Repeat After Me

Mix politics and investing at your own risk... One of my favorite stats... There's a time and a place... Lessons from the 2016 and 2020 presidential elections... The root of the problem... E.B. Tucker on Stansberry Investor Hour...

The wise ones keep saying it...

Ignore politics... at least when it comes to investing. I (Corey McLaughlin) am not saying it's easy, especially today. But as my friend and angel investor Howard Lindzon put it in his free newsletter this morning, "Politics and investing... mix them at your own risk."

I mentioned this concept yesterday, quoting Stansberry Research partner Dr. David "Doc" Eifrig. The idea is that politics, mainly the party in the White House or in control of Congress, historically hasn't meant as much to market performance as many people think it has.

Here's one of my favorite stats that illustrates the point...

Since 1926, the U.S. has had 13 years of unified Republican government (with the GOP simultaneously holding the House, Senate, and presidency). In those years, the market returned an average of 14.52% per year.

There have been 34 years of unified Democratic government. In those years, the market returned an average of... 14.52%.

It can't get any closer than that.

This "unified" scenario could play out again after November (or not), but the point is... who was in "control" of the legislative and executive branches – even in full – didn't make a difference in the stock market's performance during those 47 years... down to two decimal points.

That said, as we wrote yesterday, an extension or ending of current corporate tax policies (depending on who wins the presidential election) and a potential reworking of regulations in various industries after the Supreme Court reversed the "Chevron doctrine" last week, could matter to businesses' profits in the years ahead...

Those policies (and potentially others) are practical matters that can affect the bottom line.

But today, I'm going to reiterate what some of my most experienced colleagues are saying in today's political climate...

Don't go 'all in' or 'all out' because of what might happen in politics...

That's easier said than done, of course. I spent an hour or so yesterday reading the Supreme Court's ruling and dissents in the case of Trump v. United States. There's a lot to unpack there... and a lot we could say. But then I looked at my portfolio and did nothing.

At the very least, you should be aware of the risks – and opportunities – of letting politics drive financial decisions.

Strong emotions and frayed nerves are likely to be around for the next several months... into Election Day in November and Inauguration Day in January. As Doc said in the June 18 Digest...

We will forgive you if this election feels more important than others... The world feels more polarized, and the parties seem further apart than they have been in a long time – even more than they did back in 2020.

While we wish the country would be unified and rally together on many topics like less government and more freedom, we know turmoil will continue in the months to come. Republicans are worried about what will happen if Joe Biden is reelected. Democrats are worried about Donald Trump returning to the White House. And projections tell us that this race will be as tight as it gets.

Uncertainty and fear are everywhere... But if you've been following my Retirement Trader strategy, you couldn't be more excited. The upcoming election is giving us a tremendous opportunity for profits in the months to come.

In Retirement Trader, Doc's options trading strategy benefits from volatility when investors are fearful and want to make bearish bets on stocks.

Doc sells these nervous traders protection in the options market and collects income in the deal, like selling an insurance policy. Stansberry Alliance members and Retirement Trader subscribers can find all the details about his strategy here.

For now, Doc's recommendation is to "ignore D.C. crusaders."

But there is a time and place...

Our colleague and Stansberry's Investment Advisory lead editor Whitney Tilson offered his thoughts about politics and markets after last Thursday's debate in his free daily newsletter.

He reminded folks that he correctly predicted a "blue wave" in Congress and the White House four years ago. And the eight-stock portfolio he recommended in September 2020 based on that expectation returned 86% compared with 17% for the S&P 500 Index over the life of the recommendations...

The picks included a leading gun maker, a semiconductor chipmaker, a pair of green-energy stocks, a cannabis company, and a play on the legalization of sports betting in the U.S., which were all set to benefit from a Democrat-controlled government.

But Whitney, a former Wall Street hedge-fund manager, also noted that he didn't pull the trigger to make these recommendations until about a month before Election Day.

Similarly, he says it's too soon for any "election buys" right now.

We're not there yet...

As Whitney wrote on Friday...

I'm always looking for big ideas like this to give my subscribers great money-making opportunities, so I'm thinking hard about whether there will be a "red wave" this November that would lead certain stocks to soar.

For example, Republicans typically favor fossil fuel industries... so companies in oil, natural gas, and coal could benefit. And they generally want to reduce regulations, so heavily regulated industries like finance and pharmaceuticals could also benefit.

But I think it's still too early to make such a call...

That's because Whitney isn't convinced about the election outcome right now. As we mentioned yesterday, we don't even know for sure who the Democratic nominee will be. But Whitney did talk about whether either party could pull off a clean sweep – or "unified" government – to make a substantial difference in policies that would affect businesses...

While Democrats were able to pull this off four years ago, it's not easy – many voters like a divided government. So, for instance, someone might vote for Trump at the top of the ticket but a Democrat for the House and/or Senate. According to Polymarket as of [Friday] morning, while Trump is 64% favored to win, the odds of a Republican sweep are only 52%. [Editor's note: The odds are 50% as of today.]

So for now, there's too much uncertainty for me to have conviction about any particular outcome, much less for me to tell my subscribers to wager their hard-earned money on it.

But that's OK. Things will become more clear over time – and we still have plenty of time. Neither party has even thrown its nominating convention yet. Last time around, my former team and I waited until mid-September to make our big – and highly profitable – call.

If my team and I here at Stansberry Research make a similar call, our subscribers at Stansberry's Investment Advisory will be the first to know... In the meantime, resist the urge to do something rash.

Whitney also quoted something he wrote a few weeks ago in his newsletter...

It seems like everyone thinks the world is going to come to an end if their guy doesn't win.

I think the winner of the presidential race will matter a great deal in almost every area – except stocks.

