Post Election Thoughts (EP.177)

0:28We all need to make smart decisions with our money. point or another, I remind you that the longterminvestor.com has detailed show notes, charts, and resources. But today, that reminder is particularly important because I think the most impactful part of this episode are the charts and data on how the election impacts market performance. Now, I'm recording this episode on election day, so perhaps we know which candidate has won the presidency, and maybe we don't. But here's what I do know is that roughly half of people are going to be disappointed. And in my experience, investing, as well as coaching other investors through election periods, I know that many of you are feeling a bit uneasy about the future.

1:13You might even be considering going to cash with a portion of your portfolio or making some other kind of tactical change. Those feelings are totally normal. And so that's why I want you to go to thelongterminvestor.com and check out some of the charts. and I'm going to tell you now, on top of that, what nearly a century of data says about today's situation. Let's start with the simple fact that no single president has ever dictated the stock market's long-term trajectory. That's because markets are driven by countless factors. That's consumer demand, innovation, interest rates, global trade, and more.

1:51And sure, policies can create a little wind in the sails for certain segments of the market or maybe a bit of headwind, but the presidents don't hold the wheel. And as you'll see in the charts at thelongterminvestor.com, the stock market doesn't really belong to any one party or administration. It belongs to the people and the companies they create. Think about it. When you invest in the stock market, you're buying into the future earnings of the underlying companies. So no matter who wins the election, do you really think that McDonald's will stop trying to sell as many cheeseburgers as possible?

2:28Or that Starbucks will suddenly give up on selling coffee and sandwiches? Will Apple not try to push for more iPhone sales? Or will NVIDIA stop making computer chips? Or Tesla stop building cars? No, of course not. These companies are going to continue innovating, keep competing, and keep finding ways to grow. And as a shareholder, you're along for that ride. Remember, and I've said this through a lot of episodes, stock returns are really just driven by three things. They're driven by earnings. They're driven by cash paid to shareholders, whether that's dividends or stock buybacks. And they're driven by changes in valuation.

3:09Now, that's the stock market piece of it. A lot of people are also worried about the economy. And I think here's something that's important to remember. Even when things look uncertain, this country has proven time and again that it can adapt, innovate, and come back stronger. Let's go back to 1992 when the Competitiveness Policy Council, a committee advising America's President and Congress, declared, quote, on present policies and performance, the United States is condemned to slower growth than other main industrial countries for the foreseeable future. Now, this statement came at a time when many people were concerned that the U.S.

3:48economy was losing its edge to foreign nations, especially Japan and Europe. Turns out the opposite was true. So check this out. In 1990, America made up about 40 % of the GDP of the G7 group of advanced economies, whereas today, after this broad declaration of doom had been put out there into the world, Today, America's GDP is up to nearly 50 % of the G7 group of advanced economies. And on a per-person basis, America's economic output is 40 % higher than in Western Europe and 60 % higher than Japan. In fact, average wages in Mississippi, our poorest state, exceed the averages in the UK, Canada, and Germany.

4:35Since 2020 alone, America's real growth rate has been an impressive 10%, nearly three times the average growth rate of the other G7 economies. Even among the G20, which includes emerging markets, the U.S. stands out as the only country whose output and employment are above pre-pandemic expectations according to the International Monetary Fund. Now, there are several reasons for the strength of our economy. I think the most obvious is just the size and scale of our consumer market. Because when a product is developed in one city or one state, it can easily spread to the other 49 states, which allows ideas to scale fast.

5:17And this large domestic market means companies can grow big, quickly. And our labor market, our labor market is huge. It's flexible, it's connected, and that means that companies can draw on talent nationwide and adjust to economic shifts with relative ease. Another huge strength is that America has the world's largest and deepest financial markets, making it easier for startups to find funding and for big companies to raise capital. And that's a huge advantage because it means innovation isn't just an idea. It has the resources to grow and thrive here. Even more, America's financial ecosystem keeps pulling in some of the world's best talent, feeding a cycle of growth and opportunity.

