Don’t let partisan storm crash your portfolio

Mr. Kim is the Chief Operation Officer and Chief Compliance
Officer for Kirr Marbach & Co. LLC, an investment adviser based in Columbus
IN. Please visit www.kirrmar.com.

I never make predictions, particularly in writing, but it’s a sure bet the
vitriol and partisan political assault we’re going to be subjected to over
the next 100 days will make 2016 seem like an ice cream social.

Both Trump and Biden (and their supporters) predict doom if
the other is elected. Information is filtered through the lens of
confirmation bias, our tendency to give too much weight to findings that
support our existing beliefs. Unfortunately, it’s increasingly rare for
folks (including me) to listen openly to opposing views, let alone seek out
alternateperspectives and attempt to understand.

As Simon & Garfunkel sang in The Boxer, “a man hears what he
wants to hear and disregards the rest.”

As the partisan storm increases in intensity over the coming
weeks, you may be tempted to make changes to your portfolio because of how
you believe a short-term event like an election will impact the financial
markets. Don’t. Making an anxiety-based change because of your political
beliefs will be harmful to the long-term health of your portfolio.

The president is only one of many factors that influence the
market. Others, including corporate profitability, interest rates and
inflation may have more impact than who resides in the White House.

Sam Stovall, Chief Investment Strategist for Wall Street
research firm CFRA, dissected price changes for the S&P 500 going back to
1945 based on election results. He will soon be publishing his findings,
but graciously provided me with his data.

Since WWII, incumbents running for reelection won 80% of the
time (Truman, Eisenhower, Johnson, Nixon, Reagan, Clinton, Bush 43 and
Obama) and lost only twice (Carter and Bush 41). Additionally, the S&P 500
has been a good predictor of whether the incumbent president, or his party,
was reelected or replaced.

In presidential election years since 1944, when the S&P 500 rose in price
from July 31 to October 31, the incumbent or his party was reelected 82% of
the time. This indicator failed in 1968 (Humphrey lost to Nixon) and 1980
(Carter lost to Reagan). Conversely, when the S&P 500 lost ground, it
signaled the replacement of the incumbent 88% of the time. The only failure
was Eisenhower’s defeat of Stevenson in 1956.

Republican administrations are generally viewed as
“pro-business” and conventional wisdom is stocks do better with a Republican
in the White House. There has, indeed, been a huge difference in returns
during Democratic vs. Republican administrations. However, as if often the
case, conventional wisdom is wrong. Stovall calculated from Harry Truman’s
inauguration on April 12, 1945 through July 22, 2020, the average annual
return for the S&P 500 was more than 50% higher with Democrats in the White
House (9.5% vs. 6.2% during Republican administrations).

Try not to fret about things you can’t control. Instead,
develop an investment plan based on your long-term goals and stick to it.
Your financial future will depend far more on how much you save and invest,
not who wins the election.

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The opinions expressed in these articles are those of the author as of the
date the article was published. These opinions have not been updated or
supplemented and may not reflect the author’s views today. The information
provided in these articles does not provide information reasonably
sufficient upon which to base an investment decision and should not be
considered a recommendation to purchase or sell any particular stock or
other investment.