We hear it each and every time - the uncertainty surrounding the election. Of course it's uncertain. That's what the future is - uncertain. If anything was certain we would not be compensated or rewarded for risk.
As another election comes and goes, and as we are taken on another emotional rollercoaster ride for no real reason, allow me to shed some light on how these things typically play out.
I've charted the ASX 300 and it's performance 6 months following a federal election since 1993:
Of the 10 federal elections since 1993, the stock market has been in positive territory 8 out of the 10 years with an average gain of around 6% in the following 6 months. The positive years had an average gain of about 9%, and the losses had an average loss of about 6%.
I then stretched the time horizon out a little further, and went out 12 months post election. Here are the result:
Of the 10 federal elections since 1993, the stock market has been in positive territory 6 out of the 10 years, and on average it's been pretty flat (excluding dividends) 12 months following - 2007 has a pretty big impact on these numbers, which I will say was not impacted by the Australian federal election (as much as we'd like to think we are that important). The positive years had an average gain of about 14%, and the losses had an average loss of about 23% (12% if you exclude the GFC).
Not a staggering difference, I know. But then again, it's such a short period of time in financial markets.
These events attract so much attention, and the way they play out, well, I don't think you need me to go through that. Meanwhile, sucking investors into this infinite loop, causing so collateral damage to portfolios and their financial lives.
I don't get too caught up in the speculation that is media pornography. I think of investing more as a game off odds. It's pretty simple in my mind. We overcomplicate it. Here are the odds of success as they relate to the stock market.
Time Frame | Positive | Negative |
Daily | 54% | 46% |
Quarterly | 68% | 32% |
1 Year | 74% | 26% |
5 Years | 86% | 14% |
10 Years | 94% | 6% |
20 Years | 100% | 0% |
I'll leave you with a quote from Warren Buffett at the 2022 Berkshire Hathaway annual shareholders meeting:
It's amazing how hard people make what a simple game it is, if they told every body what a simple game it was then 90% of the income or more of the people that are speaking would disappear. - Warren Buffett
You can watch the video here, it's about 3 minutes long, and worth the watch.
The election, party, or prime minister doesn't control the stock market. You can look at it however you like, but the data show this. Godspeed.
My colleague Matt Rigby and I talk more about this in last week's The Wide Lens podcast.
You can also listen to the podcast on Spotify or wherever else you listen to your podcasts.