April 16, 2024 • 43 mins
Have you ever wondered if presidential elections should sway your stock portfolio strategy? This episode might just shift your perspective. We sift through a century's worth of data, debunking doomsday assumptions about market performance in election years. While some investors joke about packing for Canada based on political outcomes, we're here to anchor you to a data-driven approach. Join Dave Alison & Dr. Apollo Lupescu as they provide insight into evidence based investment strategies to help you get ahead in an election year.
In this episode, Dave and Apollo will unravel the tangled strings that connect politics to your investment's fate—a narrative less influenced by who occupies the Oval Office and more tied to the companies' strategies and market innovation. Reflecting on historical market trends, we bring you tales of industry giants and unexpected market twists that drive home the point: politics is just one piece of the intricate puzzle of the stock market. Celebrate the victories of the patient investor with us, and embrace the heartening statistic that the market basks in gains three out of every four years. Join us in this episode for a journey through history, strategy, and the art of keeping a cool head in the heat of political and market fluctuations.
Advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). Views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.
All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Hello everyone and welcome to the Complete Wealth
Management Podcast.
I've got a great guest for uson today, actually our first
ever repeat guest, and when Ilaunched this podcast and was
making a list of people that Iwanted to be able to have come
on to this podcast to share withall of our clients, dr Apollo
Lopescu was number one on mylist and he joined us for the
(00:23):
very first ever episode of theComplete Wealth Management
Podcast, and so welcome back,apollo.
Speaker 2 (00:29):
Well, Dave, thank you so much and I'm really honored
to be back.
So thank you for the invitationto be back and thanks to
everyone for taking the time towatch this session.
Speaker 1 (00:39):
Awesome.
Well, it's quite interesting,apollo.
When I had you on the CompleteWealth Management Podcast
episode number one, it was rightaround October or November of
2022.
And I'd asked you to come onand we did an episode.
It was discussed navigatingvolatile markets and if you
(00:59):
remember, or if any of ourlisteners remember, what was
going on in the stock market in2022, if any of our listeners
remember what was going on inthe stock market in 2022, a
little bit of an uncomfortableyear, I think.
At the time, the S&P, as of whenwe recorded that episode, was
somewhere around 35 or 3,700.
Of course, today, over 5,000now, and so I think the ultimate
(01:22):
message, of course, that youdelivered is it's not a time to
panic.
There's certainly a lot ofvolatility, a lot of uncertainty
in the economy, in the markets.
Unprecedented interest ratehikes that we saw during that
time period led to a lot of that, but I think, looking in
hindsight and playing Mondaymorning quarterback, those who
(01:43):
didn't panic and who did stayrational and who, you know,
stuck to their investmentprinciples, obviously ended up
having a good kind of year and ahalf since the last time we all
got together.
Speaker 2 (01:54):
Yeah, and I agree, and I think what I've always
appreciated is you know, both ofus have a very consistent
message and if you go back tolike, you know for the first
time that we talked, we reallyhave been telling investors that
between letting your emotionsdrive decisions or just being
disciplined, strategic and justkind of work within the plan
(02:15):
that was developed for you, andnot necessarily panic, don't
make rash decisions.
I think that it worked outreally well because, as you said
, in 2022, the market was downabout 18% and that's a lot of
people were scared and thatmight have been the time to sell
, and what we found is that thepeople who actually use our
advice 2023 ended up being areally good year for investors.
(02:37):
The S&P was up over 26%.
So, again, not to pat ourselveson the back, but it's a very
consistent message that we havebeen delivering to investors.
Speaker 1 (02:46):
Absolutely, and that kind of leads you to this next
question of like well is now agood time to invest?
And one of the things thatwe're going to be talking about
in this episode is somethingthat I know is on the mind of
almost everybody in the UnitedStates right now, and it is the
election.
We know it's going to beanother Donald Trump versus
President Biden rematch, and Ithink, more than ever, a lot of
(03:11):
people are just feelinguncertain and there's a lot of
strong beliefs on each side,which we're not going to get
into any political discussionshere.
But we are going to talk aboutthe impact of stock market
investing in this episode.
But before we do that, apollo,can you just share for all the
listeners a little bit of yourbackground?
And then also, you're atDimensional Fund Advisors.
(03:35):
They've been a great strategicpartner with Prosperity Capital
Advisors, my RIA firm.
I think we have over a billiondollars, or close to a billion
dollars, of our client assetsthat you all are helping to
manage on our behalf.
So can you just kind of sharewith our listeners a little bit
of your background, your journeyand maybe a little bit about
Dimensional Fund Advisors?
Speaker 2 (03:53):
Yeah, well, first of all, I really thank you for the
trust and the partnership to youand the clients.
And just quickly about myself Ireally started by looking at
investing in my undergradstudies at Michigan State.
At the time it was just afather, one of my friends who
came in and very flashy guy andhe had like a nice car and took
(04:14):
us all to a steak dinner and hejust looked like he was doing
amazingly well.
And I asked him what do you do?
And he said well, I tradestocks.
And I thought, wow, that'ssomething that I might want to
look into because it seems likeit affords you a great lifestyle
.
So I started to immerse myselfa little bit in the classes that
were offered at Michigan Statearound investing and finance and
(04:37):
I found it fascinating.
And my goal has been to almostunravel the mystery of the stock
market.
And I've been doing that forabout 30 years and frankly I
don't think that I've unraveledit, but I've kind of started to
see things better, see them in adifferent light.
So I ended up studying atMichigan State as much as I
(04:59):
could and then I applied at UCSanta Barbara for a business
economics a master's degree andthen, once I finished that I
really liked investing and Iwanted to dive as deeply as I
could, so I got into the PhDprogram with some phenomenal
professors and then I finished aPhD.
(05:22):
Turns out that my sister-in-lawat the time ended up going on
some sort of a lunch datewhatever it was with somebody
who worked at Dimensional and infact it was the founder of the
financial advisory group andthen told him that he was
disappointed that his identicaltwin would move to the East
Coast which my job offers are onthe East Coast and the
(05:43):
gentleman said, yeah, he justhadn't talked to me and anyway.
So I called him up.
I met him in Santa Monica forlunch.
I lived in Santa Barbara at thetime and you know I just really
loved the guy.
But what was even moreinspiring is that Dimensional
was a firm that was working veryclosely with a lot of the
academics that I studied in myPhD and in fact I used to teach
(06:07):
classes in finance based ontheir work.
And I was just absolutely blownaway that these academics many
of them who actually wereawarded a Nobel Prize in
economics at some point theywere affiliated with an
investment firm and thatinvestment firm actually had
practical solutions forinvestors.
So I kind of gave away the job.
I basically turned down the jobthat I had on East Coast to
(06:30):
come and join Dimensional and atthe time, I don't know, there
was an open position.
But I was just so enthralled bythis company, the people, the
academic connection that I tooka chance.
And 20 years later it turns outthat it worked out really well.
And over the years I've workedwith financial advisors, I've
worked with 401k plans, I'veworked with all kinds of folks
(06:50):
and over the past decade or soit has been much more around
translating some of theseconcepts to the end investor,
making sure that everybodyappreciates and understands this
approach to investing, whichtends to be a little bit more
sophisticated and sometimes itcould be a little bit more
confusing.
But I'm trying to make it moreclear and cut through the noise
(07:12):
and make sure that people arenot just impressed by jargon or
big numbers but reallyfundamentally have an intuition
of why this makes so much sense.
Speaker 1 (07:21):
Well, that's great, and at Prosperity Capital
Advisors we have so many greatpartners and there's a lot of
great investment providersBlackRock and Vanguard, and on
and on but I've really alwaysgravitated towards the approach
that you guys have taken.
It always appealed to me, kindof the statement I'll remember
seeing it when I first walkedinto your building of the
science of investing.
(07:42):
And instead of trying tospeculate and guess which way
the market is going to go which,of course, none of us have that
crystal ball it's your approachof using more of an
evidence-based scientific methodof arriving at the investment
decisions.
And so what I'm really excitedabout in today's episode is to
(08:03):
talk about what I know is on theminds of many people today and
really bring your perspective toour listeners.
Because, as you mentioned,you've been doing this for 20,
30 years now.
You've been studying markets,you've been on the academic side
, you've been in the trenches ata tremendous firm like
Dimensional.
This is certainly not yourfirst presidential election that
(08:26):
you've been through, and solet's go ahead.
And we're going to jump rightinto today's episode on talking
about investing in an electionyear.
Speaker 2 (08:45):
I think you know you brought up something really
important, which is thatpolitics is deeply emotional
because it touches on our deeplyheld beliefs, our core identity
as individuals, and because ofthat it triggers these emotions.
And I think it's perfectly fineto have these emotions.
It's interesting becauseemotions, as you said, can be on
(09:07):
both sides.
This is not a right and wrong.
I do believe that people on allspectrums, they're good people.
They just have different views.
And, interestingly enough, nottoo long ago, a few weeks ago,
my wife and I went on a cruise,a little small cruise.
