The Power of Process
There’s no such thing as a crystal ball in investing, but a proven thought process is the next best thing.
When evaluating a money manager, many investors make the mistake of failing to explore the firm’s or individual’s thought process. After all, you can’t buy past returns and forecasts. The core question is: Has the firm demonstrated a research process that can differentiate it from the crowd?
We believe Fisher Investments’ rigorous and detailed approach—questioning conventional wisdom, checking bias and emotion—can be a powerful asset to your portfolio.
The recent US Presidential Election is an opportunity for you to see the value of this approach in action. We assessed how either candidate could win and what it meant for stocks. Many firms and forecasters were surprised Donald Trump won, as they followed polls and pundits’ projections. But all along we argued this could be off. We outlined Trump’s potential road to the White House in publications this summer, and it bears a striking resemblance to the November 8 results. We described this “bottom-up” analysis in our Q3 2016 Stock Market Outlook:
Though little noticed, Republicans control most state governments bottom-to-top. In Michigan, a blue state per top-down analysis, Republicans hold both legislative houses and all state offices. Pennsylvania and other top-down “blue” states are also heavily Republican at the state level. Republicans’ rise in several state governments is relatively recent and non-urban, hence widely overlooked. (Appendix II, Page 11)
As you may know, Pennsylvania, Michigan and Wisconsin—three states most presumed would go blue due to recent presidential elections—swung the race for Trump.
What’s more, many feared a Trump victory would bring a major stock market decline. One notable study by two economists projected US markets would be -10% and -12% lower if Trump won. We disagreed and critiqued this in our research:
We strongly advise against divining too much from these types of analyses. At its core, this paper argues that global markets and the US economy will behave in a given manner based on limited trading activity during a couple hours by a niche group of people on a Monday night in September and a weekend in October. … This understates the complexity and depth of global capital markets—US presidential politics are pretty far from the only driver.
We counseled investors to stay calm and own stocks—that while short-term volatility was possible, it can’t be predicted and would likely prove fleeting. Since the vote, stocks are up. Getting out of stocks would have been costly—in terms of taxes, trading costs and potential missed opportunity. Our large research staff’s disciplined process helped us avoid that pitfall.
Here are our latest, post-vote thoughts, though we believe politics are just one of three key drivers for stocks—alongside economics and sentiment. We analyze all three using the same evidence-driven process. If you wish, we would be happy to explain and demonstrate our research process to you more fully. Please contact us at (888) 823-9566 to talk it over.