Stock Market Investing in Election Year 2024

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.

Transcript

Speaker 1: 0:00

Hello everyone and welcome to the Complete Wealth Management Podcast. I've got a great guest for us on today, actually our first ever repeat guest, and when I launched this podcast and was making a list of people that I wanted to be able to have come on to this podcast to share with all of our clients, dr Apollo Lopescu was number one on my list and he joined us for the very first ever episode of the Complete Wealth Management Podcast, and so welcome back, apollo.

Speaker 2: 0:29

Well, Dave, thank you so much and I'm really honored to be back. So thank you for the invitation to be back and thanks to everyone for taking the time to watch this session.

Speaker 1: 0:39

Awesome. Well, it's quite interesting, apollo. When I had you on the Complete Wealth Management Podcast episode number one, it was right around October or November of 2022. And I'd asked you to come on and we did an episode. It was discussed navigating volatile markets and if you remember, or if any of our listeners remember, what was going on in the stock market in 2022, if any of our listeners remember what was going on in the stock market in 2022, a little bit of an uncomfortable year, I think.

Speaker 1: 1:12

At the time, the S&P, as of when we recorded that episode, was somewhere around 35 or 3,700. Of course, today, over 5,000 now, and so I think the ultimate message, of course, that you delivered is it's not a time to panic. There's certainly a lot of volatility, a lot of uncertainty in the economy, in the markets. Unprecedented interest rate hikes that we saw during that time period led to a lot of that, but I think, looking in hindsight and playing Monday morning quarterback, those who didn't panic and who did stay rational and who, you know, stuck to their investment principles, obviously ended up having a good kind of year and a half since the last time we all got together.

Speaker 2: 1:54

Yeah, and I agree, and I think what I've always appreciated is you know, both of us have a very consistent message and if you go back to like, you know for the first time that we talked, we really have been telling investors that between letting your emotions drive decisions or just being disciplined, strategic and just kind of work within the plan that was developed for you, and not necessarily panic, don't make rash decisions. I think that it worked out really well because, as you said, in 2022, the market was down about 18% and that's a lot of people were scared and that might have been the time to sell, and what we found is that the people who actually use our advice 2023 ended up being a really good year for investors. The S&P was up over 26%. So, again, not to pat ourselves on the back, but it's a very consistent message that we have been delivering to investors.

Speaker 1: 2:46

Absolutely, and that kind of leads you to this next question of like well is now a good time to invest? And one of the things that we're going to be talking about in this episode is something that I know is on the mind of almost everybody in the United States right now, and it is the election. We know it's going to be another Donald Trump versus President Biden rematch, and I think, more than ever, a lot of people are just feeling uncertain and there's a lot of strong beliefs on each side, which we're not going to get into any political discussions here. But we are going to talk about the impact of stock market investing in this episode.

Speaker 1: 3:23

But before we do that, apollo, can you just share for all the listeners a little bit of your background? And then also, you're at Dimensional Fund Advisors. They've been a great strategic partner with Prosperity Capital Advisors, my RIA firm. I think we have over a billion dollars, or close to a billion dollars, of our client assets that you all are helping to manage on our behalf. So can you just kind of share with our listeners a little bit of your background, your journey and maybe a little bit about Dimensional Fund Advisors?

Speaker 2: 3:53

Yeah, well, first of all, I really thank you for the trust and the partnership to you and the clients. And just quickly about myself I really started by looking at investing in my undergrad studies at Michigan State. At the time it was just a father, one of my friends who came in and very flashy guy and he had like a nice car and took us all to a steak dinner and he just looked like he was doing amazingly well. And I asked him what do you do? And he said well, I trade stocks. And I thought, wow, that's something that I might want to look into because it seems like it affords you a great lifestyle. So I started to immerse myself a little bit in the classes that were offered at Michigan State around investing and finance and I found it fascinating. And my goal has been to almost unravel the mystery of the stock market. And I've been doing that for about 30 years and frankly I don't think that I've unraveled it, but I've kind of started to see things better, see them in a different light. So I ended up studying at Michigan State as much as I could and then I applied at UC Santa Barbara for a business economics a master's degree and then, once I finished that I really liked investing and I wanted to dive as deeply as I could, so I got into the PhD program with some phenomenal professors and then I finished a PhD.

