Fear and Loathing on the Campaign Trail

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Although we’ve borrowed our title from Hunter S. Thompson’s book of essays on the 1972 presidential race, we’re here not to comment on Nixonian high jinks but on the closing days of the present contest.  Fear and loathing seems an appropriate description of the public mood as we enter the final four days before that blessed release from our collective misery. As usual, the financial markets, ever sensitive to the public mood, have begun to vibrate in sympathy with ubiquitous anxiety.  The All Country World Index and the S&P 500 have both slipped about 2 1/2% over the past four weeks, though some suggest that uncertainty about Federal Reserve actions have played a part. And the Fed governors are keeping their cards close to the vest, no doubt because of their own uncertainty about what will come November 8 and beyond. All roads lead to Tuesday.

Which raises the inevitable question: what, if anything, should we do now, on the eve of the election? The first thing we’d recommend is a stiff drink. The second is a good novel or movie (avoid the following: All the President’s Men, The Manchurian Candidate, and Recount). The thing we would absolutely NOT recommend is making any last minute changes to your portfolio for fear of what will happen on November 8.

“Reach for a stiff drink, a good novel, or a sappy movie, but leave the portfolio alone.”

We don’t any of us know for sure what will happen on Tuesday and we don’t any of us know for sure what the impact on the economy and the markets will be. The one thing we can be sure of, however, is that whatever happens the impact will be less than the speculative extremes now being floated. We’re all wired by evolution to overweight the possibility of bad outcomes, which made sense when not doing so increased the probability of being a saber-toothed tiger’s dinner. But it can work against us when we choose to violate the plans and policies that have been put in place for our investments. The whole point of having investment policies is to make it easier to know what to do when it’s hard to know what to do. Like now.

Another and even more important factor is the resilience already built into your portfolio. It is globally-diversified and spread across every single industry and economic sector. It is also spread across thousands of stocks, large and small, foreign and domestic. It contains a significant allocation to a stable reserve composed of cash and high-quality, short-term bonds. If you’re retired, that stable reserve is large enough to bridge you across a seven year span of whatever the outside world might serve up. In other words, it’s specifically designed to be resilient, so that you don’t have to turn to that ever-murky crystal ball. And, anyway, presidents have far less power where the economy and the markets are concerned than is popularly believed.

So, be of good cheer, remember to breathe, vote on Tuesday, and, in the meanwhile, enjoy two of our all-time favorite videos: