We’ve heard from many of you about your concerns surrounding the upcoming election. Our response has remained consistent: historically, market data shows that the outcome of elections does not have a significant long-term impact on market performance. As political polarization has increased, so too has the frequency and intensity of these calls, with spikes during the elections in 2020, 2016, 2012, 2008, 2004, and 2000. In rare cases, we see clients panic when their chosen candidate loses, insisting that we sell everything and move to cash.
The 2000 election was particularly notable because it was contested, and the results weren’t finalized until a month later. That year, the market had already peaked in the spring, and a bear market began—lasting until the spring of 2003. This downturn was not due to the election but to the bursting of the dotcom bubble, driven by speculation and overvaluation of internet stocks.
Interestingly, during that prolonged bear market, an unknown company named Google began the process of going public via Dutch auction. Google eventually went public in August 2004, just three months before the election. Apple’s stock, at the time, was just $0.97 per share, and the company wasn’t even selling cell phones yet. Nvidia's stock closed that year at $0.18 a share. Behind the scenes, the engineers, developers, designers, and leaders at these companies were focused on building products that would meet market needs and generate profits—regardless of the political landscape. Yet, in the 2004 election, some investors still wanted to exit the markets because their preferred candidate lost.
In 2016, we witnessed Brexit and the unexpected election of a political outsider to the presidency of the world’s largest economy. Contrary to fears, markets rallied after the election, making the fourth quarter of 2016 one of the strongest on record. Similarly, in 2020, we experienced the rare occasion of an incumbent president losing re-election. Despite the close race, markets rallied after the election and continued to rise through the end of the year and into 2021.
Looking further back, in 1968, markets hit an all-time high, but there were signs of a slowing economy. That year, the sitting president decided not to seek re-election, we were embroiled in an unpopular war, a leading presidential candidate was assassinated, and uncertainty was widespread. Markets dropped by 8% the following year but recovered and rallied over the next three years. During that time, Berkshire Hathaway shares traded at just $5 per share.
We believe politics are personal and we respect individual views. However, we do not base investment recommendations on political speculation because history shows that it’s an imprudent approach to long-term investing. While it’s tempting to think that "this time is different"—arguably the most dangerous phrase in investing— history tells otherwise.
- Kumbie Mtunga
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