“This is it. This is the end of everything.”
—H. L. Mencken, the “Sage of Baltimore,” on the morning of November 3, 1948, reacting to the election of Harry Truman
THE RECORD WILL SHOW THAT THE COMMENTATOR CITED above, usually so full of gimlet-eyed realism, wasn’t quite so sage that November morning. Truman’s thumping defeat of Dewey the previous day—incidentally, the greatest upset in the history of American politics, bar none—was not the end of everything. In fact, it wasn’t the end of anything.
But if you’d bet your investment portfolio that it was the end—and gotten out of the equity market—you missed about a 50% upswing between Election Day 1948 and the day President Eisenhower was inaugurated in January 1952.
You read that right: in those four tumultuous years—during which the Soviet Union got the atomic bomb, America lurched into a land war in Korea, and our country was torn apart by investigations into communist subversion—the broad equity market went up by about half. And that doesn’t even include dividends, which were very substantial: in those days, mainstream equities yielded north of 5%. Indeed, with full reinvestment of dividends, the forerunner of the S&P 500-Stock Index compounded at an annual rate of 20% between November 1948 and January 1952. 1
Let that be a lesson to you. When you start making investment policy out of your personal dread of (or revulsion at) a political out-come you don’t like, all kinds of very bad things can start happening to you. If you won’t take my word for this, I call to the witness stand the greatest equity investor who ever lived, one W. E. Buffett. (You only need to watch the first 33 seconds of this video.)
With a bit more than 13 months to go before a highly charged presidential election, it does not seem to me a moment too soon to raise this issue. As a friend, I would urge you to take all the time you need now—before it’s too late—to fully indulge your “If so-and-so gets elected/reelected, the world will end and/or I’m moving to Canada” emotions. And then take as many more moments as you need, to put those emotions in a drawer.
We may then proceed to a dispassionate assessment of the historical record, and of the realities of corporate finance. For purposes of this brief discussion, there are two such points to be examined.
1. There does not seem to be any meaningful correlation be-tween the economy and the person of the president. However anecdotally, I would gently point out that the subprime mortgage bubble inflated over several years—and then burst into a global financial conflagration—during the two-term presidency of a strongly free-market Republican. Immediately thereafter, the economy entered a long period of slow but steady recovery—and the equity market fairly soared—during the two-term incumbency of a strongly progressive Democrat. If you made investment policy out of the stated economic/financial proclivities of the two presidents during those 16 years, you got existentially skunked…twice. Perhaps even more important:
2. No president—indeed, no government—can force a business (let alone 500 very large public companies) to lose money for any length of time. Faced with punitive taxation, regulation, tariffs or whatever, a rationally managed enterprise will simply stop doing whatever the president/government has taken a mind to punish. It will husband its capital, wait for the electorate to tire of the current regime…and reemerge when the political storm blows itself out. This is a matter of logic, even more than it is a lesson of history.
If I may be permitted a personal observation here: that’s what I love—now more than ever—about being an equity investor. Given the bitterly divided partisan politics of the moment, and the sometimes bizarre policy pronouncements emanating from both ends of the political spectrum, high quality corporate equities seem to me the last bastion of long-term rationality in a world out of which reality is rapidly leaking.
Feel free to ignore the foregoing paragraph; I’d have been remiss if I didn’t say it, but it isn’t central to the point of this little essay. Which is simply to reassert, in the strongest terms possible, the wisdom of the world’s most admired, least imitated investor:
“If you mix politics with your investment decisions, you’re making a big mistake.”
1. Source: “The S&P 500 at your fingertips” tab of politicalcalculations.com.
© October 2019 Nick Murray. All rights reserved. Used by permission.