Neil Irwin of the New York Times has a nice column along the lines of “Stocks for the long run, come hell or high water.” Long story short: it’s a shout out to investors of a Democratic persuasion, on why not to sell stocks, no matter how negatively you view the prospects of a Trump administration. It’s very much in keeping with the Jeremy Siegel position on stocks: buy, buy some more, and hold, hold, hold, forever and ever, amen.
After all, Presidents have relatively little effect on the real economy, right?
My response is a riff on Pascal’s wager. It takes the form of an 8-fold table. Only the first four rows are shown; the other rows can be generated by analogy, if you happen to be a Trump supporter.
|Stance on Trump||Possible investor action:||Actual market outcome:||Your personal outcome:|
|You oppose, fear, and dread Trump||None; hold||Up!||Mild pleasure|
|You oppose, fear, and dread Trump||Sell!||Up!||Mild displeasure: gains have been foregone|
|You oppose, fear, and dread Trump||None; hold||Down!||Strong displeasure: you violated your principles and you lost money|
|You oppose, fear, and dread Trump||Sell!||Down!||Strong pleasure; you took right moral action and you averted losses|
The descriptors mild and strong in the above reflect a basic insight from behavioral finance: that humans are loss averse. As investors we weight losses more heavily than gains. The second insight is the standard economic assumption that all forms of utility are fungible. The pleasure from acting (not) in accordance with your moral principles can be added to (subtracted from) financial gains.
The next step, a la Pascal’s wager, is to net out the cells in personal outcome column across market outcomes for each of the two possible actions, holding versus selling. If the investor holds, the expected outcome nets out negative. If the investor sells, the expected outcome nets out positive. Therefore, per Pascal, the Trump-fearing and -hating investor should sell.
I did and I’m still selling. If you fear Trump as I do, please consider the analysis above. As before, selling makes the most sense if you are an older investor like me with an accumulation built up over the decades.