Speaker 2: 5:22

Turns out that my sister-in-law at the time ended up going on some sort of a lunch date whatever it was with somebody who worked at Dimensional and in fact it was the founder of the financial advisory group and then told him that he was disappointed that his identical twin would move to the East Coast which my job offers are on the East Coast and the gentleman said, yeah, he just hadn't talked to me and anyway. So I called him up. I met him in Santa Monica for lunch. I lived in Santa Barbara at the time and you know I just really loved the guy. But what was even more inspiring is that Dimensional was a firm that was working very closely with a lot of the academics that I studied in my PhD and in fact I used to teach classes in finance based on their work. And I was just absolutely blown away that these academics many of them who actually were awarded a Nobel Prize in economics at some point they were affiliated with an investment firm and that investment firm actually had practical solutions for investors.

Speaker 2: 6:23

So I kind of gave away the job. I basically turned down the job that I had on East Coast to come and join Dimensional and at the time, I don't know, there was an open position. But I was just so enthralled by this company, the people, the academic connection that I took a chance. And 20 years later it turns out that it worked out really well. And over the years I've worked with financial advisors, I've worked with 401k plans, I've worked with all kinds of folks and over the past decade or so it has been much more around translating some of these concepts to the end investor, making sure that everybody appreciates and understands this approach to investing, which tends to be a little bit more sophisticated and sometimes it could be a little bit more confusing. But I'm trying to make it more clear and cut through the noise and make sure that people are not just impressed by jargon or big numbers but really fundamentally have an intuition of why this makes so much sense.

Speaker 1: 7:21

Well, that's great, and at Prosperity Capital Advisors we have so many great partners and there's a lot of great investment providers BlackRock and Vanguard, and on and on but I've really always gravitated towards the approach that you guys have taken.

Speaker 1: 7:35

It always appealed to me, kind of the statement I'll remember seeing it when I first walked into your building of the science of investing. And instead of trying to speculate and guess which way the market is going to go which, of course, none of us have that crystal ball it's your approach of using more of an evidence-based scientific method of arriving at the investment decisions. And so what I'm really excited about in today's episode is to talk about what I know is on the minds of many people today and really bring your perspective to our 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 at a tremendous firm like Dimensional. This is certainly not your first presidential election that you've been through, and so let's go ahead. And we're going to jump right into today's episode on talking about investing in an election year.

Speaker 2: 8:45

I think you know you brought up something really important, which is that politics is deeply emotional because it touches on our deeply held beliefs, our core identity as individuals, and because of that it triggers these emotions. And I think it's perfectly fine to have these emotions. It's interesting because emotions, as you said, can be on both sides. This is not a right and wrong. I do believe that people on all spectrums, they're good people. They just have different views. And, interestingly enough, not too 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 boat boat the two folks who organized the trip, they basically stood out there. It's like well, okay, uh, we have two rules on this, uh, on this cruise, which is about 10 days. Number one is no whining. You're not going to complain that this is not that and no, no, we're gonna have fun. No whining now. Rule number two no talk of politics, because, again, this is a very emotional issue and you'll not be able to change somebody's mind. So, rather than try to get into this with all these different views, might as well avoid the whole subject, which we're not going to do today. But with that acknowledgement in 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 make anybody feel good or bad about their political views or what they think about candidates, but rather I'm going to suggest that really successful investors and I found this over and over and over again are able to acknowledge these emotions that I've been talking about, because that's what makes us human. So there's nothing wrong with having these emotions and nothing wrong on acting on these emotions. The most obvious way to act is go vote. If you really feel strongly, go get involved in a campaign. So I absolutely acknowledge these emotions are real, they're fine to have and there is a certain healthy way to act on them. What I found is that the really successful investors, while they acknowledge these emotions, they are very pragmatic in the way that they make decisions about their money and they base those decisions on evidence and data rather than how they feel. So this whole session will not be about my views at all.

