Transcription:
Paul Winkler: It’s The Investor Coaching Show. Paul Winkler,, along with Evan Barnard and Anne Sawasky.
Election Season
And so it’s about the presidential election. And I get into some interesting data on that, but there was, there’s no shortage of people talking about the presidential election and the stock markets. I saw this article in Morningstar history lesson, investment manager Howard Marks states that the stock market will continue to breathe a sigh of relief.
If President Trump is reelected, it says, Wall Street Journal, get ready for the Biden stock boom. As a matter of fact, I used the same article in that workshop that I taught on the election recently.
So the rank order of nominal performance for the Dow Jones industrial average, I thought this was kind of a novel way of looking at it. So what they did is they rank order the nominal performance. So that’s performance before inflation for the Dow Jones industrial average during the first three years in office for each of the past ten presidents. Okay. So we need a drum roll or something.
National Performance Historically
Excluding John Kennedy and Gerald Ford who didn’t serve a full 36 months, number one was Bill Clinton, a Democrat; and number two, Dwight Eisenhower, a Republican; and number three was Barack Obama, Democrat. So the highest performance came from Bill Clinton. So two Democrats so far in the top three and a number for Donald Trump. But of course remember what I said earlier.
It is the S&P 500, which is the largest stocks have very lopsided performance historically. So we’ll get to that in just a second. So Donald Trump had number four, so we got two Democrats and two Republicans so far in the top four, George H. W. Bush, a Republican and Ronald Reagan.
Bush was a number eight. And then you had Richard Nixon was number nine and Jimmy Carter number D. So it’s pretty evenly split.
So, I think that that’s interesting, so large US stocks. I looked at small value stocks. So I was trying to look at the US asset category. That would be the most dissimilar from the S&P 500, just to see what the difference was. Number one asset category for small value stocks are number one, president for small value was actually
No, no, no. Nixon. It was Carter, Democrat right before. Yes. Isn’t that fascinating? I wouldn’t have ever guessed that. I wouldn’t have even. Yeah, that was 34.2% return. And number three was Lyndon Johnson. Now just think about that, you know, over that period of time, that rate of return that’s well over doubling money, you know, over that short period of time during the, that, and just the first three years of his term.
Right. You know, cause remember this is just the first three years of the term.
Anne: You know, with Carter and thinking back, that was such a high inflation period. So maybe that wasn’t that unusual.
Paul Winkler: Well, and you also had the downturn just prior. So, you know, you could look at that and you know, Reagan, we were long past that now we’re long past that. So, that’s just interesting. Number four. Number four was Dwight Eisenhower, Republican. It was about 24% per year. Number five was George W. Bush at 22% per year. Number six was Bill Clinton. He came in number six. Remember he was number one with large US stocks.
But he drops all the way to number six for small value stocks out of 10 in that, which is interesting. Yeah. Number seven was Barack Obama and Barack Obama was number three for large US stocks, but he drops to number seven on that one. So you see the, you can kind of hope you’re getting the idea of diversification here.
Regulation
Anne: Not only that doesn’t that make you think about regulation?
Paul Winkler: Yeah, it does. And that’s, that’s really good.
Anne: Small value stocks were very, very subject to the amount of regulation because they’re little guys, they don’t have the money.
Paul Winkler: Cut both ways. It could cut both ways though. You know, you think about who they’re regulating, you know, as far as they regulate, which helps those small companies become more competitive.
Yeah. I mean you had stellar returns under high regulation and either low regular deregulation as well, Republican or Democrat, but you said it depends on the type of regulations. Yeah. Clinton and Obama
Anne: High with the large US and they were lower with small value. They were under a high regulatory administration. So that’s what I was getting at. Sure.
Paul Winkler: Oh yeah, yeah. Yeah. And I see that, you know, so it’s just interesting to me that, but Reagan was number one. So, you know, look at that and say, but he actually, he had a lot of regulations and, and you know, things that were lifted in some cases and sometimes some cases imposed in exchange for changing tax rates and you know, you know, fixing social security and those types of things. So, but you know, even without the percentage data, which is a great argument for diversification is okay, we’re coming up on an election, you know, next month, roughly a week from Tuesday or a month from Tuesday.
Right. And so it sounds to me like we’ve done pretty good, no matter who won the election, it’s over time. It’s a good point. Yeah. And you know, I was talking to a gentleman earlier this week that worked for a local manufacturing company. We just happened to be talking about appliances. They supply that industry and he said, Whirlpool turns out 20,000 dishwashers a day at one of their plants and we’re just chatting. And he knew what I did.
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The Market Will Continue
And I said, how’s that just that’s mind boggling. And I said, yeah, you know, I said, that’s the thing is if my dishwasher goes down November 5th, Cindy, ain’t going to wait until the next Republican president. If I said, I’m going to get a dishwasher. I mean, the economy is just going to continue. So right. I’m going to get donuts. People are going to fix their car. You’re going to get done. It’s because we can’t stop it. You know, I may pay more for the donuts. I can only buy three.