There were about nine families,nine couples on that boat.
So just as we got on the boatboat the two folks who organized
(09:29):
the trip, they basically stoodout there.
It's like well, okay, uh, wehave two rules on this, uh, on
this cruise, which is about 10days.
Number one is no whining.
You're not going to complainthat this is not that and no, no
, we're gonna have fun.
No whining now.
Rule number two no talk ofpolitics, because, again, this
is a very emotional issue andyou'll not be able to change
somebody's mind.
So, rather than try to get intothis with all these different
(09:53):
views, might as well avoid thewhole subject, which we're not
going to do today.
But with that acknowledgementin mind, I'm here to tell you
that whatever we will discuss,it will not be based on my views
.
I'm not going to try to makeanybody feel good or bad about
their political views or whatthey think about candidates, but
rather I'm going to suggestthat really successful investors
(10:16):
and I found this over and overand over again are able to
acknowledge these emotions thatI've been talking about, because
that's what makes us human.
So there's nothing wrong withhaving these emotions and
nothing wrong on acting on theseemotions.
The most obvious way to act isgo vote.
If you really feel strongly, goget involved in a campaign.
(10:37):
So I absolutely acknowledgethese emotions are real, they're
fine to have and there is acertain healthy way to act on
them.
What I found is that the reallysuccessful investors, while
they acknowledge these emotions,they are very pragmatic in the
way that they make decisionsabout their money and they base
those decisions on evidence anddata rather than how they feel.
(10:57):
So this whole session will notbe about my views at all.
But what does the data say?
What do we know in terms of thedata?
And you mentioned that there isa lot of uncertainty and one of
the comments that I hear overand over is that listen, there
is already enough uncertainty inthe world with the war in the
Middle East, the war in Ukraine,we have the Fed, we have
interest rates.
All of this is going on andthis political race is adding
(11:21):
additional uncertainty and, ingeneral, political race is
adding additional uncertaintyand, in general, the idea is
that being an election year is ayear that adds uncertainty in
any time, not necessarily in2024.
So the first data point that wewanted to look at was how do the
markets behave in an electionyear?
Is there something differentabout the way the market behave
(11:44):
in an election year?
And we know that over the longrun.
If you look since the 1920ssince we have good data on
average, this is just a highlevel average.
About one in four years themarkets go down and three four
years it goes up on average.
We don't know there might be aseries of six years when it goes
up and then three down.
(12:05):
We don't know it might be aseries of six years when it goes
up and then three down.
You know there's no predictablepattern, but on average, if you
want to average over the longrun.
It's about 25 percent of thetime in any given year the
market's likely to go down, 75percent to go up.
So now let's look at theelection years and if we go back
to 1926, almost 100 years ofdata in the market, hundred
years of data in the market thisis what we see.
In these almost a hundred yearswe have had 24 different
(12:30):
presidential election years, sothere are 24 different elections
.
So the question is how did themarket behave in these 24
elections?
Do we see a preponderance ofpositive or negative outcomes in
the market, and what can welearn from there?
And it turns out that if youactually examine this year by
year, which we did, what youfind is that 20 out of the 24
(12:52):
years the market actually wentup.
It was a positive year, themarkets gave investors solid
returns.
And then there were four out ofthe 24 when the market went
down and we had negative returns.
So the very first interestingfact, dave, is that when you
look at a presidential electionyear, just by being an election
(13:13):
year, when everybody says everyelection is the election of a
lifetime, that's the mostimportant election.
If you go back to the 24election years, what you see, is
that the overwhelming majorityof the years the market did go
up and there's no real reason tobe concerned that, oh, it's an
election year, the market tanks.
That's not what we see in thedata, but we do see that four
(13:33):
years the market did drop.
So the question is, what do welearn from the years when the
market dropped?
And again, we looked at it oneby one, and it was in 1932 that
we saw the first drop inelection year, and what's
interesting is that we did havean election in 32, but we also
had the Great Depression.
So one might wonder what mighthave mattered more to the
(13:55):
markets, the Great Depression orthe fact that we had an
election.
And then, eight years afterwards, we have the second negative
outcome in the market during anelection year, and that was also
the year when it became obviousthat this will become a world
war.
And that's again.
You had an election, but youall said the World War II going
on.
And then it took 60 years untilwe saw the next negative
(14:18):
outcome, and that was 2000 Bushversus Gore.
And if you remember the chatwith the gentleman looking
through the opening in the paper, and that was definitely
something that somebody mightsay well, we went to the Supreme
Court, so that might have beenbad for the markets.
The truth is that that was alsothe year when the dot-com
started to go bust, when you hadall these tech stocks in the
(14:39):
90s started to kind of go downin value.
So, yes, we did have anelection, but we also had the
beginning of the dot-com bust.
So, yes, we did have anelection, but we also had the
beginning of the dot-com bust.
And then afterwards we had thelast one in 2008,.
Obama versus McCain, but thatwas the year of the great
financial crisis.
So what's interesting, dave, isthat if you look at the data,
you see that the overwhelmingmajority of the time 20 out of
(15:00):
24 times the market does go upin an election year.
So there's no real reason to beconcerned that.
(15:21):
We've seen the data that mostoften the market drops.
That's not the case and what wealso see in the years when the
market did drop in.
An electioneer does not screamto me that, hey, this is
something that you should becautious and investor.
There's a lot of evidence tosuggest that it's going to be a
down year.
That's not what we're seeing inthe data.
Speaker 1 (15:36):
Yeah, that's just, that's great data.
And I think emotionally and asI talk to clients, it's always
kind of one of two conversations.
Number one is if so-and-so getselected, the world is going to
fall apart and the markets aregoing to crash and the economy
is going to come tumbling down.
Or if so-and-so gets elected,everything's going to be dire
(16:01):
and kind of be on one end of theextreme, and that's soliciting
more or less that panic selling.
Should we try to get out of themarket before President X gets
elected and ruins the economyand ruins the stock market?
And I think your data reallyvalidates why it's important to
(16:23):
stay the course At the end ofthe day in election year and
ultimately, whose presidentisn't going to statistically at
least, it hasn't impact thestock market terribly in any
given year.
Right.
Speaker 2 (16:39):
And you're absolutely right.
I mean it's.
There are a lot of people outthere who are, in my opinion,
letting.
They're letting the emotionsspeak and then say well, I'm
going to sell everything, moveto Canada, because one person is
going to be elected or anotherand ruin is going to come to the
economy, and I do think thatcome November, half the country
will feel that way and the otherhalf will be ecstatic.
(17:00):
So we need to acknowledge thatthat's going to be the case.
Speaker 1 (17:03):
Why is it everyone wants to move to Canada?
Speaker 2 (17:06):
I heard that from a man this weekend.
Speaker 1 (17:08):
If so-and-so gets elected.
Speaker 2 (17:10):
We're moving the family to Canada.
Speaker 1 (17:13):
Really that seems a bit extreme.
Speaker 2 (17:15):
That's funny.
But let's look at this a littlebit closer because, first of
all, we are in an election yearwhen either one of the
candidates, as they are now,it's not a surprise to the
economy, to the markets, becauseboth of these folks have been
in the White House for at leastthree years, like President
Biden over three years now, andthen President Trump four years.
(17:37):
So, whatever it comes, you canlook and say well, look, the
markets did something and theyboth had positive outcomes.
If you look at the performanceof the market while they're in
office, whether it's PresidentBiden or President Trump, it's
roughly the same performance.
But let's go back and see howmuch do policies matter.
Let's go back and see how muchdoes it matter having one
(18:00):
president with a certainpolicies or not, policies or not
, and to begin with, ask thequestion does it really matter
having a Republican or aDemocrat in the White House?
For the markets and I'm born in1969.
I'm 54, about to be 55 yearsold, and I wanted to look at my
lifetime.
And in my lifetime the averageannualized return for the US
(18:23):
stock market the S&P 500, hasbeen about 10%.
So let's just put that as youryardstick.
10% per year on average hasbeen the growth in the market
over the past 54 years.
Now here's the thing.
If we now look, president bypresident, and ask the question
well, how did the market do, onaverage annualized, during their
(18:43):
time in office?
Perhaps there are things thatwe can learn.
So when I was born, presidentNixon was in the White House and
during the five and a halfyears or so that he was
president, on average per year,the market actually didn't grow,
but it dropped by about 2.9%per year, which is interesting
(19:04):
because it didn't grow.
It actually dropped by about 3%per year, which is interesting
because it didn't grow.
It actually dropped by about 3%per year.
And then he leaves the WhiteHouse and President Ford comes
along for about three and a halfyears or so, less than that,
and the market skyrockets atover 20% annualized per year,
which is a really big number.
And then after him, in 1977,President Carter gets elected
(19:26):
and on average, the market forthe four years that he was in
office goes up by about 11.77,followed by President Reagan
15.8 for the eight years.