Speaker 2: 11:02

But what does the data say? What do we know in terms of the data? And you mentioned that there is a lot of uncertainty and one of the comments that I hear over and over is that listen, there is already enough uncertainty in the 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 and this political race is adding additional uncertainty and, in general, political race is adding additional uncertainty and, in general, the idea is that being an election year is a year that adds uncertainty in any time, not necessarily in 2024.

Speaker 2: 11:33

So the first data point that we wanted to look at was how do the markets behave in an election year? Is there something different about the way the market behave in an election year? And we know that over the long run. If you look since the 1920s since we have good data on average, this is just a high level average. About one in four years the markets go down and three four years it goes up on average. We don't know there might be a series of six years when it goes up and then three down. We don't know it might be a series of six years when it goes up and then three down. You know there's no predictable pattern, but on average, if you want to average over the long run. It's about 25 percent of the time in any given year the market's likely to go down, 75 percent to go up.

Speaker 2: 12:16

So now let's look at the election years and if we go back to 1926, almost 100 years of data in the market, hundred years of data in the market this is what we see. In these almost a hundred years we have had 24 different presidential election years, so there are 24 different elections. So the question is how did the market behave in these 24 elections? Do we see a preponderance of positive or negative outcomes in the market, and what can we learn from there? And it turns out that if you actually examine this year by year, which we did, what you find is that 20 out of the 24 years the market actually went up. It was a positive year, the markets gave investors solid returns. And then there were four out of the 24 when the market went down and we had negative returns.

Speaker 2: 13:06

So the very first interesting fact, dave, is that when you look at a presidential election year, just by being an election year, when everybody says every election is the election of a lifetime, that's the most important election. If you go back to the 24 election years, what you see, is that the overwhelming majority of the years the market did go up and there's no real reason to be concerned that, oh, it's an election year, the market tanks. That's not what we see in the data, but we do see that four years the market did drop. So the question is, what do we learn from the years when the market dropped? And again, we looked at it one by one, and it was in 1932 that we saw the first drop in election year, and what's interesting is that we did have an election in 32, but we also had the Great Depression. So one might wonder what might have mattered more to the markets, the Great Depression or the fact that we had an election.

Speaker 2: 13:58

And then, eight years afterwards, we have the second negative outcome in the market during an election year, and that was also the year when it became obvious that this will become a world war. And that's again. You had an election, but you all said the World War II going on. And then it took 60 years until we saw the next negative outcome, and that was 2000 Bush versus Gore. And if you remember the chat with the gentleman looking through the opening in the paper, and that was definitely something that somebody might say well, we went to the Supreme Court, so that might have been bad for the markets.

Speaker 2: 14:32

The truth is that that was also the year when the dot-com started to go bust, when you had all these tech stocks in the 90s started to kind of go down in value. So, yes, we did have an election, but we also had the beginning of the dot-com bust. So, yes, we did have an election, but we also had the beginning of the dot-com bust. And then afterwards we had the last one in 2008,. Obama versus McCain, but that was the year of the great financial crisis.

Speaker 2: 14:55

So what's interesting, dave, is that if you look at the data, you see that the overwhelming majority of the time 20 out of 24 times the market does go up in an election year. So there's no real reason to be concerned that. We've seen the data that most often the market drops. That's not the case and what we also see in the years when the market did drop in. An electioneer does not scream to me that, hey, this is something that you should be cautious and investor. There's a lot of evidence to suggest that it's going to be a down year. That's not what we're seeing in the data.

Speaker 1: 15:36

Yeah, that's just, that's great data. And I think emotionally and as I talk to clients, it's always kind of one of two conversations. Number one is if so-and-so gets elected, the world is going to fall apart and the markets are going to crash and the economy is going to come tumbling down. Or if so-and-so gets elected, everything's going to be dire and kind of be on one end of the extreme, and that's soliciting more or less that panic selling. Should we try to get out of the market before President X gets elected and ruins the economy and ruins the stock market? And I think your data really validates why it's important to stay the course At the end of the day in election year and ultimately, whose president isn't going to statistically at least, it hasn't impact the stock 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 out there who are, in my opinion, letting. They're letting the emotions speak and then say well, I'm going to sell everything, move to Canada, because one person is going to be elected or another and ruin is going to come to the economy, and I do think that come November, half the country will feel that way and the other half will be ecstatic. So we need to acknowledge that that'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 little bit closer because, first of all, we are in an election year when either one of the candidates, as they are now, it's not a surprise to the economy, to the markets, because both of these folks have been in the White House for at least three years, like President Biden over three years now, and then President Trump four years. So, whatever it comes, you can look and say well, look, the markets did something and they both had positive outcomes. If you look at the performance of the market while they're in office, whether it's President Biden or President Trump, it's roughly the same performance. But let's go back and see how much do policies matter. Let's go back and see how much does it matter having one president with a certain policies or not, policies or not, and to begin with, ask the question does it really matter having a Republican or a Democrat in the White House?