Evan Barnard: But you know, it Is going to fair well over time no matter who wins the election.
Paul Winkler: No. And it’s a good point. So if we rank order by small value performance, number one, it was Republican. Number two was Democrat. Number three, Democrat, number four, Republican. Number five, Republican. Number six, Democrat. So it’s still fairly evenly divided, not completely even, but pretty doggone even, you know, regardless of who was the winner in the election.
So I think that’s just fascinating, you know, people do, you know, you find that so often, you know, and he made a couple comments, I think are worth just talking about in this article, it was another Morningstar article. “Nor do presidential elections much affect the general economy.” Right. Which was really, really what you said, Evan, this statement he says, “I realize is more than dismissing their investment implications. It’s one thing to acknowledge that economics don’t necessarily translate into securities prices, many additional factors influence investment performances, including whether markets had anticipated economic development.”
So, you know, in other words, the stock market went up because, you know, let’s say you believe that Republicans are better for the economy. The market went up because a Republican was going to get in and a Democrat was in before. So the market went up under the Democrat and the Democrat got that, got credit for it. Right. Well, you know, interestingly, they only did the first, we only did the first three years of the presidency here, you know? So it kind of threw that out a little bit, but you know, it makes it, he makes a really super good point about that, you know, markets can win and will go up before economic activity actually happens.
You know, investors don’t sit there and wait until the activity happens before they’ll, they have to pay higher prices because people selling those stocks are going to get paid for what’s coming because they’re not going to benefit from it. So they charge a higher price. It says, but you know, you’ve gotten developments and investor demand for corporations. It says, you know, however, it’s quite another thing to deny the link between politics and the economy altogether, but he says, I must do so. And he says, “Over the years, I have seen countless economic predictions based on political beliefs with claims made about the effects, the tech tax code amendments changes to business regulations, trade policies, and so forth to the first approximation of the truth.
The Market Has Many, Many Variables
None of these forecasts occurred. He says, the reason is that there’s no actual science behind the assertions. One can put an economy into a laboratory control for a single element and then run multiple simulations and to assess the element’s importance. And the problem is, it’s just, they’re just too many variables outside of the present. And they’re just too many stinking variables. Right. You know, you got weather variables, you’ve got, you know, other countries around the world, their presidential elections, you’ve got trade policies with those other countries.
You’ve got demographic changes. You’ve got a coronavirus interest rate. And you’ve got, you know, oil shortages or, or surpluses. You’ve got the cost of natural resources and goods you’ve got, you know, it could be, you know, whether the weather, I mean, you’re not just saying the word weather, but you know, weather could be an issue in worst fires. Yeah, absolutely. You know, so there are just way too many things actually affecting the economy.
And it’s a chaotic system. As you know, we actually call, you know, it’s a chaotic system and you know, it’s interesting because there was, there was a gentleman that was writing about one of the articles that I found was talking about, you know, the, you know, markets and how they go up and, and go down and long term returns. It’s just amazing to me, if you lay a ruler on a stock market chart, going back to the 1920s and you can lay a ruler and it’s like looking at a straight line, you know, over time, it’s mind boggling, you know, sometimes they’d go down.
Then it goes up, it goes down more than it would historically. Then it goes up more than historically normal. Right. You know? So once people see a stock market downturn and they go, Oh man, I just, you know, the market just went down 20% and you know, you have the historic returns tense. That means it’s going to take two years. Let’s say for you to come back, you know? Right. No, wait a minute. That’s just, cause I said that the historic average return is 10 doesn’t mean when it comes back, it’s going to go up 10.
It didn’t go down. It didn’t go up 10 when it went down 20, did it, you know, why can’t we expect it to go up 30, to recover 20? Anyway. Right. And that’s what happens. That’s all we see, isn’t it? Yeah, yeah, yeah. Yeah. So that’s exactly what we see in history. And you know, I don’t think, we make that point enough really when it gets down to it.
It’s All about Making Money
And really, if we looked at the data from all of the countries that are in the portfolio, I would bet we would find the same dispersion of, you know, over there, you know, like labor or conservative in and out of power. And yet British consumers somehow make it by Brazilian consumers.
Somehow, you know, it’s not just the United States that responds this way. It’s just human nature. And people adjust their buying habits. They adjust how they invest. They adjust, you know, whether they go with pretax or post-tax investments. Well, and businesses just absolutely. Yeah, no question about it. So it’s, you know, you’re dealing with a chaotic system where everybody is trying to do whatever is in their best interest and what is in their best interest is to get earnings of the companies to go off.
I mean, it really gets down to making money. Yeah. You got it right. You’re dealing with it. Yeah. So that’s, you know, it’s one of those things that we look at presidential elections, we ask ourselves, does it matter? Well, I think maybe after this, you might question whether it really does matter. You’re listening to The Investor Coaching Show. Paul Winkler, along with Anne Sawasky and Evan Barnard.
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