And then his vice presidentwalks in the White House, george
HW Bush, with an average returnof 13.9 annualized during the
four years that he was in officeand then, as you know, he loses
(19:49):
to President Clinton, who comesin and, on average, annualized,
the market goes up by 17.6%.
And then, as we talked aboutthe Gore versus Bush President,
george W Bush comes in the WhiteHouse and on average year
during the eight years that he'sin the White House, the market
actually drops by about 4.4%.
(20:11):
On average, per year there's aloss of about 4.4%.
And then we know PresidentObama comes in, markets go up
about 16% per year on averageduring the eight years, and then
President Trump at about 15.2.
So the reason I bring this up isthat you can look at the
numbers.
They're all kind of laid out infront of you, and I think there
(20:32):
are three important questionsthat I would ask.
The first one, dave, and youcan help me out Do you find that
there's an obvious pattern thatwill tell the investors that
having a Republican or aDemocrat in the White House is
better or worse for the markets?
What do you think?
I don't see anything and I'veasked clients, I've asked
(20:54):
investors whether, inconservative states, liberal
states, nobody could ever tellme yeah, there fact is really
well known for the businessfriendly policies, for the tax
cuts.
And the question is well, howdid the market do when you have
(21:24):
such a business friendly,business focused president?
And, as I said, the long termaverage is about 10 percent per
year.
During the eight years that thathe was in the White House, the
market actually went up by 15.8%per year, which is, again, it's
a very nice outcome.
And what's interesting is thatyou can have presidents whose
(21:48):
priorities might not be aroundbusiness, tax cuts, economic
activity but really could bearound social programs, economic
activity, but really could bearound social programs.
And to me, the president thatreally probably is best known in
recent years for that isPresident Obama, because his
signature accomplishment is nottax cuts or business friendly
policies, but rather Obamacare,which is a social program around
(22:11):
health care.
And again, I saw a lot ofpeople and I talked to a lot of
people who were worried thatperhaps not having a
business-focused president wouldturn out to be really bad for
the markets.
And there were some of thefolks who wanted to move to
Canada because, listen, we'regoing to have socialism in the
country.
The markets are going to tank.
So the question is, how do themarkets do during a president
(22:32):
that wasn't known forbusiness-friendly policies, but
rather Obamacare.
When you look at the data, yousee that over 80 years it's
exactly the same time spent asPresident Reagan.
The markets on average went upby about 16%.
So it's virtually the same.
And it's so interesting becausethat's what the data says.
(22:53):
You can have a business-mindedpresident or you can have one
that's focused on social issues,and when you look at the data
it doesn't seem to be that cleardistinction that the markets is
so much better during one orthe other.
Not at all.
It seems to be.
They're virtually identicalIdentical.
I can't really distinguish that.
Speaker 1 (23:13):
And I just want to kind of try to translate this
for investors and what the tablestakes are here.
These returns are phenomenal,right, almost 16% in either of
these cycles, which, hey, Ithink we all wish we could
deliver 16% on our money forever.
But to put that intoperspective of what 16% is, that
(23:36):
means your investment woulddouble in value about every four
and a half years.
And so if you were to say, hey,the color in red, they're going
to be the elected president, wedon't want to be in the market,
and you would have pulled allyour money out of the market,
you would have missed the chancefor your money to potentially
(23:57):
double.
Or if the incoming presidentwas kind of in that blue
category there and you missedthe opportunity to be in the
market.
And I think this is just the bigadvantage of the stock market
in general right For those whohave the right framework, for
those who have the rightstructure.
The rest of the world looks atthe United States market in awe
(24:19):
a little bit at the ability forit to continue to produce wealth
for the market participants whoactually have good, sound
advice and don't freak out,don't panic, don't try to
speculate.
And so I just wanted to putthose 16% numbers into terms
that I think a lot of peoplecould relate to.
(24:40):
That if you had invested$100,000 at the start of either
one of those election cycles,your money would be worth almost
$200,000 by the end of it, andthat's a big deal.
Speaker 2 (24:53):
That's a really big deal and I'm glad you brought it
up because that is reallyimportant context.
If you let your emotions decidethat, listen, are we going to
have a president that's going todo this or that, and then you
get out, you miss on thatincredible opportunity to grow
and then you'll always bedisappointed by the stock market
.
You might wonder why.
But I think there's even a morefundamental question that as I
(25:14):
looked at this data, that when Ilooked at this data, the first
thought that I had was that thepresident that had the worst
annualized returns was PresidentGeorge W Bush.
Say, look, he was not a verygood president for the markets.
(25:35):
And this just might be it, andperhaps you should blame him for
the market dropping about 4%per year because he just didn't
seem there was a good presidentfor the markets.
But what I do remember is thatit was roughly the time when I
started Dimensional that therewere very significant tax cuts
specifically geared towardsinvesting, that George W Bush
(25:56):
promoted Taxes cut to long termgains, to dividends, which
really were very supportive forinvestors in the stock market,
and yet it dropped by about 4%.
So that kind of leads me to theone fundamental kind of idea is
that I don't believe thatpresidents should receive
(26:16):
neither credit nor blame for howthe market does during their
time in the White House, becauseit's not a legitimate way to
look at it.
President George W Bushnegative 4.4% annualized and you
say, well, maybe he wasn't goodfor the markets.
Think about it.
He walked in that White Housejust as the dot-com was going
(26:37):
bust.
How much did he have to dealwith the dot-com bust?
Nothing.
9-11 happened nine months intohis term.
And talk about it.
He walked off at the verybottom of the financial crisis
and you look and say he was notgood for the markets.
I'm like I'm not sure that'sfair to blame a president
because again, the big drop 2000, 2001, 2002, there were three
(27:00):
years in a row.
They're all driven by thedot-com bust.
Something had nothing to dowith that.
And then, on the other hand,you take President Clinton.
Bill Clinton walked in just asthe dot-com was taken off, just
as all these companies, petscomand Amazon.
They're flying high and I'm not100% sure that the White House
has much to do with that.
I mean it just happened thatthose companies took off during
(27:23):
their time in office.
And talk about market timing.
He left the White House justbefore the tide turned and
didn't capture any of thebackside of the drop in the
market.
So again, to me it's afundamental misconception that
presidents should receive creditor blame.
We saw that the political partyof a president doesn't seem to
matter at all to the market.
(27:43):
But, even more fundamental, thepolicies don't matter and I
don't know that the presidentshould receive credit or blame
for how the uh the the marketdoes during their time, because
they might just be picking upthings that happened before and
then you might miss things.
That happens when the otherpresident comes in.
(28:03):
Yeah, that's great perspective.
Speaker 1 (28:05):
Go ahead, no, go ahead.
I was going to say I wanted tochange the framework a little
bit, maybe have a little bit offun here, because the other
thing that I hear about and Ithink all the perspective you
gave is great framework for along-term investor who really
kind of the moral of the storyis stay the course, stick with
(28:26):
your investment philosophy,don't panic and freak out.
At the end of the day, there isvery little statistical
correlation to who's thepresident or what party is in
power.
As to stock market returns, thething that I hear, though, from
some clients and I know youroverall philosophy on investing,
(28:47):
so I'm really interested tohear some of your framework
around speculation that alsocomes into the stock market,
because I've had other clientsthat have said well, what if
Donald Trump gets elected?
Should we be tilting ourinvestments more towards certain
things?
I remember in the last electioncycle, when he got elected, it
(29:08):
was more like towards small capcompanies, because he was going
to deregulate and help smallbusinesses, and I heard very
similar things when PresidentBiden was elected of like we
should be putting more money in,you know, green energy and
solar and like all of these.
You know I would call them justbets.
At that point, right, you'respeculating and you're taking
(29:29):
bets, but talk about kind of howthat active management
framework or trying to pickwhere the market's going to go,
based on who's in office andwhat their public policy might
be, could either help or hurtinvestors.
Speaker 2 (29:44):
You know, I'm going to tell you that we looked at
this.
I've gotten that question overand over and we looked at
absolutely we looked at thisbecause it's a really important
question and there are some casestudies that we looked at, both
on what happens if you do havethe government supporting that
particular industry or theparticular company.
(30:05):
Is that a good play forinvestors?
But also, what if theadministration doesn't support
that particular industry?
Does it mean that that that itcan go the wrong way?
And I'm going to use some casestudies.
There are nothing more thancase studies, because you
mentioned the previousadministration and I remember
that one of the big things thatthey talked about was trying to
(30:27):
promote local manufacturing, usmanufacturing, and particularly
the area of interest for theprevious administration was
steel and, if you remember, dave, like as they walked in, there
was just a big push to promotethe steel production in the US
and there is a company thatcarries the name of the industry
(30:50):
it's called United States SteelCorporation, which these days
it's actually in talks to maybebe acquired by a Japanese
company.
But back in those days you'relooking at January of 2017, it
was interesting to see what wasgoing on with that stock price,
given that the administrationwas becoming quite public in its
(31:11):
support of the domestic steelindustry.
So when you look at US steeland this is a price per share
for US steel you do see that itkind of bounced around a little
bit.
