The election and your investments
The election and your investments
The season many in our county dread is upon us. Even though most often no damage will occur, it’s hard to stop ourselves from wondering if this will be one of those times when our lives will be altered by outside forces. We’re not talking about hurricane season – although that is here too – no, we’re talking about election season, and it could be a doozy!
It is already getting heated. The presidential candidates aren’t even waiting until they secure their party’s nomination before engaging directly with each other. After the first debate was scheduled for June 27, both candidates almost immediately took to social media to attack each other. The Republican National Convention isn’t until July 15 and Democrats don’t hold theirs until August 19. Those are followed by another debate set for September 10. With the election not until November 5, we have several months over which we will be fed a steady diet of vitriol and hyperbole.
President Biden channeled Clint Eastwood in Dirty Harry posting, “Donald Trump lost two debates to me in 2020, since then he hasn’t shown up for a debate. Now he’s acting like he wants to debate me again. Well, make my day, pal.”
Meanwhile former President Trump shot back saying Biden was the “WORST debater I have ever faced – He can’t put two sentences together!”
Negative campaigning has been the norm for a long time because it works better than being civil. Getting people emotionally fired up leads to more votes and donations from supporters.
While we have often been critical of media coverage, we understand the crucial role it plays and why these posts are newsworthy. These two men are running for President of the United States of America and what they say and do is news. Who wins is an important matter. We should care, a lot. It is our right to formulate our opinions, advocate passionately for who and what we believe is best for our country and vote accordingly.
Our beef with the media isn’t that they are making things up, though that certainly happens. Our issue is that the media harps on the negative, enables fear mongering, and very deliberately presents material in provocative ways to get those consuming their output emotionally charged. But none of that is good for sound financial decision making. On the contrary, it encourages short-term, reactionary, fear-based thinking.
…the media harps on the negative, enables fear mongering, and very deliberately presents material in provocative ways to get those consuming their output emotionally charged. But none of that is good for sound financial decision making. On the contrary, it encourages short-term, reactionary, fear-based thinking.
Media outlets do this because that is how they make money. The higher the ratings or the click rate or readership, the more advertising revenue they can collect, and negativity gets the clicks. A study recently published in Nature Human Behavior makes this clear.
A group of social and cognitive psychologists teamed up with a group of computer scientists to examine the head-to-head testing of different headlines on a popular website. Websites will put out a story with different headlines to see which version draws the most clicks. The team looked at 105,000 headlines and 370 million story-impressions over a four-year period.
Their conclusion: “…negative words in news headlines increased consumption rates (and positive words decreased consumption rates). For a headline of average length, each additional negative word increased the click-through rate by 2.3%.”
The authors point out that their conclusion harkens back to the old newsroom adage, “If it bleeds, it leads.” We don’t have to look far to find examples in the financial world. We need only look for big events and the headlines that followed.
In February 2022, Russia invaded Ukraine and almost instantly prognostications of doom for the economy or markets proliferated. The volume has subsided some but there are still headlines predicting painful financial events because of the war.
Those who reacted to headlines, adopted a short-term fear-based mindset, and abandoned a sound plan paid a dear price. Today, just two years later, the markets and the accounts of the diversified, patient, and disciplined investors are near all-time highs.
A similar thing happened with COVID and every other major news event in modern history. News hits, markets may or may not react, predictions of doom abound, and it can get worrisome. The characters in these dramas, the particulars of the events, and the exact timing vary but the ending has always been the same – markets recover and typically do so before everything related to the news has settled.
Last December, we pointed out that changing investments based on anticipated election results would not have paid off historically for supporters of either party. It was more advantageous to simply stay in the market no matter who won. Today we wanted to further prepare you for what is to come so you don’t get tempted to toss aside a century of history and place a bet on a short-term market move.
The key to surviving election season is the same as surviving hurricane season, preparation. We know we will hear all sorts of terrible prognostications. Both sides want you to believe the other side will destroy the good things about our country and are to blame for the bad things. We know the media will be more than happy to report these assertions. Plus, as the previously cited social media posts suggest, the candidates themselves are likely to provide an abundance of material for provocative headlines.
We expect lots of real news, fake news, suspect news, fear mongering, name-calling, finger pointing and a whole lot more. Ignore it or dive deep into it, whatever works for you. As we said, the election is important, there are issues to address and positions to be taken. You should vote for whom and what you think is best. But please, do everything you can to remember that all presidents are temps. You have a plan and your goals for your family entail a time frame that extends far beyond a four-year term.
Staying diversified, patient, and disciplined has been the most reliable way to have a profitable investment experience no matter who has come and gone from the White House or Congress or what events have unfolded. Don’t let the election noise distract you from something so comforting.
Vote with your ballot, not your portfolio. Invest, don’t speculate. If you need a pep talk during this election season, give us a call. We are here to be A Sanctuary From The Noise®
Additional reading on the “News & Posts” page of www.moisandfizgerald.com
Five financial articles you should always ignore
What to expect from financial markets
How to invest for your goals – not for headlines
How can I protect my portfolio from a post-election drop in stocks?
Will the election cause a market crash?
