The Evidence-Based Investor

Never speculate on election results

Posted by Robin Powell on June 9, 2017

I had a dismal record as a student politician, but 1988 was my absolute nadir. I worked on the failed Dukakis-Bentsen campaign and, closer to home, on the very last by-election the ill-fated SDP ever took part in, in Kensington. We were hammered. Spending a week having doors slammed shut in your face is a depressing experience. The idea of super-wealthy Kensington returning anything other than a Conservative MP really was unthinkable.

Except, today, it may actually happen. At the time of writing, counting has been suspended after the first two counts put the Labour candidate head by just a few votes. The tellers, apparently, are tired. Crikey, I think we’ll all need a lie down if that result is finally confirmed.

It was a very strange general election result all round — not what the polls or the pundits had predicted at all.

The lesson, which we really should have learned by now, is that you shouldn’t try to second-guess the intentions of the voting public — and you absolutely mustn’t reposition your investment portfolio on the basis of what you expect to happen. It happened with Brexit, then with Trump, then with Macron; and, lo and behold, it’s happened again today.

Once again, the financial media has been full of helpful suggestions as to what you should do in the run-up to polling day. In the Telegraph the other day, for example, one columnist announced that, in anticipation of a comfortable Conservative victory, he had “bought stocks that will profit and if the pound rises in response”. Whoops. At one point this morning, sterling was down by 2.3%.

And they’re at it again today. My Twitter timeline is full of the opinions of financial professionals and commentators, pointing gullible investors towards this sector or that in the light of Teresa May’s election gamble backfiring so spectacularly. The weekend money sections will be full of it.

Remember these three things:

1. All known information is already baked into prices. The chances that you, your adviser or your fund manager have unique access to valuable intelligence on whether or not Mrs May will resign, whether there’ll be another election, or what the heck will happen with Brexit, are tiny.

2. It’s not enough to know what will happen; what matters is how the markets respond to what happens. Few people expected markets to rise after Brexit and Trump, and yet they did. As I write this, the FTSE is up nearly 1%; who would have thought that when Britain was going to hell in a hand basket in the early hours of this morning?

3. Which parties and politicians are in power has much less impact on the financial markets than many people think. You might not like Jeremy Corbyn’s policies, but if you look back through market history you’ll see that markets have not performed significantly better, or worse, under the Conservatives than Labour. The same goes for whether there’s been a Democrat or Republican in the White House.

So, never speculate on the results of elections or referendums, at least not with your retirement savings.

 

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Robin Powell

Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector. Regis Media.

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