Investor Bias and the upcoming US Presidential Election

Oct 28, 2020 | Jeremy Goldfarb


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During some reading this morning I stumbled upon material relating to an overview of Investor Bias, and it got me thinking about the conversations I have had with clients recently regarding the upcoming presidential election. There are many examples of investor bias, some more obvious than others. One of the more fascinating elements of investor bias from my perspective is Mental Accounting bias and the experiments conducted by Thaler on the subject (I would encourage you to check this link), but I will leave that aside for now. 

 

As we look at the upcoming election and how the results will affect global conditions over the years ahead, I can't help but wonder whether the 24 hour news cycle and the apparent lack of objective journalism (my opinion) is fated to amplify out biases as investors even further than they already are. An example of this, is the belief that a democratic US president will be bad for investors. Many people I speak to are quick to jump to this point when the real answer is far more complicated, and the data shows quite the contrary. 

 

As I have shown in recent posts, if we leave our personal politics aside, the overall impact to our portfolios of changes in political leadership is muted over time, and reverts to a mean. While we don't want to ignore global events as they arrive and play out, when we are faced with unfamiliar or ambiguous outcomes, the safest place for us to go is our process. Many (if not all) of our clients are long term investors, and while the goals may differ for each, all have their own unique process. It is that process we should rely on in times of uncertainty like this. Not our biases. 

 

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