The Big Investment Lesson of the 2012 Presidential Election

Hidden beneath all the euphoria and the disappointment of this year’s Presidential Election is a very important investment lesson for all Minnesota stock market investors.

The 2012 Presidential Election set records for the amount of money spent by political action committees. American Crossroads, founded by Karl Rove, spent over $100 to get Mitt Romney elected president. In addition to that, thousands of individual donors spent more multi-millions on their favorite presidential candidate over the last few months.

The weekend before the election, the majority of state polls showed President Obama leading slightly or tied in every major swing state that was found to be crucial to victory.  President Obama won every major swing state--Virginia, Ohio, Pennsylvania, Colorado and Nevada. He is also currently leading in Florida.

The big presidential donors spent their money to force the outcome of the Presidential Election that they wanted to see happen. The state polls showed the opposite outcome was more likely to happen.

The majority of political pundits who wanted Romney to win ignored the polls.  In the end, the polls won because polls never care who wins; polls are just a measurement of people’s attitudes.

Voters, like investors, arrive at their decisions even before the final results are known. No matter how much of their own money is at stake, a person believes that the outcome they want will eventually be there in the end. This is especially true when emotions are involved.

When you take that same mind set into the stock market, you don’t do very well.

In the last month, there have been many more sellers of stocks than buyers of stocks. The large groups of professional investors have been voting with their feet in the stock market recently. Lower prices are likely over the near term.

Any investor with even a limited knowledge of the economic law of supply and demand will tell you that more supply than demand always leads to lower prices eventually.

The stock markets don’t care about your emotions or what you think about the investments you own.  Listen to what the stock market polls are telling you. Have a game plan in place to manage your stock market risk now.

Ric Lager
Lager & Company, Inc.