Speaker 2: 18:11

For the markets and I'm born in 1969. I'm 54, about to be 55 years old, and I wanted to look at my lifetime. And in my lifetime the average annualized return for the US stock market the S&P 500, has been about 10%. So let's just put that as your yardstick. 10% per year on average has been the growth in the market over the past 54 years. Now here's the thing. If we now look, president by president, and ask the question well, how did the market do, on average annualized, during their time in office? Perhaps there are things that we can learn. So when I was born, president Nixon was in the White House and during the five and a half years 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 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 White House and President Ford comes along for about three and a half years or so, less than that, and the market skyrockets at over 20% annualized per year, which is a really big number. And then after him, in 1977, President Carter gets elected and on average, the market for the 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 president walks in the White House, george HW Bush, with an average return of 13.9 annualized during the four years that he was in office and then, as you know, he loses to President Clinton, who comes in and, on average, annualized, the market goes up by 17.6%. And then, as we talked about the Gore versus Bush President, george W Bush comes in the White House and on average year during the eight years that he's in the White House, the market actually drops by about 4.4%. On average, per year there's a loss of about 4.4%. And then we know President Obama comes in, markets go up about 16% per year on average during the eight years, and then President Trump at about 15.2.

Speaker 2: 20:26

So the reason I bring this up is that you can look at the numbers. They're all kind of laid out in front of you, and I think there are three important questions that I would ask. The first one, dave, and you can help me out Do you find that there's an obvious pattern that will tell the investors that having a Republican or a Democrat in the White House is better or worse for the markets? What do you think? I don't see anything and I've asked clients, I've asked investors whether, in conservative states, liberal states, nobody could ever tell me yeah, there fact is really well known for the business friendly policies, for the tax cuts. And the question is well, how did the market do when you have such a business friendly, business focused president? And, as I said, the long term average is about 10 percent per year.

Speaker 2: 21:33

During the eight years that that he 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 that you can have presidents whose priorities might not be around business, tax cuts, economic activity but really could be around social programs, economic activity, but really could be around social programs. And to me, the president that really probably is best known in recent years for that is President Obama, because his signature accomplishment is not tax cuts or business friendly policies, but rather Obamacare, which is a social program around health care. And again, I saw a lot of people and I talked to a lot of people who were worried that perhaps not having a business-focused president would turn out to be really bad for the markets. And there were some of the folks who wanted to move to Canada because, listen, we're going to have socialism in the country. The markets are going to tank. So the question is, how do the markets do during a president that wasn't known for business-friendly policies, but rather Obamacare.

Speaker 2: 22:36

When you look at the data, you see that over 80 years it's exactly the same time spent as President Reagan. The markets on average went up by about 16%. So it's virtually the same. And it's so interesting because that's what the data says. You can have a business-minded president 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 clear distinction that the markets is so much better during one or the other. Not at all. It seems to be. They're virtually identical Identical. 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 table stakes are here. These returns are phenomenal, right, almost 16% in either of these cycles, which, hey, I think we all wish we could deliver 16% on our money forever. But to put that into perspective of what 16% is, that means your investment would double 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, we don't want to be in the market, and you would have pulled all your money out of the market, you would have missed the chance for your money to potentially double. Or if the incoming president was kind of in that blue category there and you missed the opportunity to be in the market.