6:05Of course, it's fair to acknowledge that America has its challenges. Our health care costs are very high. Income inequality is a real concern, and our life expectancy is shorter than in many other developed countries. There's also some material fiscal concerns as our debt to GDP ratio has soared since the great financial crisis in 2007. And as alarming as that situation seems, it's really impossible to know how much debt is too much. And there are three episodes that I dive deeper into this topic. If you'd like to learn more, I will link to all in the show notes, but you can also scroll back to episodes 157, 158, and 159.

6:47I think it's also fair when people point out that the tailwinds from the past few decades might provide less of a boost in coming years. Such examples as the shale boom in the U.S. That was a major contributor to growth over the past two decades. But the rise in renewable energy means that plentiful oil and gas may not offer the same advantages going forward. And the U.S. seems to be lagging behind other countries in the transition to cleaner power. Another fair consideration is that the incredible outperformance of U.S. stock markets relative to the rest of the world have left U.S. equities trading at a very rich multiple compared to other countries.

7:29And that's a topic we covered in great detail last week. So you can go ahead and look at that for more information on that particular concern. But some reversion to the mean seems like a fair concern. Another thing that I tend to notice is that politically, we seem to have this unusual tendency for self-harm. On the other hand, throughout my experience as an investor, we have seen the political system work very well in the times of the economy's greatest needs, such as the great financial crisis and the COVID pandemic. Now, when I talk about drivers of economic growth, earlier I was referencing the drivers of stock market returns, and it really is just those three simple factors.

8:09But I think a lot of people are surprised at how the drivers of long-term economic growth can be boiled down so simply to just productivity and population growth. And I think if the charts are the most impactful part of this episode, I think this message here might be the second most, because if we're going to separate the presidency from the long-term economic health of the country, it does allow you to have a more balanced sense of optimism and recognize that it would be difficult for one president or one party in general controlling Congress or even having a mixed Congress impacting these trends.

8:50When I look at productivity, for example, the foundations of it are firmly entrenched in the United States. We have a giant competitive domestic market that is home to many of the world's best universities and the sanctity of the rule of law. And even now, we're seeing how the flexibility of our American economy can allow for quicker adaptation. Innovation continues at a breakneck speed in technology, medicine, and sustainable energy. And in many cases, we're not just keeping up with global competition, we're often setting the pace. Now, as for the population, U.S. demographics are probably a little healthier than are often appreciated.

9:32Like most countries, our population is getting old, but unlike most, the United States maintains a slightly higher fertility rate and a better ability to absorb immigrants. So if you look at projections from the UN, America accounts for 4 % of the world's population, and by the year 2100, it will still be about the same. Meanwhile, China's shares expected to fall from 18 % to 6%, while the European Union will go from 6 % to 3.5%. And America will, in relative terms, be a younger country. So when I think of these two drivers of economic growth, productivity, we have very, very strong foundations that would allow us to remain a productive country.

10:17But population growth, these are large trends that no one set of politics and policies in our country are going to necessarily reverse. And I think being optimistic doesn't mean ignoring potential challenges. But you can't ignore that the roots of sustained economic outperformance look as strong today as they have at any time over the past three decades. So let's bring this all together. Whether you're thrilled, frustrated, or indifferent about the election result, remember, your long-term investment strategy isn't built around one administration. Markets may react in the short term, but their real growth is rooted in things that politics just doesn't have that great of an influence over.

11:06So the best action you can take is to stick to your plan, to trust the resilience of America's economy and to maintain that optimism because optimism about America isn't just hopeful. I think it's plainly realistic. As always, thanks for tuning in to The Long-Term Investor. If you found this episode was helpful or gave you a new perspective, consider sharing it with someone who might feel uncertain about what comes next. And remember to keep your focus on the long-term. Thanks for listening to the Long-Term Investor Podcast. To access free financial resources and submit questions to be answered on the show, visit thelongterminvestor.com.

11:51Peter Lazaroff is an employee of PlanCorp and BrightPlan. All opinions expressed by Peter and any podcast guests are solely their own opinions and do not reflect the opinions of PlanCorp or BrightPlan. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of PlanCorp and BrightPlan may maintain positions in the securities discussed in this podcast.