But at some point there wastalk of tariffs, and tariffs
would apply towards foreignproducers that really benefit
the US manufacturers.
(31:32):
So you did see that there was aprice bump in there that a lot
of folks were saying, well, thisis it.
I mean, you do have thiscompany that now will be
supported by policies of the USgovernment and indeed, in March
of 2018, the formeradministration announced steel
(31:54):
tariffs.
And at this point, as aninvestor, your thought is like
well, this is great, because nowthis company can take full
advantage of just being morecompetitive and sell a lot more
in the US.
So if you're an investor thatright now kind of says let's
jump on this opportunity becausethis is the play to make, what
(32:14):
would have happened for theremaining of the term of the
previous administration?
Well, it turns out that,interestingly enough, the value
of US steel completely tankedafterwards, completely lost the
majority of its value, eventhough it had the full backing
of the US government.
It had the full backing of theUS government, even though there
(32:38):
are tariffs in place to supportit.
It didn't mean that was a goodthing for investors.
It did not translate into asuccessful investment experience
.
In fact, it turned out to be adisaster for investors if they
simply focused on that idea that, hey, the government is not
going to support an industry andthat's going to be good for me.
So it is interesting to seethat just because there is this
(32:59):
support coming from theadministration, it doesn't
really mean that that's going totranslate into investment
success.
The other case study that Imentioned is what if there's an
industry that clearly is notbeing supported by the
administration, does it meanthat you should bail out of
there because it doesn't havesolid prospects?
(33:20):
And, as you said, the currentadministration, the Biden
administration, has beenpromoting more green energy than
fossil fuels.
So in that respect, nobody cansay that the oil industry has a
big support in the currentadministration.
And what's interesting is thatif you look, for example, at
(33:40):
Exxon and the price per share ofExxon, what you find is that
during the currentadministration it really
skyrocketed up.
So it's been really productivefor an investor to own Exxon
rather than bail out of it.
So to me it kind of goes to afundamental question of why?
(34:01):
What's the economics of this?
Does this make sense, or isjust some randomness that it
doesn't make any sense?
And I do want to come back towhat is the intuition of all
this and how the markets relateto the politics.
Well, the stock market isfundamentally a place where you
and I anybody can go buyownership in companies.
(34:21):
That's what we're buying.
We're buying ownership incompanies and the value of that
ownership depends on what do Ibelieve that company is going to
make in earnings and profitsfor years and years down the
road, because that's where thetrue value comes from.
If you buy a little restaurantand you want to say, how much
should I pay?
Well, how much is it making inprofits and do I expect those
(34:42):
profits to continue?
And that's going to inform meof how much that company might
be worth that little restaurant.
And it's kind of the same withthe market.
It's a little more complexbecause businesses are bigger
and there are more moving parts,but the fundamental premise is
the same.
So in that respect, the questionthat investors are asking is
fundamentally this given thepolicies, given what's going on
(35:04):
right now.
What do I expect these policiesto change in terms of the
earnings of the company for many, many years down the road?
And if you think of whatmatters for the earnings of the
company, take Apple, facebook,coca-cola, mcdonald's, you name
it.
In my view, economically, youcan look at their products,
their services, their strategy,how they executed, what
(35:27):
competitors are going to do and,in my opinion, what drives the
earnings and the profits of acompany are much more related to
something that they controlthemselves, rather than who's in
the White House and how thesepolicies might change.
Because ultimately, in myopinion, the main drivers of
(35:48):
every company's profits aredriven by something they have
much more control over, ratherthan the policy in DC.
And do the policies in DCmatter?
Absolutely, does the governmentmatter?
Of course they do it.
Just to me, the way that I'velooked at this, dave, is that
there's so many variables thatgo into the performance of the
(36:09):
stock, the earnings of a stock,and, to me, politics and
elections is one of the many,many, many, many, many variables
that impact the stock market.
That's how I look at it.
It's one of the many variableimpact impact in the stock
market.
In my view.
It is not a primary one, it isnot one that drives the market.
It's blends in there with somany other variables that it
(36:32):
becomes indistinguishable.
And the thought that I hadlately, just to kind of
illustrate that point, is thatI've been baking cookies with my
daughter and you go in and youput in the flour, the sugar, the
butter, the eggs, and then youmix them up, you put them in the
oven, you bake it.
When the cookies bake and youbreak it apart, it's impossible
to point and say, aha, I can seethe egg yolk in there.
Speaker 3 (36:55):
No, you can't.
Speaker 2 (36:55):
It's just one of the many, many ingredients that made
that cookie, and it's kind ofthe same with the market.
Politics is like the egg yolkin a cookie you can distinguish
it from anything else.
But what I can tell you, folks,is that politics is not the
garlic in a cookie.
It's not something that stinksit up so badly that you can
recognize.
It's not something that stinksit up so badly that you can
(37:15):
recognize.
It's just not.
It's the egg yolk rather thangarlic in a cookie, and because
of that I don't think it's worthtrying to figure out what
exactly portion of the marketreturn is associated with that.
It's baked in with so manyother, much more potent
ingredients that to me it shouldnot be the basis of making an
(37:36):
investment decision.
Speaker 1 (37:38):
Well, and I love that .
And just to kind of recap, Imean, I think everybody as an
investor is like all right,what's the bottom line?
What does this mean for me andmy portfolio?
And I think, going back to whatyou opened with Apollo, that if
you look at the history of themarket, I think you said it's
what about?
One every four years is anegative year?
Or, said another way, the glassis half full.
(38:01):
Three out of every four yearsis generally a positive
experience.
And then, if you zoom into anelection year, if I recall the
numbers, it was about 83% of thetime the market has delivered a
positive performance in theelection year.
And so I think for all of ourlong-term investors, it's we
(38:24):
have a good plan, we have a goodstructure.
Stay the course.
Don't let what you hear in themedia or around the coffee
machine at work spook you,because, as we opened, politics
is a very emotional topic inconversation about the things
(38:44):
that are important to all of usin our life and our beliefs.
But you got to be able to kindof dislocate that to a certain
extent from your investmentstructure and philosophy.
And then I'll just share onemore thing, because it's why
we're such believers in thisoverall, more capital market,
diversified approach toinvesting that I know
(39:06):
Dimensional supports us on somuch as well is we're not taking
concentrated bets anywhere.
It's not like in the previousadministration we were making a
concentrated bet into steel.
Do we have some exposure to it?
Yes, and if it does well, we'regoing to ride that up, but if
it doesn't do so well, it's notgoing to cripple your retirement
(39:27):
or your investment structure.
Same thing with oil, forexample, and so many of these
other asset classes.
And again, I think that,although maybe you might not see
all of these underliningpositions, if we're using
different mutual funds or ETFs,you're catching a lot of this
overall exposure and it'sbringing value to your
(39:47):
investment approach.
It's very similar to whenclients say hey, dave, we have
this artificial intelligencecraze.
I don't see any Nvidia in myportfolio and it's like well,
dave, we have this artificialintelligence craze, I don't see
any NVIDIA in my portfolio andit's like well, yes, it's
because you see the funds andthe ETFs that we're using, but
if you dialed at one leveldeeper, you actually own 5% or
6% of NVIDIA and 5% or 6% ofFacebook and 5% or 6% of Apple
(40:11):
and Microsoft and so again,that's why we believe that
nobody has this crystal ball.
If you want to gamble a littlebit, you could make bets with
some of your money.
Right, there's nothing wrong ifthat's your money, if that's a
passion for you and you want toplay some individual stocks to
try to make oversized profits,that's great and we fully
(40:32):
support that with our clients.
But I think, for the core ofyour assets, for the money that
you're going to need to relyupon for financial security,
stability and retirement, webelieve this is so much more of
an evidence-based approach, witha lot of the data that you can
see that Dr Apollo Lopescoshared with us today.
So, apollo, any kind of closingthoughts for our clients?
Speaker 2 (40:54):
Well, I think you kind of said it so well, folks,
when you're thinking aboutpolitics, I personally found
that that emotions could drivedecisions.
It's not always the case, butif you feel like this is not
going to end up well, the worldis different right now.
That that you know.
Certainly I don't see themarkets looking good or that
because of one candidate oranother.
(41:15):
When we looked at this, ittends to be emotions.
When you look at the data, Idon't see any evidence that that
any of us should make any moveswith our money because of the
election.
It's just emotions talking andall the data that we share today
.
There is nothing there that Iagain I was just going through
(41:36):
my mind.
Is there anything that we sharethat would indicate that you
should make a move?
So to Dave's point you have aplan in place and the best way
to give yourself the best oddsto accomplish those financial
goals is to stay disciplined, tostick to the plan, because the
plan has accounted for theuncertainty in the market and it
(41:58):
turns out again that in anelection year there's nothing
really different that I would dowith the stocks allocation.
Speaker 1 (42:05):
Great.
Well, we appreciate everyonejoining us for today's episode.
Hopefully you got some valueout of it.
