good, that It was interesting.
There's always something intriguing about a US presidential election, regardless of the outcome.
2024 was no exception.
I have spent much of my career studying human decision-making and behavior, especially when operating in groups. This election held some lessons for those who were paying attention.
Investing and politics don't mix.
I've been saying this for as long as I can remember, and people still keep making the same mistakes. That was literally the headline of my first Washington Post column on February 6, 2011.Why politics and investment are not connected” (Paywall free version: Big Picture)
Economic media spent a lot of time covering the election, too much in my opinion. Focusing on this can lead investors to make unwise changes to their portfolios. (There are two chapters on this in “'')How not to invest. ”)
Politics is emotional, and that's the bane of good investing.
Predictive LOL (predictive poll failure)
People love predictions and forecasts, even though we're bad at making them. This includes polls, which are being exploited as such to predict what will happen on Election Day.
Despite the hypothetical bias, the inability to reach people, and the terrible track record of polling, we just can't stop polling, can we?
How many times do people get it wrong before they stop trusting? Research shows that each year is worse than terrible, and polls focus on the wrong candidates even in the not too distant future. (2008, 2016, 2024). As mentioned above, public opinion polls Predicted value is completely missing One year before the election, six months before the election, three months before the vote, and even two weeks before the vote. Seven to 10 days before Election Day, there appears to be some degree of accuracy.
Polls showed wide margins in 2016, 2020, 2022, and again in 2024. Just because numbers are involved doesn't mean polls are the same as hard data. Aggregating bad numbers only gives you an average of the bad numbers. Investors should similarly be wary of any mechanism that claims to accurately predict the future.
the story rules
The two sides are stuck in a stalemate with razor-thin margins. This is an election with turnout and 2024 will be the year of the women voter.
We love stories despite the fact that almost all of the dominant narratives could not be proven to be true. It was more by chance than anything else that the story got right. But we can't help but be drawn into a good story. Because that's our nature.
your filter bubble
We all live in our happy little bubbles, driven by many factors. Where you live, who your friends are, the media you consume, and even your family upbringing all influence your bubble.
It's difficult to operate outside the bubble. To be successful, you must make a deliberate effort to recognize when you are consuming content you disagree with or falling into selective perception or confirmation bias.
Perhaps the most insightful opinion I heard from someone on the losing side of this election was:I think there are a lot fewer people like me than I used to think.” This is a wise admission that their bubble does not reflect the broader electorate.
Your entire daily life, not just the news you consume, creates a unique perspective. Whether you're a farmer, a blue-collar worker, a creative, or a financial worker, most people in this country have a very different experience than you.
Think about how a bubble affects everything you do, including the deployment of capital.
Emotions are difficult to measure
In my experience, sentiment is not particularly accurate or useful. When it reaches its extreme, it contains important market signals, but only 1% of the time. The remaining 99% contains very little information.
To make matters worse, sentiment is increasingly difficult to measure these days. It's not just that it's very difficult to reach people. As a country, we have become more partisan and performative. Even the University of Michigan's sentiment measurements are becoming increasingly unreliable. (How many people troll economic pollsters and public opinion pollsters?)
The focus of media coverage is wrong.
American media is really good at covering sports. Watching soccer on TV is great. I love going to New York Knicks games, and the TV broadcast allows me to see the game up close, which I can't even get from a courtside seat.
Sports is the ultimate story. Arena competitors with heroes and goats, winners and losers, and easy-to-measure scorecards.
Since the media is much better at covering sports contests than elections, the default methodology is to treat elections like games. Thus, there is an endless focus on the contest and less focus on the problem.
The similarities with financial media are clear. The focus is on the temporary and short-term rather than the more complex and long-term. Issues that are more difficult to cover and require specialized knowledge to explain are largely ignored.
your Attention is misplaced
Here's what didn't matter:: Vice presidential candidates, one of the debates, Trump's legal issues, climate change, transgender rights.
what was important here: Inflation and the economy (consistently cited as top issues by voters), abortion rights, and immigration. Everything else was noise.
speculation is rampant
The simple truth is that every cable channel I watched, from Fox News to MSNBC, CBS to CNBC to Bloomberg, spent most of its election coverage over the past six months on speculation and opinion.
This is fine as long as you understand what it is. I treat this somewhere between idle gossip and sports fan chatter. It's useless, it's not news, it's just entertainment.
no one knows anything
You may have noticed a pattern: humans are bad at predicting the future. And we don't really understand the present.
It doesn't matter the field: movies, music, politics, economics, and especially the market. We spend too much time imagining we know what's going to happen next, when our track record makes it clear that we have no idea what's going to happen. I'm spending too much.
The world is full of coincidences. Guessing 6-12 months in advance gives the universe ample opportunity to throw curveballs your way.
There is a famous Yiddish proverb.Der Mensch Tracht, Un Gott Lacht” A simple translation is “Man plans and God laughs.”
lack of humility:
Wall Street suffers from a lack of humility. This is another chapter from “How not to invest”
We know less than we think we do, and we act recklessly despite our ignorance. People who pretend otherwise are usually selling something.
We don't know what will happen in the future. We only have a cursory understanding of the past (which can sometimes help us speculate about the future), but very little about the present. We assume that the future will be similar to the past, but this is often not the case.
Good money management requires certain qualities of humility that are very rare in the field of finance. By now, you should understand how these bad actions can lead to bad outcomes.
You have to ask yourself, “What don’t I know?” Ask yourself this question often.
I feel like we practice this every election. (This is the 2016 version). We've talked about all of these topics repeatedly over the past year, although not to play Cassandra.
Or, as the German philosopher Georg Hegel wrote: “The only thing we learn from history is that we learn nothing from history.”
