive results, on average.
Neither of those successes relied on US (or Australian) politics or legislation. Nor have any of our losers (we have some of those) come down to the vagaries of political whim.
Elections come and go. They rarely, if ever, matter, unless you're betting specifically on a policy one or the other party might enact. In which case, you might as well bet on the smokey in the fifth at Randwick.
Instead, my advice is simple:
Ignore the noise. Tune out the politics.
Save, hard.
Invest, regularly.
Buy the best investments you can find. And if you're not sure, either find a trusted adviser (cough, cough), or buy the index.
By far, the two worst things you can do, in my view, are either 'nothing', or 'speculate'.
Leave that to the political pollsters and pundits.
Fool on!
