Where Politics and Investing Collide

By Kayliegh Yerdon, Summer Intern 2015, Cornell University While the impending presidential election continues to become more heavily covered in the media, we’re inclined to think about how much political news really affects our every day lives. Think about it – when is the last time you went a whole day and didn’t hear about an election, a candidate, or a big political issue? Most common answer to that question: a very long time ago.

What’s even more interesting to think about is how political news has affected each and every one of us for almost our whole lives. Before we could fully comprehend the world around us, our parents most likely made our big decisions based on the information they had – and we watched and learned. From that point, many of us probably started reading or listening to our own different news sources. Furthermore, we have probably all surrounded ourselves with politically opinionated people throughout our lives. So, the sources around us become the influences of our decisions. We either like or dislike the things we hear and we act accordingly.

But, if politics affect so much of our lives, could they not affect our investing styles, too? Think about it: if a person believes in only purchasing domestic goods, chances are they’d only consider investing in the stocks of domestic companies. If another person believes in certain labor practices, companies who employ those practices may instantly become more appealing.

In fact, political views are part of the investing definition of “intrinsic value.” In the investing world, we use the phrase “intrinsic value” to describe the actual value of a company – which is comprised both of its tangible value and the sentimental value it holds to the investor. And it’s true: we’re more likely to invest in companies that we really like or actually fundamentally agree with.

While knowing the companies you’re investing in is always a great idea, some plain and simple advice for all investors is to be conscious of your own biases. By adjusting your portfolio according to your political beliefs, you might be missing out on important investing opportunities that you didn’t even know you had. Furthermore, in times of great political activity (such as elections), the stock markets have generally seen amplified volatility. So, narrowing down your industry choices or company investments might subject your portfolio to great change when the policies of the White House change.

In times of political controversy, it is always smart as an investor to recognize your inherent political biases and instead rationalize each investment decision you make based on the stock’s legitimate long or short term potential. Check back in next week for a full list of the psychological biases that lead to our investment decisions!