Speaker 1: 24:05

And I think this is just the big advantage of the stock market in general right For those who have the right framework, for those who have the right structure. The rest of the world looks at the United States market in awe a little bit at the ability for it to continue to produce wealth for the market participants who actually have good, sound advice and don't freak out, don't panic, don't try to speculate. And so I just wanted to put those 16% numbers into terms that I think a lot of people could relate to. 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, and that'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 really important context. If you let your emotions decide that, listen, are we going to have a president that's going to do this or that, and then you get out, you miss on that incredible opportunity to grow and then you'll always be disappointed by the stock market. You might wonder why. But I think there's even a more fundamental question that as I looked at this data, that when I looked at this data, the first thought that I had was that the president that had the worst annualized returns was President George W Bush. Say, look, he was not a very good president for the markets. And this just might be it, and perhaps you should blame him for the market dropping about 4% per year because he just didn't seem there was a good president for the markets. But what I do remember is that it was roughly the time when I started Dimensional that there were very significant tax cuts specifically geared towards investing, that George W Bush promoted Taxes cut to long term gains, to dividends, which really were very supportive for investors in the stock market, and yet it dropped by about 4%. So that kind of leads me to the one fundamental kind of idea is that I don't believe that presidents should receive neither credit nor blame for how the market does during their time in the White House, because it's not a legitimate way to look at it. President George W Bush negative 4.4% annualized and you say, well, maybe he wasn't good for the markets.

Speaker 2: 26:32

Think about it. He walked in that White House just as the dot-com was going bust. How much did he have to deal with the dot-com bust? Nothing. 9-11 happened nine months into his term. And talk about it. He walked off at the very bottom of the financial crisis and you look and say he was not good for the markets.

Speaker 2: 26:51

I'm like I'm not sure that's fair to blame a president because again, the big drop 2000, 2001, 2002, there were three years in a row. They're all driven by the dot-com bust. Something had nothing to do with that. And then, on the other hand, you take President Clinton. Bill Clinton walked in just as the dot-com was taken off, just as all these companies, petscom and Amazon. They're flying high and I'm not 100% sure that the White House has much to do with that. I mean it just happened that those companies took off during their time in office.

Speaker 2: 27:24

And talk about market timing. He left the White House just before the tide turned and didn't capture any of the backside of the drop in the market. So again, to me it's a fundamental misconception that presidents should receive credit or blame. We saw that the political party of a president doesn't seem to matter at all to the market. But, even more fundamental, the policies don't matter and I don't know that the president should receive credit or blame for how the uh the the market does during their time, because they might just be picking up things that happened before and then you might miss things. That happens when the other president comes in. Yeah, that's great perspective.

Speaker 1: 28:05

Go ahead, no, go ahead. I was going to say I wanted to change the framework a little bit, maybe have a little bit of fun here, because the other thing that I hear about and I think all the perspective you gave is great framework for a long-term investor who really kind of the moral of the story is stay the course, stick with your investment philosophy, don't panic and freak out. At the end of the day, there is very little statistical correlation to who's the president or what party is in power. As to stock market returns, the thing that I hear, though, from some clients and I know your overall philosophy on investing, so I'm really interested to hear some of your framework around speculation that also comes into the stock market, because I've had other clients that have said well, what if Donald Trump gets elected? Should we be tilting our investments more towards certain things?

Speaker 1: 29:04

I remember in the last election cycle, when he got elected, it was more like towards small cap companies, because he was going to deregulate and help small businesses, and I heard very similar things when President Biden 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 just bets. At that point, right, you're speculating and you're taking bets, but talk about kind of how that active management framework or trying to pick where the market's going to go, based on who's in office and what their public policy might be, could either help or hurt investors.

