Will the election move the markets?

  • “Should the S&P 500 record a positive return from July 31 to October 31, it signals the reelection of the party in power, while a decline suggests replacement. The S&P ended September slightly below its July close, so the election results are at the mercy of the market’s October performance.” — Bloomberg reporter Suzanne Woolley, writing on 9/30/16. She cited research from S&P Global Market Intelligence, explaining an indicator that has a more than 80% success track record over the past 18 presidential elections going back to 1944. At press time, the S&P 500 is down 1.0%, putting this indicator in Trump’s corner with a week to go. Read more.
  • “The most unsettling [result] would likely be a ‘Brexit’-type situation, where polls suggest a clear Clinton win, but we wake up and find Trump has won.” — Liz Ann Sonders, Charles Schwab Chief Investment Strategist, writing on 10/14/16, about the stock market’s likely reaction to the election. Read more.
  • “Mr. Market doesn’t care who you are voting for, doesn’t care very much who wins, isn’t choosing one candidate over another and isn’t especially concerned with politics.” — Barry Ritholtz, writing in Bloomberg View on 10/7/16. He said presidential elections aren’t typically important market-moving agents. Any research to the contrary, he noted, can be attributed to the idea that correlation is the same as causation. Read more.

Investing in a low-return world

  • “The most obvious way to improve the odds of success...is to increase your investment contributions; even small additional contributions can help bridge the gap between a low-return environment and a more normal one.” — Christine Benz, Morningstar Director of Personal Finance, in a 10/6/16 article about expectations for low stock-market returns over the next decade. Read more

Winning by not losing

  • “It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent.” — Berkshire Hathaway’s Charlie Munger, quoted in a Farnam Street blog post on the important difference between trying to not lose vs. trying to win. Read more

Broken indicators

  • “When it comes to gauging risks in the world’s financial markets, these days investors are flying more or less blind. That’s because the once-dependable indicators traders relied on for decades to send out warnings are no longer up to the task. ” — From a 10/18/16 Bloomberg article about the declining reliability of the yield spread, swap spreads, and the VIX gauge to warn of trouble ahead. Read more.

Rock and a hard place

  • “It’s hard to know the difference between ‘Be patient’ and ‘Change your mind when the facts change.’ All worthwhile investments are cyclical, so capturing long-term returns requires patience through difficult times. Then again…about 40% of established public companies at some point lose most of their value and never recover. Blindly saying ‘Be patient’ isn’t safe in a world where most stuff eventually breaks for good.” — Morgan Housel writing why it’s often hard to know when to act when caught between two simple but opposite views. Mechanical rules, such as those in Upgrading, help you draw a line in the sand. Read more.