By Stephen Kyne
From its peak in May of 2015 to new records set in July of this year, the markets have suffered two corrections.
If there’s been a theme to the last year of investing, it is volatility. In spite of that volatility, however, it remains true that long-term investments in the markets provide positive returns over time, as long as the investor possesses the discipline to remain invested. Many don’t.
As a result, most individual investors buy high and sell low; emotions cause them to flee the markets as they hit lows, locking-in losses, and remain out of the markets through periods of recovery, only to enthusiastically jump back in in time for the next pullback.
Emotions have no place in investing.
Remember that there are two sides to every trade. In order for you to sell that investment at the bottom of a market correction, someone else has to be willing to buy it. If the investment is such a dog, what does that person know that you don’t? Sometimes you’ll be right, but many times the buyer recognizes that the low price represents a deep discount, and is eager to let you sell them something on sale.
Emotional investment decisions are often instigated by what you perceive to be true based on exposure to the media. Remember, the news never shows the house that didn’t burn down, nor all the people who made it home safely last night. Media exists to sell advertising, and sensationalism puts butts in the seats. Consequently, every little problem in the world becomes inflated to that end. This year’s election is a perfect example.
The election of 2016 is already being called the nastiest in history (sensational!). Incidentally, that title has long since been awarded to the election of 1800 but, since I’m an economist and not a historian, we’ll let it slide.
At any rate, prepare yourself to ignore the vitriol and rancor which have already become emblematic of this year’s election cycle. You’re going to be faced with endless rhetoric from the campaigns and their media surrogates in an effort to convince you, less and less that they have anything to offer but, that they aren’t as bad as the other candidate(s).
From the right, you’re going to hear that Hillary is dishonest and inept, if not downright criminal. From the left, you’re going to hear that Trump is a racist fascist. Both sides need to convince you that their candidate is the only way through, and the others spell certain doom.
When it comes right down to it, the markets don’t care much who wins.
Trump is a profit-driven businessman who would have the support of (likely) both houses of Congress, which desperately want to reduce taxes on investments and improve the overall business climate. A win for Wall Street, and investors.
Clinton, for all her Sanders-inspired nouveau-progressive rhetoric, is very well understood and funded by Wall Street. With another election in 2020, she’s very unlikely to bite the hand that feeds. That election will be crucial, since the 2020 census will determine the makeup of Congress for the subsequent decade.
Progressives are likely to abandon Clinton this year, after Sanders gave a hollow endorsement of her, only to almost immediately defect from the Democratic party. If she wins in 2016, she’ll need moderates, not progressives, to hold Congress into the 2020 cycle, so don’t expect her to rock the boat in her first four years.
Either outcome likely represents the end of the current gridlock, and a loosening of the restrictions which have prevented the economy from growing at historically normal rates. These are good things for your investments, but you probably won’t hear it on the news channels.
All you have to do is ignore the noise in 2016, and make good use of your financial advisor to help you assess whether the days’ events should affect your long-term investment strategy, or if they’re just another sideshow for your entertainment. Of course, these are forward-looking projections based on the information available today. Keep working with your advisor to make changes to your strategy as circumstances change.
Stephen Kyne is a partner at Sterling Manor Financial in Saratoga Springs and Rhinebeck.