Can we stand one more post about politics and investing?
In a 2017 interview with CNBC’s “Squawk Box,” Buffett said he has watched politics for “all my life.” And during his adult life, half the time he has had “a president other than the one I voted for.”
“But that has never taken me out of stocks.”
“The American economy – and we’re up to number 45 – we’ve done awfully well. If you mix your politics with your investment decisions, you’re making a big mistake,” Buffett said.
“I have seen people make economic decisions based on their politics and that is not the way to do it.”
Now if you are curious why Buffett says this, read how a 90-year old insists on planning with a 20 year time horizon.
When I was a young guy, working in the financial planning department at EF Hutton in 1984, I was tabbed to work up a report for the planners in the department based on the projected tax increases for the possible “Mondale Administration.” This was because, in accepting his party nomination, Mondale announced he would raise people’s taxes.
I have learned over time, that remaining flexible in our investment approach matters greatly. We need to remain firm in our goals, but flexible in our approach. We need to be prepared for possible changes when there is a new administration.
Will tax tables change? They often do.
Will entitlements change? They often do.
Will interest rates and policies change? They often do.
Do candidates over-promise and under-deliver? They often do.
But rip up the script for your investments and start over? No.
Think about the promises we hear during campaigns. All the same politics. Additionally, every year the president gives a “State of the Union” speech. Have these speeches ever amounted to more than a wish list? Aren’t political campaigns more of the same?
Politics and Getting Out of Stocks
The idea of going all-in versus all-out of the stock market should seem ludicrous to most readers. Yet we had a handful of clients who contacted us between July 2020 and last week, asking us to “please take us out” of the market entirely.
We do our best to talk these folks off the ledge. But if they persist, we explain that we will honor their request. And we clearly express our opinion they are making a mistake.
And then we politely explain we will be ending our working relationship at that point.
At every single conversation where this happened (and it did happen more times than I preferred), the next thing I’d hear would be “Why?” I explain they are making a fatal decision with their money, but it IS their money. I also explain they had hired us to manage this money for them. And that, as fiduciaries, we have an obligation to do what is right with the funds entrusted to our care.
In some cases, I went as far as to share an analogy. I would describe they have hired us to drive their car to a destination. We’re driving, they are in the car with us. At one point, we are navigating around the side of a very high mountain. There is no shoulder. There are no guardrails. It’s nighttime.
And it’s snowing.
I explain, that it’s at this precise moment, you lean over and grab the steering wheel from our hands.
How do you think that will end up?
We also hear from folks who really prefer to “sit this election season out!” Remember, I’ve now been in business through ten presidential elections cycles. Folks who opt to “sit this one out”: sometimes get back in, usually lose money or “miss out on gains.” And sometimes they never get back in. We are STILL meeting folks who never got completely back into the market – after 2008!
My friend Fred reminded me the other day of a favorite Mullooly-ism: “Markets hate uncertainty. Once the market knows the news, we can all move ahead, again.”
See, the market does not care about your politics, or anyone else’s politics. Once we get beyond an event, it’s onto the “next disaster ahead of us.” And there will be plenty more disasters coming down the pike. Please don’t let headlines, the news, or your emotions, drive your decisions about investing.
Mixing politics with your investments is an unforced error, a careless mistake.
Watch the Buffett interview from 2017, here.