Politics and Investing

February 21, 2017

Last week Bloomberg reported that Americans recently broke the American Psychological Association’s anxiety meter for a record level of stress.  You read that right.  No, this is not from late 2008.  This is from January 2017.

“The results of the January 2017 poll show a statistically significant increase in stress for the first time since the survey was first conducted in 2007,” the APA said on Wednesday in a report on the survey of 1,019 adults living in the U.S., conducted from Jan. 5 to Jan. 19 by Harris Poll.

Americans’ stress levels in January were worse than in August, in the middle of the angriest, most personal campaign in recent memory, when some believed the anxiety would abate after the election. At 57 percent, more than half of respondents said the current political climate was a very or somewhat significant source of stress. Stressors for everyone, including Republicans, were the fast pace of unfolding events and especially the uncertainty of the current political climate, said Vaile Wright, director of research and special projects at the APA.

What is it that has everyone so worked up?  Politics.  How many of your clients invest their politics?  When the resident of the Oval office is of their same political party, do they tend to be more bullish and when the opposite is true, do they tend to be more bearish?

When I read that article I couldn’t help but think back to something that The Motley Fool wrote last year as it relates to the problem of conflating politics and investing:

Economics is a close cousin of politics, which is dangerous because politics is a close cousin of emotional decisions detached from reality.

Not only do most of us have emotional opinions about who should/shouldn’t run the country, but we unfailingly overestimate how much influence presidents have over the economy and stock market. When presidents do impact the economy, good luck guessing how markets will respond. Lots of smart people predicted that Barack Obama’s spending plans meant surging interest rates and a collapsing dollar.

Growing the economy means getting everyone to win, whereas politics by definition means getting the opposing party to lose. Rationality melts when you set up this kind of my-team-versus-yours dilemma. Psychologist Geoffrey Cohen showed that Democratic voters supported Republican proposals when they were attributed to fellow Democrats more than they supported Democratic proposals attributed to Republicans, and vice versa. Imagine the same part of your brain analyzing investments. It’s a disaster.

I like politics, and I love investing. But I run from anything conflating the two.

Thus, the power of an emotionless method of investing.  The chart just reflects what is, not what we fear might be.  And what does that chart—using the S&P 500 as a proxy for the market—look like right now?

spx

As of 2/16/17

Well it doesn’t look bearish…  Invest accordingly.

Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

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Weekly RS Recap

February 21, 2017

The table below shows the performance of a universe of mid and large cap U.S. equities, broken down by relative strength decile and quartile and then compared to the universe return.  Those at the top of the ranks are those stocks which have the best intermediate-term relative strength.  Relative strength strategies buy securities that have strong intermediate-term relative strength and hold them as long as they remain strong.

Last week’s performance (2/13/17 – 2/17/17) is as follows:

ranks

This example is presented for illustrative purposes only and does not represent a past or present recommendation.  The relative strength strategy is NOT a guarantee.  There may be times where all investments and strategies are unfavorable and depreciate in value.  The performance above is based on pure price returns, not inclusive of dividends, fees, or other expenses.  Past performance is not indicative of future results.  Potential for profits is accompanied by possibility of loss.

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