Election Season and Your Portfolio

Welcome to Mr. Stillman's Opus.

I'm Ron Stutz, along with John Stillman. John, here we are, 2016. The most contentious, most unusual election year that I can recall. And I'm just wondering if you can give us some advice here for the folks who may be thinking about their portfolios, their best vote when it comes to their finances and their money. Is there any particular candidate or candidates that they should be voting for, for selfish reasons?

Well, it's a fascinating discussion. And if you actually look at the actual data over the course of American history, there's very little empirical evidence, one way or the other, to suggest that conservative or liberal or Republican or Democratic candidates make any kind of tangible difference as it relates to the financial markets. Now, I think the idea exists that pro-business candidates are better for the market, maybe, right? But the fact is, if you look at how the market has behaved during Democratic presidencies and during Republican presidencies, really no difference.

Oh, okay. So you're not giving us any advice to lean toward any one candidate or the other. Well, and so the other thing to consider is, usually it's the time leading up to the election that has the most effect on the stock market, more so than who actually gets in office. Because what does the market not like? The market doesn't like uncertainty.

Yeah, exactly. And so when the market doesn't know, and we talk about the market like it's a person, but when the market doesn't know who the president is going to be, it's worried because of the uncertainty, which is stupid, because as we just determined, it doesn't matter who's in office, it's not going to have a tangible effect on the market. So it's funny that the lead up to the election actually causes more volatility, historically, than the results of the election itself. But there just seems to be so much uncertainty, this particular election, more so than in some years past.

Well, and that's because of the very different way that this campaign has unfolded so far. I mean, when I was saying earlier, you generally lean toward, alright, well, the pro-business candidate is going to be better for the markets. Who's the pro-business candidate in this campaign?

I do not know. Normally, you would say the Republican is, right? Well, the casinos are bankrupt, the hotels aren't really his, he just puts his name on them, the university was a scam, so is he really the pro-business candidate? In many ways, there's always a contentiousness between Wall Street guys and real estate guys. And so, Donald Trump is in no way a friend of the hedge funders, if you will. Hillary, on the other hand, her son-in-law is a hedge funder.

Chelsea used to work for a hedge fund. Hillary, much has been made about her talks at Goldman Sachs and the money that she got paid to give those speeches. So, from that standpoint, you might say that Hillary is the pro-business candidate. On the other hand, how much is she going to lean toward trying to implement some of the things that Bernie Sanders talked about, which you would not say are at all pro-business.

So, yeah, it's fascinating. If we wanted to vote for the pro-business candidate, I don't know who it would be. Well, I can tell you one thing with certainty, and I'm not the expert here, but one of the candidates is definitely the pro-Trump candidate. I don't know what pro anything else. Pro-Wall, maybe?

He's definitely pro himself. Definitely pro-Trump and not much else. Well, it's interesting, because everybody gets all worked up about, you know, we have to vote this way. I mean, honestly, I thought, leading into the 2012 election, I really thought that if Obama got re-elected, that it was going to have an adverse effect on the market. I did not think the market was going to like that. Basically, the market just kind of shrugged, said, alright, no big deal. So, again, it truly doesn't matter in the grand scheme of things, as far as Wall Street goes. I would caution you from bending over backwards to try to make any decisions based on what happens with the election.

All of that said, what you really need to have in place is a plan that allows you to be fine no matter who gets elected, no matter who's in the office, because at the end of the day, you have to be sure that macroeconomic conditions aren't affecting your own personal portfolio. So, let me give you an example of that. A few weeks ago, when the Brexit thing happened, I had a couple of clients who called me up. That day, I think that was a Thursday night that the Brexit vote took place. So, on Friday, they were calling to say, look, is this something we need to worry about?

Obviously, the market took a big hit on Friday after the vote. With one of them, I said, let's look at your plan. We had a very well-thought-out, well-defined plan in place for her.

I said, let's look at your plan. Her husband was retiring. In fact, he actually just retired last week. That's why she was worried. He's about to retire, his paycheck's going away, do we need to worry about all this market upheaval because of the Brexit vote?

So, when we actually looked at it, we said, let's remember why we set up the things we set up. When he retires, he's going to have his pension, state employee, pretty decent pension. He was a well-compensated state employee for like 35 years. Pretty strong pension. She also had a pension, she's already retired, has already been taking her pension, and we were going to turn on Social Security for one of them. In a couple of years, we were going to turn on Social Security for the other person. We also had a couple thousand dollars that, months before, we put into an annuity that was going to grow and defer.

That was going to turn on, I think, in year 7 of their retirement. The way it all panned out, of the $1 million, maybe $1.2 million that they had left in the market, they didn't need a penny of that for 11 years. So, you see how counterproductive it is to worry about what's going on in the market today if you have a plan set up like that.

It sounds like a great plan you had set up with them. The problem is, a lot of people don't have that plan. A lot of people don't have a way of separating their income from what's going on in the market, their investments. So, if you're trying to take income from this fluctuating source, well, sure, you have a problem. You don't want whatever happens in the political world to have an effect on the market, and that have an effect on your retirement income.

So, that's why you need to have an income plan which is separate from your investment plan. We'll just have to wait and see if Orange Hitler gets elected and see what happens, because he hasn't told us what he's going to do. So, we went there. He hasn't told us what he's going to do, anyway, so we don't know. He has, it's just that it changes every day.

Well, yeah, but there are all these grandiose statements, and I might have to explain that word to him, what it means, but there are all these grandiose statements that he makes, but he doesn't say how he's going to do these things. So, I don't know that there's a winning option anywhere you look. Just injecting my personal opinion in there, I'm sorry. Again, you want to be sure that you have things set up in such a way that it truly doesn't affect you, what goes on. The other thing that's interesting to note is that, as I said, usually once the election is done and we no longer have uncertainty, then the market usually stabilizes. Interestingly, leading up to the election, as there is more certainty built into it as to what's going to happen, the market actually stabilizes a little bit. So, let's say that one candidate is polling significantly higher than the other, that's actually, historically, going to be good for the market.

So, it's just funny how it really has nothing to do with the candidate. It's all about knowing what's going to happen. And then once you know, it's kind of like, maybe this is a terrible example, but let's suppose that you have some kind of disease and you're going to the doctor. You know that you're about to get diagnosed with something, you just don't know what it is. And then the doctor tells you what it is, and it's almost like this relief of, okay, well now I know what I'm dealing with, what's my next step?

And it's almost like the market behaves the same way with presidential candidates. There's this worry and fear leading up to, all right, what disease are we going to get diagnosed with here? But then once you know, you say, all right, let's move forward.

I just have to deal with one of them and not all of them. There you go. Well, that's Mr. Stillman's Opus. Ladies and gentlemen, I'm Ron Sutz. Thanks for listening.