Apollo, I appreciate your time,as always, and I look forward
to having you back on a futureepisode.
Speaker 2 (42:16):
I look forward to that too.
Thank you so much for having meseparate non-affiliated
entities.
Speaker 3 (42:20):
PCA does not provide tax or legal advice.
Insurance and tax servicesoffered to Allison Wealth
Management are not affiliatedwith PCA.
(42:40):
Information received from thisvideo should not be viewed as
individual investment advice.
Content may have been createdby a third party and was not
written or created by aPCA-affiliated advisor, and does
not represent the views andopinions of PCA or its
subsidiary.
For information pertaining tothe registration status of PCA,
please contact the firm or referto the Investment Advisor
(43:01):
Public Disclosure website.
For additional informationabout PCA, including fees and
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invest or send money.
Hello everyone and welcome to the Complete Wealth
Management Podcast.
I've got a great guest for uson today, actually our first
ever repeat guest, and when Ilaunched this podcast and was
making a list of people that Iwanted to be able to have come
on to this podcast to share withall of our clients, dr Apollo
Lopescu was number one on mylist and he joined us for the
(00:23):
very first ever episode of theComplete Wealth Management
Podcast, and so welcome back,apollo.
Speaker 2 (00:29):
Well, Dave, thank you so much and I'm really honored
to be back.
So thank you for the invitationto be back and thanks to
everyone for taking the time towatch this session.
Speaker 1 (00:39):
Awesome.
Well, it's quite interesting,apollo.
When I had you on the CompleteWealth Management Podcast
episode number one, it was rightaround October or November of
2022.
And I'd asked you to come onand we did an episode.
It was discussed navigatingvolatile markets and if you
(00:59):
remember, or if any of ourlisteners remember, what was
going on in the stock market in2022, if any of our listeners
remember what was going on inthe stock market in 2022, a
little bit of an uncomfortableyear, I think.
At the time, the S&P, as of whenwe recorded that episode, was
somewhere around 35 or 3,700.
Of course, today, over 5,000now, and so I think the ultimate
(01:22):
message, of course, that youdelivered is it's not a time to
panic.
There's certainly a lot ofvolatility, a lot of uncertainty
in the economy, in the markets.
Unprecedented interest ratehikes that we saw during that
time period led to a lot of that, but I think, looking in
hindsight and playing Mondaymorning quarterback, those who
(01:43):
didn't panic and who did stayrational and who, you know,
stuck to their investmentprinciples, obviously ended up
having a good kind of year and ahalf since the last time we all
got together.
Speaker 2 (01:54):
Yeah, and I agree, and I think what I've always
appreciated is you know, both ofus have a very consistent
message and if you go back tolike, you know for the first
time that we talked, we reallyhave been telling investors that
between letting your emotionsdrive decisions or just being
disciplined, strategic and justkind of work within the plan
(02:15):
that was developed for you, andnot necessarily panic, don't
make rash decisions.
I think that it worked outreally well because, as you said
, in 2022, the market was downabout 18% and that's a lot of
people were scared and thatmight have been the time to sell
, and what we found is that thepeople who actually use our
advice 2023 ended up being areally good year for investors.
(02:37):
The S&P was up over 26%.
So, again, not to pat ourselveson the back, but it's a very
consistent message that we havebeen delivering to investors.
Speaker 1 (02:46):
Absolutely, and that kind of leads you to this next
question of like well is now agood time to invest?
And one of the things thatwe're going to be talking about
in this episode is somethingthat I know is on the mind of
almost everybody in the UnitedStates right now, and it is the
election.
We know it's going to beanother Donald Trump versus
President Biden rematch, and Ithink, more than ever, a lot of
(03:11):
people are just feelinguncertain and there's a lot of
strong beliefs on each side,which we're not going to get
into any political discussionshere.
But we are going to talk aboutthe impact of stock market
investing in this episode.
But before we do that, apollo,can you just share for all the
listeners a little bit of yourbackground?
And then also, you're atDimensional Fund Advisors.
(03:35):
They've been a great strategicpartner with Prosperity Capital
Advisors, my RIA firm.
I think we have over a billiondollars, or close to a billion
dollars, of our client assetsthat you all are helping to
manage on our behalf.
So can you just kind of sharewith our listeners a little bit
of your background, your journeyand maybe a little bit about
Dimensional Fund Advisors?
Speaker 2 (03:53):
Yeah, well, first of all, I really thank you for the
trust and the partnership to youand the clients.
And just quickly about myself Ireally started by looking at
investing in my undergradstudies at Michigan State.
At the time it was just afather, one of my friends who
came in and very flashy guy andhe had like a nice car and took
(04:14):
us all to a steak dinner and hejust looked like he was doing
amazingly well.
And I asked him what do you do?
And he said well, I tradestocks.
And I thought, wow, that'ssomething that I might want to
look into because it seems likeit affords you a great lifestyle
.
So I started to immerse myselfa little bit in the classes that
were offered at Michigan Statearound investing and finance and
(04:37):
I found it fascinating.
And my goal has been to almostunravel the mystery of the stock
market.
And I've been doing that forabout 30 years and frankly I
don't think that I've unraveledit, but I've kind of started to
see things better, see them in adifferent light.
So I ended up studying atMichigan State as much as I
(04:59):
could and then I applied at UCSanta Barbara for a business
economics a master's degree andthen, once I finished that I
really liked investing and Iwanted to dive as deeply as I
could, so I got into the PhDprogram with some phenomenal
professors and then I finished aPhD.
(05:22):
Turns out that my sister-in-lawat the time ended up going on
some sort of a lunch datewhatever it was with somebody
who worked at Dimensional and infact it was the founder of the
financial advisory group andthen told him that he was
disappointed that his identicaltwin would move to the East
Coast which my job offers are onthe East Coast and the
(05:43):
gentleman said, yeah, he justhadn't talked to me and anyway.
So I called him up.
I met him in Santa Monica forlunch.
I lived in Santa Barbara at thetime and you know I just really
loved the guy.
But what was even moreinspiring is that Dimensional
was a firm that was working veryclosely with a lot of the
academics that I studied in myPhD and in fact I used to teach
(06:07):
classes in finance based ontheir work.
And I was just absolutely blownaway that these academics many
of them who actually wereawarded a Nobel Prize in
economics at some point theywere affiliated with an
investment firm and thatinvestment firm actually had
practical solutions forinvestors.
So I kind of gave away the job.
I basically turned down the jobthat I had on East Coast to
(06:30):
come and join Dimensional and atthe time, I don't know, there
was an open position.
But I was just so enthralled bythis company, the people, the
academic connection that I tooka chance.
And 20 years later it turns outthat it worked out really well.
And over the years I've workedwith financial advisors, I've
worked with 401k plans, I'veworked with all kinds of folks
(06:50):
and over the past decade or soit has been much more around
translating some of theseconcepts to the end investor,
making sure that everybodyappreciates and understands this
approach to investing, whichtends to be a little bit more
sophisticated and sometimes itcould be a little bit more
confusing.
But I'm trying to make it moreclear and cut through the noise
(07:12):
and make sure that people arenot just impressed by jargon or
big numbers but reallyfundamentally have an intuition
of why this makes so much sense.
Speaker 1 (07:21):
Well, that's great, and at Prosperity Capital
Advisors we have so many greatpartners and there's a lot of
great investment providersBlackRock and Vanguard, and on
and on but I've really alwaysgravitated towards the approach
that you guys have taken.
It always appealed to me, kindof the statement I'll remember
seeing it when I first walkedinto your building of the
science of investing.
(07:42):
And instead of trying tospeculate and guess which way
the market is going to go which,of course, none of us have that
crystal ball it's your approachof using more of an
evidence-based scientific methodof arriving at the investment
decisions.
And so what I'm really excitedabout in today's episode is to
(08:03):
talk about what I know is on theminds of many people today and
really bring your perspective toour listeners.
Because, as you mentioned,you've been doing this for 20,
30 years now.
You've been studying markets,you've been on the academic side
, you've been in the trenches ata tremendous firm like
Dimensional.
This is certainly not yourfirst presidential election that
(08:26):
you've been through, and solet's go ahead.
And we're going to jump rightinto today's episode on talking
about investing in an electionyear.
Speaker 2 (08:45):
I think you know you brought up something really
important, which is thatpolitics is deeply emotional
because it touches on our deeplyheld beliefs, our core identity
as individuals, and because ofthat it triggers these emotions.
And I think it's perfectly fineto have these emotions.
It's interesting becauseemotions, as you said, can be on
(09:07):
both sides.
This is not a right and wrong.
I do believe that people on allspectrums, they're good people.
They just have different views.
And, interestingly enough, nottoo long ago, a few weeks ago,
my wife and I went on a cruise,a little small cruise.
There were about nine families,nine couples on that boat.
So just as we got on the boatboat the two folks who organized
(09:29):
the trip, they basically stoodout there.
It's like well, okay, uh, wehave two rules on this, uh, on
this cruise, which is about 10days.