Speaker 2: 29:44

You know, I'm going to tell you that we looked at this. I've gotten that question over and over and we looked at absolutely we looked at this because it's a really important question and there are some case studies that we looked at, both on what happens if you do have the government supporting that particular industry or the particular company. Is that a good play for investors? But also, what if the administration doesn't support that particular industry? Does it mean that that that it can go the wrong way? And I'm going to use some case studies. There are nothing more than case studies, because you mentioned the previous administration and I remember that one of the big things that they talked about was trying to promote local manufacturing, us manufacturing, and particularly the area of interest for the previous administration was steel and, if you remember, dave, like as they walked in, there was just a big push to promote the steel production in the US and there is a company that carries the name of the industry it's called United States Steel Corporation, which these days it's actually in talks to maybe be acquired by a Japanese company. But back in those days you're looking at January of 2017, it was interesting to see what was going on with that stock price, given that the administration was becoming quite public in its support of the domestic steel industry. So when you look at US steel and this is a price per share for US steel you do see that it kind of bounced around a little bit. But at some point there was talk of tariffs, and tariffs would apply towards foreign producers that really benefit the US manufacturers. So you did see that there was a price bump in there that a lot of folks were saying, well, this is it. I mean, you do have this company that now will be supported by policies of the US government and indeed, in March of 2018, the former administration announced steel tariffs. And at this point, as an investor, your thought is like well, this is great, because now this company can take full advantage of just being more competitive and sell a lot more in the US. So if you're an investor that right now kind of says let's jump on this opportunity because this is the play to make, what would have happened for the remaining of the term of the previous administration?

Speaker 2: 32:19

Well, it turns out that, interestingly enough, the value of US steel completely tanked afterwards, completely lost the majority of its value, even though it had the full backing of the US government. It had the full backing of the US government, even though there are tariffs in place to support it. It didn't mean that was a good thing for investors. It did not translate into a successful investment experience. In fact, it turned out to be a disaster for investors if they simply focused on that idea that, hey, the government is not going to support an industry and that's going to be good for me. So it is interesting to see that just because there is this support coming from the administration, it doesn't really mean that that's going to translate into investment success. The other case study that I mentioned is what if there's an industry that clearly is not being supported by the administration, does it mean that you should bail out of there because it doesn't have solid prospects? And, as you said, the current administration, the Biden administration, has been promoting more green energy than fossil fuels. So in that respect, nobody can say that the oil industry has a big support in the current administration. And what's interesting is that if you look, for example, at Exxon and the price per share of Exxon, what you find is that during the current administration it really skyrocketed up. So it's been really productive for an investor to own Exxon rather than bail out of it.

Speaker 2: 33:56

So to me it kind of goes to a fundamental question of why? What's the economics of this? Does this make sense, or is just some randomness that it doesn't make any sense? And I do want to come back to what is the intuition of all this and how the markets relate to the politics.

Speaker 2: 34:15

Well, the stock market is fundamentally a place where you and I anybody can go buy ownership in companies. That's what we're buying. We're buying ownership in companies and the value of that ownership depends on what do I believe that company is going to make in earnings and profits for years and years down the road, because that's where the true value comes from. If you buy a little restaurant and you want to say, how much should I pay? Well, how much is it making in profits and do I expect those profits to continue? And that's going to inform me of how much that company might be worth that little restaurant. And it's kind of the same with the market. It's a little more complex because businesses are bigger and there are more moving parts, but the fundamental premise is the same.

Speaker 2: 34:55

So in that respect, the question that investors are asking is fundamentally this given the policies, given what's going on right now. What do I expect these policies to change in terms of the earnings of the company for many, many years down the road? And if you think of what matters for the earnings of the company, take Apple, facebook, coca-cola, mcdonald's, you name it. In my view, economically, you can look at their products, their services, their strategy, how they executed, what competitors are going to do and, in my opinion, what drives the earnings and the profits of a company are much more related to something that they control themselves, rather than who's in the White House and how these policies might change. Because ultimately, in my opinion, the main drivers of every company's profits are driven by something they have much more control over, rather than the policy in DC. And do the policies in DC matter? Absolutely, does the government matter? Of course they do it.

Speaker 2: 36:01

Just to me, the way that I've looked at this, dave, is that there's so many variables that go into the performance of the 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 variable impact impact in the stock market. In my view. It is not a primary one, it is not one that drives the market. It's blends in there with so many other variables that it becomes indistinguishable. And the thought that I had lately, just to kind of illustrate that point, is that I've been baking cookies with my daughter and you go in and you put in the flour, the sugar, the butter, the eggs, and then you mix them up, you put them in the oven, you bake it. When the cookies bake and you break it apart, it's impossible to point and say, aha, I can see the 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 of the same with the market. Politics is like the egg yolk in 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 stinks it up so badly that you can recognize. It's not something that stinks it up so badly that you can recognize. It's just not. It's the egg yolk rather than garlic in a cookie, and because of that I don't think it's worth trying to figure out what exactly portion of the market return is associated with that. It's baked in with so many other, much more potent ingredients that to me it should not be the basis of making an investment decision.

