As the primaries for the presidential election start to heat up you may be wondering who to vote for, and when it comes to investing you will hear varying opinions on candidates and why one would be better for your investments versus another. Each candidate will tell you that they will create the most jobs and why they are better for business than their opponents. If it becomes a negative campaign, as many often do, they will attack the other candidate’s policies and will tell you their opponents will hurt the economy. The truth of the matter is that the ensuing heated debate is a result of the political opinions of the candidates and pundits rather than on factual arguments that impact the economy. At the end of the day the reality is that market forces will win out.
For the most part policies have negligible effects on markets, and while there may be initial market gyrations that arise from an overreaction to news of upcoming change, the policies that may have a material impact on companies or industries will take time to materialize as most government policies take time to implement. Even in such cases where policy and regulation impacts a sector of the economy the free market has a way of finding inefficiencies and solving for them. If a policy creates such an inefficiency someone will take advantage of it until the inefficiency is eliminated, and that inefficiency becomes an investment opportunity.
Another popular debate topic amongst presidential candidates is Tax reform. It is talked about during every election cycle and the result is always the same; nothing changes. The reason why presidential promises about tax reform never materialize is because those sound bytes always appeal to voters but there isn’t sufficient political will to actually implement them. The bad thing about tax loopholes is that they allow a select group of people to avoid taxes based on obscure situations that only apply to a few. The reason that there are loopholes however, is because someone put them in place. A special interest that convinced a group of politicians to put it in. Unfortunately eliminating such inefficiencies is harder than actually creating them. Any change to the tax code requires that not only the opposing political parties come together and agree, but also that the people who benefit from the loophole and lobbied congress to put it in decide not to exert their influence again.
So who should you vote for? We’ve made the argument that candidates won’t generally affect the market, and they are unlikely to change the tax code once elected, which basically means that presidents have negligible effects on your investment outcomes. There are market cycles and fundamentals that you should keep an eye on since that is what will ultimately drive the profitability of the companies you invest in. Generally the president and congress implement policies that favor business regardless of the political spin placed on it. With that said,
our endorsement is for you to vote for who you like.
That decision will lead to your own personal satisfaction, and you should look to be objective in how you select stocks. You should aim to prevent your personal political bias from affecting your investment decisions.