Number one is no whining.
You're not going to complainthat this is not that and no, no
, we're gonna have fun.
No whining now.
Rule number two no talk ofpolitics, because, again, this
is a very emotional issue andyou'll not be able to change
somebody's mind.
So, rather than try to get intothis with all these different
(09:53):
views, might as well avoid thewhole subject, which we're not
going to do today.
But with that acknowledgementin mind, I'm here to tell you
that whatever we will discuss,it will not be based on my views
.
I'm not going to try to makeanybody feel good or bad about
their political views or whatthey think about candidates, but
rather I'm going to suggestthat really successful investors
(10:16):
and I found this over and overand over again are able to
acknowledge these emotions thatI've been talking about, because
that's what makes us human.
So there's nothing wrong withhaving these emotions and
nothing wrong on acting on theseemotions.
The most obvious way to act isgo vote.
If you really feel strongly, goget involved in a campaign.
(10:37):
So I absolutely acknowledgethese emotions are real, they're
fine to have and there is acertain healthy way to act on
them.
What I found is that the reallysuccessful investors, while
they acknowledge these emotions,they are very pragmatic in the
way that they make decisionsabout their money and they base
those decisions on evidence anddata rather than how they feel.
(10:57):
So this whole session will notbe about my views at all.
But what does the data say?
What do we know in terms of thedata?
And you mentioned that there isa lot of uncertainty and one of
the comments that I hear overand over is that listen, there
is already enough uncertainty inthe world with the war in the
Middle East, the war in Ukraine,we have the Fed, we have
interest rates.
All of this is going on andthis political race is adding
(11:21):
additional uncertainty and, ingeneral, political race is
adding additional uncertaintyand, in general, the idea is
that being an election year is ayear that adds uncertainty in
any time, not necessarily in2024.
So the first data point that wewanted to look at was how do the
markets behave in an electionyear?
Is there something differentabout the way the market behave
(11:44):
in an election year?
And we know that over the longrun.
If you look since the 1920ssince we have good data on
average, this is just a highlevel average.
About one in four years themarkets go down and three four
years it goes up on average.
We don't know there might be aseries of six years when it goes
up and then three down.
(12:05):
We don't know it might be aseries of six years when it goes
up and then three down.
You know there's no predictablepattern, but on average, if you
want to average over the longrun.
It's about 25 percent of thetime in any given year the
market's likely to go down, 75percent to go up.
So now let's look at theelection years and if we go back
to 1926, almost 100 years ofdata in the market, hundred
years of data in the market thisis what we see.
In these almost a hundred yearswe have had 24 different
(12:30):
presidential election years, sothere are 24 different elections
.
So the question is how did themarket behave in these 24
elections?
Do we see a preponderance ofpositive or negative outcomes in
the market, and what can welearn from there?
And it turns out that if youactually examine this year by
year, which we did, what youfind is that 20 out of the 24
(12:52):
years the market actually wentup.
It was a positive year, themarkets gave investors solid
returns.
And then there were four out ofthe 24 when the market went
down and we had negative returns.
So the very first interestingfact, dave, is that when you
look at a presidential electionyear, just by being an election
(13:13):
year, when everybody says everyelection is the election of a
lifetime, that's the mostimportant election.
If you go back to the 24election years, what you see, is
that the overwhelming majorityof the years the market did go
up and there's no real reason tobe concerned that, oh, it's an
election year, the market tanks.
That's not what we see in thedata, but we do see that four
(13:33):
years the market did drop.
So the question is, what do welearn from the years when the
market dropped?
And again, we looked at it oneby one, and it was in 1932 that
we saw the first drop inelection year, and what's
interesting is that we did havean election in 32, but we also
had the Great Depression.
So one might wonder what mighthave mattered more to the
(13:55):
markets, the Great Depression orthe fact that we had an
election.
And then, eight years afterwards, we have the second negative
outcome in the market during anelection year, and that was also
the year when it became obviousthat this will become a world
war.
And that's again.
You had an election, but youall said the World War II going
on.
And then it took 60 years untilwe saw the next negative
(14:18):
outcome, and that was 2000 Bushversus Gore.
And if you remember the chatwith the gentleman looking
through the opening in the paper, and that was definitely
something that somebody mightsay well, we went to the Supreme
Court, so that might have beenbad for the markets.
The truth is that that was alsothe year when the dot-com
started to go bust, when you hadall these tech stocks in the
(14:39):
90s started to kind of go downin value.
So, yes, we did have anelection, but we also had the
beginning of the dot-com bust.
So, yes, we did have anelection, but we also had the
beginning of the dot-com bust.
And then afterwards we had thelast one in 2008,.
Obama versus McCain, but thatwas the year of the great
financial crisis.
So what's interesting, dave, isthat if you look at the data,
you see that the overwhelmingmajority of the time 20 out of
(15:00):
24 times the market does go upin an election year.
So there's no real reason to beconcerned that.
(15:21):
We've seen the data that mostoften the market drops.
That's not the case and what wealso see in the years when the
market did drop in.
An electioneer does not screamto me that, hey, this is
something that you should becautious and investor.
There's a lot of evidence tosuggest that it's going to be a
down year.
That's not what we're seeing inthe data.
Speaker 1 (15:36):
Yeah, that's just, that's great data.
And I think emotionally and asI talk to clients, it's always
kind of one of two conversations.
Number one is if so-and-so getselected, the world is going to
fall apart and the markets aregoing to crash and the economy
is going to come tumbling down.
Or if so-and-so gets elected,everything's going to be dire
(16:01):
and kind of be on one end of theextreme, and that's soliciting
more or less that panic selling.
Should we try to get out of themarket before President X gets
elected and ruins the economyand ruins the stock market?
And I think your data reallyvalidates why it's important to
(16:23):
stay the course At the end ofthe day in election year and
ultimately, whose presidentisn't going to statistically at
least, it hasn't impact thestock market terribly in any
given year.
Right.
Speaker 2 (16:39):
And you're absolutely right.
I mean it's.
There are a lot of people outthere who are, in my opinion,
letting.
They're letting the emotionsspeak and then say well, I'm
going to sell everything, moveto Canada, because one person is
going to be elected or anotherand ruin is going to come to the
economy, and I do think thatcome November, half the country
will feel that way and the otherhalf will be ecstatic.
(17:00):
So we need to acknowledge thatthat's going to be the case.
Speaker 1 (17:03):
Why is it everyone wants to move to Canada?
Speaker 2 (17:06):
I heard that from a man this weekend.
Speaker 1 (17:08):
If so-and-so gets elected.
Speaker 2 (17:10):
We're moving the family to Canada.
Speaker 1 (17:13):
Really that seems a bit extreme.
Speaker 2 (17:15):
That's funny.
But let's look at this a littlebit closer because, first of
all, we are in an election yearwhen either one of the
candidates, as they are now,it's not a surprise to the
economy, to the markets, becauseboth of these folks have been
in the White House for at leastthree years, like President
Biden over three years now, andthen President Trump four years.
(17:37):
So, whatever it comes, you canlook and say well, look, the
markets did something and theyboth had positive outcomes.
If you look at the performanceof the market while they're in
office, whether it's PresidentBiden or President Trump, it's
roughly the same performance.
But let's go back and see howmuch do policies matter.
Let's go back and see how muchdoes it matter having one
(18:00):
president with a certainpolicies or not, policies or not
, and to begin with, ask thequestion does it really matter
having a Republican or aDemocrat in the White House?
For the markets and I'm born in1969.
I'm 54, about to be 55 yearsold, and I wanted to look at my
lifetime.
And in my lifetime the averageannualized return for the US
(18:23):
stock market the S&P 500, hasbeen about 10%.
So let's just put that as youryardstick.
10% per year on average hasbeen the growth in the market
over the past 54 years.
Now here's the thing.
If we now look, president bypresident, and ask the question
well, how did the market do, onaverage annualized, during their
(18:43):
time in office?
Perhaps there are things thatwe can learn.
So when I was born, presidentNixon was in the White House and
during the five and a halfyears or so that he was
president, on average per year,the market actually didn't grow,
but it dropped by about 2.9%per year, which is interesting
(19:04):
because it didn't grow.
It actually dropped by about 3%per year, which is interesting
because it didn't grow.
It actually dropped by about 3%per year.
And then he leaves the WhiteHouse and President Ford comes
along for about three and a halfyears or so, less than that,
and the market skyrockets atover 20% annualized per year,
which is a really big number.
And then after him, in 1977,President Carter gets elected
(19:26):
and on average, the market forthe four years that he was in
office goes up by about 11.77,followed by President Reagan
15.8 for the eight years.
And then his vice presidentwalks in the White House, george
HW Bush, with an average returnof 13.9 annualized during the
four years that he was in officeand then, as you know, he loses
(19:49):
to President Clinton, who comesin and, on average, annualized,
the market goes up by 17.6%.
And then, as we talked aboutthe Gore versus Bush President,
george W Bush comes in the WhiteHouse and on average year
during the eight years that he'sin the White House, the market
actually drops by about 4.4%.