Speaker 1: 37:38

Well, and I love that. And just to kind of recap, I mean, I think everybody as an investor is like all right, what's the bottom line? What does this mean for me and my portfolio? And I think, going back to what you opened with Apollo, that if you look at the history of the market, I think you said it's what about? One every four years is a negative year? Or, said another way, the glass is half full. Three out of every four years is generally a positive experience. And then, if you zoom into an election year, if I recall the numbers, it was about 83% of the time the market has delivered a positive performance in the election year.

Speaker 1: 38:20

And so I think for all of our long-term investors, it's we have a good plan, we have a good structure. Stay the course. Don't let what you hear in the media or around the coffee machine at work spook you, because, as we opened, politics is a very emotional topic in conversation about the things that are important to all of us in our life and our beliefs. But you got to be able to kind of dislocate that to a certain extent from your investment structure and philosophy. And then I'll just share one more thing, because it's why we're such believers in this overall, more capital market, diversified approach to investing that I know Dimensional supports us on so much as well is we're not taking concentrated bets anywhere. It's not like in the previous administration we were making a concentrated bet into steel. Do we have some exposure to it? Yes, and if it does well, we're going to ride that up, but if it doesn't do so well, it's not going to cripple your retirement or your investment structure. Same thing with oil, for example, and so many of these other asset classes. And again, I think that, although maybe you might not see all of these underlining positions, if we're using different mutual funds or ETFs, you're catching a lot of this overall exposure and it's bringing value to your investment approach.

Speaker 1: 39:48

It's very similar to when clients say hey, dave, we have this artificial intelligence craze.

Speaker 1: 39:53

I don't see any Nvidia in my portfolio and it's like well, dave, we have this artificial intelligence craze, I don't see any NVIDIA in my portfolio and it's like well, yes, it's because you see the funds and the ETFs that we're using, but if you dialed at one level deeper, you actually own 5% or 6% of NVIDIA and 5% or 6% of Facebook and 5% or 6% of Apple and Microsoft and so again, that's why we believe that nobody has this crystal ball.

Speaker 1: 40:18

If you want to gamble a little bit, you could make bets with some of your money. Right, there's nothing wrong if that's your money, if that's a passion for you and you want to play some individual stocks to try to make oversized profits, that's great and we fully support that with our clients. But I think, for the core of your assets, for the money that you're going to need to rely upon for financial security, stability and retirement, we believe this is so much more of an evidence-based approach, with a lot of the data that you can see that Dr Apollo Lopesco shared with us today. So, apollo, any kind of closing thoughts for our clients?

Speaker 2: 40:54

Well, I think you kind of said it so well, folks, when you're thinking about politics, I personally found that that emotions could drive decisions. It's not always the case, but if you feel like this is not going to end up well, the world is different right now. That that you know. Certainly I don't see the markets looking good or that because of one candidate or another. When we looked at this, it tends to be emotions.

Speaker 2: 41:20

When you look at the data, I don't see any evidence that that any of us should make any moves with our money because of the election. It's just emotions talking and all the data that we share today. There is nothing there that I again I was just going through my mind. Is there anything that we share that would indicate that you should make a move? So to Dave's point you have a plan in place and the best way to give yourself the best odds to accomplish those financial goals is to stay disciplined, to stick to the plan, because the plan has accounted for the uncertainty in the market and it turns out again that in an election year there's nothing really different that I would do with the stocks allocation.

Speaker 1: 42:05

Great. Well, we appreciate everyone joining us for today's episode. Hopefully you got some value out of it. Apollo, I appreciate your time, as always, and I look forward to having you back on a future episode.

Speaker 2: 42:16

I look forward to that too. Thank you so much for having me separate non-affiliated entities.

Speaker 3: 42:20

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