There Are No Facts About the Future

There Are No Facts About the Future

As the market has started to meltdown this week and the presidential debates are heating up, there are plenty of discussions about what might happen to the economy if Trump’s tariffs continue or if Senator Warren or Sanders were to win the presidency. The latter bears a striking resemblance to the same predictions about how things might turn out when Trump shocked the world.

Politics as usual.

In any election cycle (which, to my dismay, never seems to go away), the unknowns dominate the headlines. Speculation, particularly negative speculation, focusing on each candidate’s most audacious goals are routinely discussed no matter the probability of those agendas becoming reality. In my world, this is especially true with regard to how these hypothetical policies might impact the stock market.

There are many theories as to how these political agendas could play out over time assuming any of these candidates or the incumbent president can get anything passed through the checks and balances system we enjoy here in America.

My point here is not a political one as I’m relatively agnostic in this regard. Don’t get me wrong, I vote; I just don’t like to spend a lot of energy discussing political hypotheticals.

Instead, I want to briefly discuss the emotional portfolio wreckage that can accompany an election cycle and issue a brief reminder. Regardless of which side of the aisle you’ve chosen to take your stand, people tend to worry about what an opposing politician’s proposed agenda might mean for the economy and by extension, the stock market.

I started as an advisor just before Obama’s first inauguration. That was followed by his re-election and then Trump’s surprising win. In each presidential cycle, I’ve had clients and prospects wondering whether they should sell out of their portfolio because, of course, they are confident the opposing candidate is going to cause a stock market crash. To this point at least, selling in all cases would have been a mistake despite the political rhetoric that accompanied each inauguration. Don’t @ me about what’s still to come because that would be antithetical to the exact point of this article.

That is, we must always remember, there are no facts about the future. Any proposed policies take time to go through the political process and an even longer time to be implemented.

With regard to the stock market, despite where we stand now looking toward the 2020 election and any intervening news that Trump will inevitably stir up, I’m honestly not sure any of it matters a whole lot. Let me explain.

What people tend to “forget” is that the stock market consists of individual companies that are run by loads of very smart people. No matter what passes through Washington from either side of the aisle, each corporate leadership team will make decisions to best position the business to continue as profitably as possible based on whatever regulations are current at that moment.

If some new regulation causes a piece of the business to lose money, leadership can choose to discontinue that piece of the business or pivot their operations to a structure that continues its profitability. They have the ability to funnel free-cash-flow away from unprofitable areas to more profitable areas. They can take advantage of tax incentives that encourage more research and development that may benefit the future of the company as they see fit.

Will every company come out clean on the other side? Of course not. But that’s been the case throughout our capitalist history.

Contrary to how it may feel, you aren’t investing in a “stock market slot machine.” Instead, hopefully, you own of a diversified group of businesses run by many smart people charged with making the best capital allocation decisions possible given the current business, socioeconomic and regulatory environments.

Am I saying that the policies that are eventually implemented won’t have an effect on these companies and the stock market as a whole? Of course not.

We just don’t know in advance how any policy will pan out in the long run. And I think it’s important to remember that these companies are going to position themselves in the best way possible given their respective resources. Any political pandering and election outcomes should not be a cause to run for the exits no matter which party is at the helm at any given moment.

Related Reading:

A Case for Long-Term Optimism – Words Matter

Should You Ignore Financial TV?

The Market Went ___ on ___.

Disclosure: This article is not advice. Please see additional disclaimers.

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