(20:11):
On average, per year there's aloss of about 4.4%.
And then we know PresidentObama comes in, markets go up
about 16% per year on averageduring the eight years, and then
President Trump at about 15.2.
So the reason I bring this up isthat you can look at the
numbers.
They're all kind of laid out infront of you, and I think there
(20:32):
are three important questionsthat I would ask.
The first one, dave, and youcan help me out Do you find that
there's an obvious pattern thatwill tell the investors that
having a Republican or aDemocrat in the White House is
better or worse for the markets?
What do you think?
I don't see anything and I'veasked clients, I've asked
(20:54):
investors whether, inconservative states, liberal
states, nobody could ever tellme yeah, there fact is really
well known for the businessfriendly policies, for the tax
cuts.
And the question is well, howdid the market do when you have
(21:24):
such a business friendly,business focused president?
And, as I said, the long termaverage is about 10 percent per
year.
During the eight years that thathe was in the White House, the
market actually went up by 15.8%per year, which is, again, it's
a very nice outcome.
And what's interesting is thatyou can have presidents whose
(21:48):
priorities might not be aroundbusiness, tax cuts, economic
activity but really could bearound social programs, economic
activity, but really could bearound social programs.
And to me, the president thatreally probably is best known in
recent years for that isPresident Obama, because his
signature accomplishment is nottax cuts or business friendly
policies, but rather Obamacare,which is a social program around
(22:11):
health care.
And again, I saw a lot ofpeople and I talked to a lot of
people who were worried thatperhaps not having a
business-focused president wouldturn out to be really bad for
the markets.
And there were some of thefolks who wanted to move to
Canada because, listen, we'regoing to have socialism in the
country.
The markets are going to tank.
So the question is, how do themarkets do during a president
(22:32):
that wasn't known forbusiness-friendly policies, but
rather Obamacare.
When you look at the data, yousee that over 80 years it's
exactly the same time spent asPresident Reagan.
The markets on average went upby about 16%.
So it's virtually the same.
And it's so interesting becausethat's what the data says.
(22:53):
You can have a business-mindedpresident or you can have one
that's focused on social issues,and when you look at the data
it doesn't seem to be that cleardistinction that the markets is
so much better during one orthe other.
Not at all.
It seems to be.
They're virtually identicalIdentical.
I can't really distinguish that.
Speaker 1 (23:13):
And I just want to kind of try to translate this
for investors and what the tablestakes are here.
These returns are phenomenal,right, almost 16% in either of
these cycles, which, hey, Ithink we all wish we could
deliver 16% on our money forever.
But to put that intoperspective of what 16% is, that
(23:36):
means your investment woulddouble in value about every four
and a half years.
And so if you were to say, hey,the color in red, they're going
to be the elected president, wedon't want to be in the market,
and you would have pulled allyour money out of the market,
you would have missed the chancefor your money to potentially
(23:57):
double.
Or if the incoming presidentwas kind of in that blue
category there and you missedthe opportunity to be in the
market.
And I think this is just the bigadvantage of the stock market
in general right For those whohave the right framework, for
those who have the rightstructure.
The rest of the world looks atthe United States market in awe
(24:19):
a little bit at the ability forit to continue to produce wealth
for the market participants whoactually have good, sound
advice and don't freak out,don't panic, don't try to
speculate.
And so I just wanted to putthose 16% numbers into terms
that I think a lot of peoplecould relate to.
(24:40):
That if you had invested$100,000 at the start of either
one of those election cycles,your money would be worth almost
$200,000 by the end of it, andthat's a big deal.
Speaker 2 (24:53):
That's a really big deal and I'm glad you brought it
up because that is reallyimportant context.
If you let your emotions decidethat, listen, are we going to
have a president that's going todo this or that, and then you
get out, you miss on thatincredible opportunity to grow
and then you'll always bedisappointed by the stock market
.
You might wonder why.
But I think there's even a morefundamental question that as I
(25:14):
looked at this data, that when Ilooked at this data, the first
thought that I had was that thepresident that had the worst
annualized returns was PresidentGeorge W Bush.
Say, look, he was not a verygood president for the markets.
(25:35):
And this just might be it, andperhaps you should blame him for
the market dropping about 4%per year because he just didn't
seem there was a good presidentfor the markets.
But what I do remember is thatit was roughly the time when I
started Dimensional that therewere very significant tax cuts
specifically geared towardsinvesting, that George W Bush
(25:56):
promoted Taxes cut to long termgains, to dividends, which
really were very supportive forinvestors in the stock market,
and yet it dropped by about 4%.
So that kind of leads me to theone fundamental kind of idea is
that I don't believe thatpresidents should receive
(26:16):
neither credit nor blame for howthe market does during their
time in the White House, becauseit's not a legitimate way to
look at it.
President George W Bushnegative 4.4% annualized and you
say, well, maybe he wasn't goodfor the markets.
Think about it.
He walked in that White Housejust as the dot-com was going
(26:37):
bust.
How much did he have to dealwith the dot-com bust?
Nothing.
9-11 happened nine months intohis term.
And talk about it.
He walked off at the verybottom of the financial crisis
and you look and say he was notgood for the markets.
I'm like I'm not sure that'sfair to blame a president
because again, the big drop 2000, 2001, 2002, there were three
(27:00):
years in a row.
They're all driven by thedot-com bust.
Something had nothing to dowith that.
And then, on the other hand,you take President Clinton.
Bill Clinton walked in just asthe dot-com was taken off, just
as all these companies, petscomand Amazon.
They're flying high and I'm not100% sure that the White House
has much to do with that.
I mean it just happened thatthose companies took off during
(27:23):
their time in office.
And talk about market timing.
He left the White House justbefore the tide turned and
didn't capture any of thebackside of the drop in the
market.
So again, to me it's afundamental misconception that
presidents should receive creditor blame.
We saw that the political partyof a president doesn't seem to
matter at all to the market.
(27:43):
But, even more fundamental, thepolicies don't matter and I
don't know that the presidentshould receive credit or blame
for how the uh the the marketdoes during their time, because
they might just be picking upthings that happened before and
then you might miss things.
That happens when the otherpresident comes in.
(28:03):
Yeah, that's great perspective.
Speaker 1 (28:05):
Go ahead, no, go ahead.
I was going to say I wanted tochange the framework a little
bit, maybe have a little bit offun here, because the other
thing that I hear about and Ithink all the perspective you
gave is great framework for along-term investor who really
kind of the moral of the storyis stay the course, stick with
(28:26):
your investment philosophy,don't panic and freak out.
At the end of the day, there isvery little statistical
correlation to who's thepresident or what party is in
power.
As to stock market returns, thething that I hear, though, from
some clients and I know youroverall philosophy on investing,
(28:47):
so I'm really interested tohear some of your framework
around speculation that alsocomes into the stock market,
because I've had other clientsthat have said well, what if
Donald Trump gets elected?
Should we be tilting ourinvestments more towards certain
things?
I remember in the last electioncycle, when he got elected, it
(29:08):
was more like towards small capcompanies, because he was going
to deregulate and help smallbusinesses, and I heard very
similar things when PresidentBiden was elected of like we
should be putting more money in,you know, green energy and
solar and like all of these.
You know I would call them justbets.
At that point, right, you'respeculating and you're taking
(29:29):
bets, but talk about kind of howthat active management
framework or trying to pickwhere the market's going to go,
based on who's in office andwhat their public policy might
be, could either help or hurtinvestors.
Speaker 2 (29:44):
You know, I'm going to tell you that we looked at
this.
I've gotten that question overand over and we looked at
absolutely we looked at thisbecause it's a really important
question and there are some casestudies that we looked at, both
on what happens if you do havethe government supporting that
particular industry or theparticular company.
(30:05):
Is that a good play forinvestors?
But also, what if theadministration doesn't support
that particular industry?
Does it mean that that that itcan go the wrong way?
And I'm going to use some casestudies.
There are nothing more thancase studies, because you
mentioned the previousadministration and I remember
that one of the big things thatthey talked about was trying to
(30:27):
promote local manufacturing, usmanufacturing, and particularly
the area of interest for theprevious administration was
steel and, if you remember, dave, like as they walked in, there
was just a big push to promotethe steel production in the US
and there is a company thatcarries the name of the industry
(30:50):
it's called United States SteelCorporation, which these days
it's actually in talks to maybebe acquired by a Japanese
company.
But back in those days you'relooking at January of 2017, it
was interesting to see what wasgoing on with that stock price,
given that the administrationwas becoming quite public in its
(31:11):
support of the domestic steelindustry.
So when you look at US steeland this is a price per share
for US steel you do see that itkind of bounced around a little
bit.
But at some point there wastalk of tariffs, and tariffs
would apply towards foreignproducers that really benefit
the US manufacturers.
(31:32):
So you did see that there was aprice bump in there that a lot
of folks were saying, well, thisis it.