Stocks did great under former President Donald Trump until COVID-19 came out of left field. And stocks have also done great under President Joe Biden.

From the day Trump was inaugurated to the market's February 2020 peak before the pandemic escalated, the S&P 500 Index rose 49%. And from Biden's inauguration through yesterday's close, the S&P 500 is up 41%...

The point: If you want to be a successful investor over time, you can't let your emotions – which include your political leanings – affect your analysis of economic factors and your investment decision making.

The root of the problem...

Our colleague Dan Ferris also covered politics in the latest issue of The Ferris Report, published on Friday.

Dan talked about how he bet that Trump would win the 2016 presidential election, in part because of what he'd witnessed with the outcome of the Brexit referendum in the U.K. earlier that same year. It resembled the left-versus-right debate he saw unfolding in the U.S. As Dan wrote...

I'm not a gambling man, but I wanted to express my insight financially without going too big.

In Las Vegas, the betting odds at that time had Trump at +350, meaning that you could win $350 for every $100 you bet. As I recall, the odds on [Hillary] Clinton were around -150, meaning that you had to bet $150 just to win $100.

The difference in the odds told me that everybody – even financially motivated Las Vegas gamblers – agreed Clinton was the clear front-runner and Trump was a long shot. In other words, if you had a good reason to believe Trump would win, the odds made it worth placing a bet.

So I put $1,000 down. And you know what happened next...

Trump succeeded in firing up a base of middle-class, blue-collar workers who had long felt betrayed by status-quo politicians. They turned up to the polls in droves.

His fiery brand of patriotism took the White House. And I won $3,500.

In retrospect, I could have gone even bigger... perhaps shorting Mexican peso futures (which fell as much as 10% on election night) or S&P 500 Index futures (which fell as much as 5% on election night). But I didn't have a crystal ball. I simply saw that the odds weren't tipped away from Trump nearly as much as most people thought at the time.

It was a calculated bet, weighing risk and reward. That's the way accomplished traders suggest you go about investing. But getting carried away in the emotion of politics? Dan also warned against that...

The left-versus-right narrative... does have real effects... but there is no meaningful difference between political parties in Western democracies.

Both sides always want more power and more government, no matter what either side says. No U.S. president of either political bent has even attempted to shrink the government.

If someone like Argentina's radical libertarian President Javier Milei (whom we wrote about in January) appeared in American politics, I'd back him or her enthusiastically. But Americans have proved as narrow minded and greedy as all voters in all democracies and have consistently elected criminals.

I won't say the system is broken. It's working as designed, and that's the problem.

Dan's answer for investors is to "construct the strongest investment portfolios we can."

In my mind, that's owning shares of high-quality businesses. Buy them when they're attractively priced, and be prepared for buying opportunities with cash on hand. Today, you can still grow cash at a 5.5% annualized rate with a one-month Treasury bill, for example.

A strong portfolio also includes additional inflation and "chaos" protection like gold, other hard assets, and exposure to bitcoin. I'm not saying to put your head in the sand about politics, but if long-term investing is your thing, stay true to your goals.

Nobody else will do it for you.

New 52-week highs (as of 7/1/24): Apple (AAPL), Alpha Architect 1-3 Month Box Fund (BOXX), Coca-Cola Consolidated (COKE), Commvault Systems (CVLT), iMGP DBi Managed Futures Strategy Fund (DBMF), iShares MSCI Emerging Markets ex China Fund (EMXC), Enstar (ESGR), JPMorgan Chase (JPM), KraneShares MSCI Emerging Markets ex China Index Fund (KEMX), Eli Lilly (LLY), Microsoft (MSFT), Neuberger Berman Next Generation Connectivity Fund (NBXG), Teladoc Health (TDOC), and the short position in Cracker Barrel (CBRL).

In today's mailbag, feedback on yesterday's edition, which discussed the fallout from last week's presidential debate and recent Supreme Court decisions... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Thank you, Mr. McLaughlin, for the always insightful and educational Digest articles. Regarding the one today, July 1; I may take issue with your points on which party's success seems to be a more pro-business stance. I agree that historically the Republican party platform has seemed to have been more business friendly. The key word in that sentence is 'seems.' I take issue with the notion stated here many times before [that] which party is in or out has very little actual effect on business profitability, etc., compared to other more salient factors. I do believe that this cycle is quite a bit different than what is historically taken as fact regarding the Republican party...

"For one thing, the platform... seems to wobble and change and shift with the tides, and from what I hear, business leaders abhor these "unknowns." Makes planning difficult, etc. Seems to me that rather than having some steady hands on the rudder guiding the economic ship in a cohesive fashion, the party leader and faithful of the Republican party prove to be doing what is best for them in the short term without any concern for how their actions impact anything else, businesses, industries, or individuals... It appears that Mr. Trump would like to create an oligarchy-type system similar to Putin's in Russia. Big monopolies headed by his hand-picked few without regard to actual success. This type of business environment would be horrible for this country, and it hasn't exactly been a proven successful system in Russia or North Korea either. Strongman governments tend to have bad economics in general...

"In regard to the Chevron ruling [on Friday], I do believe less regulation is coming down the pike. However, many industries seem to do much better under some well-thought-out regulatory environments. I'm thinking of finance and transportation, to name a few. I realize that this is a minority opinion, but I just wanted to get it out there because sometimes dots get connected just because people like connecting them as opposed to being backed up by real facts. Many people now seem to believe what they want to believe as opposed to what is provably true. Thank you for your always thoughtful articles. Keep up the good work." – Subscriber Michelle C.

All the best,

Corey McLaughlin
Baltimore, Maryland
July 2, 2024