3 Simple Reasons Why For Stock Investors, It Doesn’t Matter Whether Biden or Trump Wins The Election in 2020
6 November 2020
Based on the current trend of the mail-in ballots, it seems likely that Biden is going to be the victor of the US election in 2020.
Maybe by the time you are reading this article, Biden is already projected to win in Pennsylvania or Nevada. With Nevada, being the likelier state that Biden is going to win.
Winning Nevada will give him the 6 points he needs to secure the 270 electoral votes to win.
As of the time of this writing, Trump and Biden are necks to neck in Georgia – with Trump leading by only about 0.01% with 99% of the votes counted.
And maybe Trump will even stage a comeback by winning Nevada, Pennsylvania, North Carolina, and Georgia – although it is very unlikely at this point.
Regardless, here are 3 simple reasons I feel that for intelligent stock investors, it doesn’t matter who wins the US election in 2020:
1. The Primary Reason for Most Stock Outperformance is Business Results
As humans, we are naturally interested or keen on coming out with reasons why certain things are happening to the stocks we hold.
But if we think about it, at its very essence, if a business does well over time, the stocks will likely do well over time too – isn’t it?
Microsoft has done pretty well for itself in the past 30 years, no matter who was the president – democrats or republican.
Yes, there is survivorship bias involved. But the fact remains that if the company continues to innovate and produce great results, shareholders are bound to be rewarded over time.
2. The Business Cycles And External Circumstances Play A Bigger Part
“Bull markets and bear markets come and go, and it’s more to do with business cycles than presidents.” – Siegel, author of Stocks For The Long Run
Whoever wins the presidency, I believe that what happens to the economy will never come from just one factor.
The business cycles and external factors play a bigger part.
For example, yes Trump had made corporates in America richer with the tax cuts he did in his Presidency. But the virus is beyond Trump’s control when it first came, it is within his control though – on how he should have handled it.
But regardless, the point is that how the stock market will do – and how our investments will pan out – is likely more of a factor of how we behave, that who is the president.
And if we think about it, the companies we choose and the price we pay for the stocks plays an even bigger part.
3. Whoever Wins, At Least We Know Who Wins
The stock market hates uncertainties.
They love certainty.
Whoever wins, be it, Trump or Biden, at least we know who is the next US president. And also importantly, who will be controlling the Senate and the House.
As of now, it seems like the Republicans will still control the Senate and Biden will be the President. Let’s see what happens but regardless, when there is more certainty, the market tends to do better.
Look back in March 2020 when the COVID-19 pandemic has just begun, the stock market crashed due to massive uncertainties about the impact of the virus.
Moving forward now to almost the end of the year, the pandemic is not yet under full control but because we now know more about the virus than we did back in March, the stock market has recovered all of its losses and gained further.
Yes, we can analyze the past and see how the stock market does under past presidents.
In fact, Forbes has a comprehensive article about how the stock market performed under every US president since Truman here.
In general, the stock market does better under democrats based on the past.
But the past does not equal the future.
One thing we know now is that we are on a path to recovering from the COVID-19 pandemic and with a stimulus and vaccines in sight, business’s earnings are likely going to do better (of course, depending on what we have in our portfolio).
And with little alternative to equities in the current low-interest-rate environment, the market has the appetite to take on more risks with equities.
So regardless of whether Trump or Biden wins, the stock market will likely do fine – if we invest in the right companies at the right prices.
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Chris Lee Susanto
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