I mean, you do have thiscompany that now will be
supported by policies of the USgovernment and indeed, in March
of 2018, the formeradministration announced steel
(31:54):
tariffs.
And at this point, as aninvestor, your thought is like
well, this is great, because nowthis company can take full
advantage of just being morecompetitive and sell a lot more
in the US.
So if you're an investor thatright now kind of says let's
jump on this opportunity becausethis is the play to make, what
(32:14):
would have happened for theremaining of the term of the
previous administration?
Well, it turns out that,interestingly enough, the value
of US steel completely tankedafterwards, completely lost the
majority of its value, eventhough it had the full backing
of the US government.
It had the full backing of theUS government, even though there
(32:38):
are tariffs in place to supportit.
It didn't mean that was a goodthing for investors.
It did not translate into asuccessful investment experience
.
In fact, it turned out to be adisaster for investors if they
simply focused on that idea that, hey, the government is not
going to support an industry andthat's going to be good for me.
So it is interesting to seethat just because there is this
(32:59):
support coming from theadministration, it doesn't
really mean that that's going totranslate into investment
success.
The other case study that Imentioned is what if there's an
industry that clearly is notbeing supported by the
administration, does it meanthat you should bail out of
there because it doesn't havesolid prospects?
(33:20):
And, as you said, the currentadministration, the Biden
administration, has beenpromoting more green energy than
fossil fuels.
So in that respect, nobody cansay that the oil industry has a
big support in the currentadministration.
And what's interesting is thatif you look, for example, at
(33:40):
Exxon and the price per share ofExxon, what you find is that
during the currentadministration it really
skyrocketed up.
So it's been really productivefor an investor to own Exxon
rather than bail out of it.
So to me it kind of goes to afundamental question of why?
(34:01):
What's the economics of this?
Does this make sense, or isjust some randomness that it
doesn't make any sense?
And I do want to come back towhat is the intuition of all
this and how the markets relateto the politics.
Well, the stock market isfundamentally a place where you
and I anybody can go buyownership in companies.
(34:21):
That's what we're buying.
We're buying ownership incompanies and the value of that
ownership depends on what do Ibelieve that company is going to
make in earnings and profitsfor years and years down the
road, because that's where thetrue value comes from.
If you buy a little restaurantand you want to say, how much
should I pay?
Well, how much is it making inprofits and do I expect those
(34:42):
profits to continue?
And that's going to inform meof how much that company might
be worth that little restaurant.
And it's kind of the same withthe market.
It's a little more complexbecause businesses are bigger
and there are more moving parts,but the fundamental premise is
the same.
So in that respect, the questionthat investors are asking is
fundamentally this given thepolicies, given what's going on
(35:04):
right now.
What do I expect these policiesto change in terms of the
earnings of the company for many, many years down the road?
And if you think of whatmatters for the earnings of the
company, take Apple, facebook,coca-cola, mcdonald's, you name
it.
In my view, economically, youcan look at their products,
their services, their strategy,how they executed, what
(35:27):
competitors are going to do and,in my opinion, what drives the
earnings and the profits of acompany are much more related to
something that they controlthemselves, rather than who's in
the White House and how thesepolicies might change.
Because ultimately, in myopinion, the main drivers of
(35:48):
every company's profits aredriven by something they have
much more control over, ratherthan the policy in DC.
And do the policies in DCmatter?
Absolutely, does the governmentmatter?
Of course they do it.
Just to me, the way that I'velooked at this, dave, is that
there's so many variables thatgo into the performance of the
(36:09):
stock, the earnings of a stock,and, to me, politics and
elections is one of the many,many, many, many, many variables
that impact the stock market.
That's how I look at it.
It's one of the many variableimpact impact in the stock
market.
In my view.
It is not a primary one, it isnot one that drives the market.
It's blends in there with somany other variables that it
(36:32):
becomes indistinguishable.
And the thought that I hadlately, just to kind of
illustrate that point, is thatI've been baking cookies with my
daughter and you go in and youput in the flour, the sugar, the
butter, the eggs, and then youmix them up, you put them in the
oven, you bake it.
When the cookies bake and youbreak it apart, it's impossible
to point and say, aha, I can seethe egg yolk in there.
Speaker 3 (36:55):
No, you can't.
Speaker 2 (36:55):
It's just one of the many, many ingredients that made
that cookie, and it's kind ofthe same with the market.
Politics is like the egg yolkin a cookie you can distinguish
it from anything else.
But what I can tell you, folks,is that politics is not the
garlic in a cookie.
It's not something that stinksit up so badly that you can
recognize.
It's not something that stinksit up so badly that you can
(37:15):
recognize.
It's just not.
It's the egg yolk rather thangarlic in a cookie, and because
of that I don't think it's worthtrying to figure out what
exactly portion of the marketreturn is associated with that.
It's baked in with so manyother, much more potent
ingredients that to me it shouldnot be the basis of making an
(37:36):
investment decision.
Speaker 1 (37:38):
Well, and I love that .
And just to kind of recap, Imean, I think everybody as an
investor is like all right,what's the bottom line?
What does this mean for me andmy portfolio?
And I think, going back to whatyou opened with Apollo, that if
you look at the history of themarket, I think you said it's
what about?
One every four years is anegative year?
Or, said another way, the glassis half full.
(38:01):
Three out of every four yearsis generally a positive
experience.
And then, if you zoom into anelection year, if I recall the
numbers, it was about 83% of thetime the market has delivered a
positive performance in theelection year.
And so I think for all of ourlong-term investors, it's we
(38:24):
have a good plan, we have a goodstructure.
Stay the course.
Don't let what you hear in themedia or around the coffee
machine at work spook you,because, as we opened, politics
is a very emotional topic inconversation about the things
(38:44):
that are important to all of usin our life and our beliefs.
But you got to be able to kindof dislocate that to a certain
extent from your investmentstructure and philosophy.
And then I'll just share onemore thing, because it's why
we're such believers in thisoverall, more capital market,
diversified approach toinvesting that I know
(39:06):
Dimensional supports us on somuch as well is we're not taking
concentrated bets anywhere.
It's not like in the previousadministration we were making a
concentrated bet into steel.
Do we have some exposure to it?
Yes, and if it does well, we'regoing to ride that up, but if
it doesn't do so well, it's notgoing to cripple your retirement
(39:27):
or your investment structure.
Same thing with oil, forexample, and so many of these
other asset classes.
And again, I think that,although maybe you might not see
all of these underliningpositions, if we're using
different mutual funds or ETFs,you're catching a lot of this
overall exposure and it'sbringing value to your
(39:47):
investment approach.
It's very similar to whenclients say hey, dave, we have
this artificial intelligencecraze.
I don't see any Nvidia in myportfolio and it's like well,
dave, we have this artificialintelligence craze, I don't see
any NVIDIA in my portfolio andit's like well, yes, it's
because you see the funds andthe ETFs that we're using, but
if you dialed at one leveldeeper, you actually own 5% or
6% of NVIDIA and 5% or 6% ofFacebook and 5% or 6% of Apple
(40:11):
and Microsoft and so again,that's why we believe that
nobody has this crystal ball.
If you want to gamble a littlebit, you could make bets with
some of your money.
Right, there's nothing wrong ifthat's your money, if that's a
passion for you and you want toplay some individual stocks to
try to make oversized profits,that's great and we fully
(40:32):
support that with our clients.
But I think, for the core ofyour assets, for the money that
you're going to need to relyupon for financial security,
stability and retirement, webelieve this is so much more of
an evidence-based approach, witha lot of the data that you can
see that Dr Apollo Lopescoshared with us today.
So, apollo, any kind of closingthoughts for our clients?
Speaker 2 (40:54):
Well, I think you kind of said it so well, folks,
when you're thinking aboutpolitics, I personally found
that that emotions could drivedecisions.
It's not always the case, butif you feel like this is not
going to end up well, the worldis different right now.
That that you know.
Certainly I don't see themarkets looking good or that
because of one candidate oranother.
(41:15):
When we looked at this, ittends to be emotions.
When you look at the data, Idon't see any evidence that that
any of us should make any moveswith our money because of the
election.
It's just emotions talking andall the data that we share today
.
There is nothing there that Iagain I was just going through
(41:36):
my mind.
Is there anything that we sharethat would indicate that you
should make a move?
So to Dave's point you have aplan in place and the best way
to give yourself the best oddsto accomplish those financial
goals is to stay disciplined, tostick to the plan, because the
plan has accounted for theuncertainty in the market and it
(41:58):
turns out again that in anelection year there's nothing
really different that I would dowith the stocks allocation.
Speaker 1 (42:05):
Great.
Well, we appreciate everyonejoining us for today's episode.
Hopefully you got some valueout of it.
Apollo, I appreciate your time,as always, and I look forward
to having you back on a futureepisode.
Speaker 2 (42:16):
I look forward to that too.
Thank you so much for having meseparate non-affiliated
entities.
Speaker 3 (42:20):
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(42:40):
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(43:01):
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