– Scott Reed
This coming Tuesday is a big day in the United States of America. It is the day we decide who will be the leader of the Free World for the next four years. Those of you who read my column regularly should know that I am not going to take sides. Taking sides is not what I get paid to do in my columns. However, I am paid to give you advice on how to react to what is happening.
Everyone is different, which is why you don’t read advice in my columns telling you what to buy or sell. But I can tell you something about how to go about making your decisions and there are some things you should know, regardless of who wins on Tuesday.
Last week I was meeting with a client. He said something that, if not for COVID-19 and the fact that we were on the phone, I probably would have hugged him. He said this, “I can’t think of any reasonable action I would take different than what we are doing now.”
Reason versus emotion. It is a really big deal in investing. If you can ignore all of the white noise being thrown at you and make your decisions based on objective, empirical data, then you are way ahead of the curve.
Emotional decisions are made in a different location in your brain than reasonable decisions. Your brain can actually block your reasonable side from being part of the process, which is a scary thought. And speaking of scary thoughts, here is another: Your brain processes negative thoughts with five times the intensity than positive thoughts. As that happens your negative thoughts can actually take over your brain and not allow positive thoughts in. That is how people can get so caught up in something negative that is happening to them that they literally can’t see a way out of it.
There is no lack of negative thoughts being thrown at you in this campaign cycle. Trump says that if Biden is elected we will have a depression the likes of which we have never seen before. Biden says that if Trump is re-elected we will lose the soul and heart of the nation. Those are both really big deals. And there is no evidence that either statement is true. But I can certainly see how bad that must be for those who use the emotional part of their brain to process that information. Emotions are critical in the decision making process, but you shouldn’t let emotions lead the way.
Here is some information that might be useful to you if you are one of those who is wondering if you should take your money out of the markets until after the dust settles. If you invested $10,000 in the S&P 500 the day of Harry Truman’s inauguration, April 12, 1945, it would have grown to $2,300,000 today if you had just left it in the markets. During that 75 years the Democrats have held the Presidency 36 years and the Republicans 39 years.
If you were a Republican and took your money out of the markets during Democratic terms you would only have $65,336. If you were a Democrat and took your money out during Republican terms, you would only have $352,616. Some of you would like to note that the Democratic terms fared better than the Republicans, however, neither comes anywhere close to having just trusted in the process and the belief that our free market society works regardless of who the leader of the Free World happens to be at this moment in time.
To me, the moral of this story may very well be that rabid partisanism is not only bad for the country, it can be bad for each one of us individually as well. No matter what happens on Tuesday, maybe it is time to sing Kumbaya, pretend to hold hands (I mean it is still COVID-19) and start getting along. It seems like a good idea, not only for the country but for your investments as well.
