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Selling everything after a presidential election can turn a political prediction into a very expensive investing decision. One prominent investor learned that lesson after the 2016 election.
NYU Stern marketing professor Scott Galloway, host of “The Prof G Pod,” recently revisited the decision while answering a listener’s question about investing through political and economic uncertainty.
“Trying to guess when the top happens is dangerous,” Galloway said. “Probably my biggest investment mistake was the emotional reaction I had to the 2016 election of Donald Trump.”
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Galloway Sold Everything After The 2016 Election
Galloway said his concerns about Trump’s election led him to make a dramatic move.
“So when he was elected in 2016, I sold all my stocks,” Galloway said. “That was stupid. The market ripped for the next year. There was so much insecurity about him actually winning that the fear had been priced in. Stocks ripped up.”
The S&P 500 climbed 3.4% in November 2016 and reached a then-record high later that month, according to the White House Council of Economic Advisors in January 2017. The index gained another 19.4% in 2017, rising in 11 of the year’s 12 months.
Galloway said he returned to the market about six months after the election. By that time, stocks had already risen between 10% and 20%. He also said selling triggered taxes on significant capital gains while he was living in New York.
“So you could argue, at least notionally, that decision cost me 40% of my liquid net worth in stocks,” Galloway said.
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The Economy Is Bigger Than The Headlines
The experience shaped Galloway’s view of how investors should respond when politics create uncertainty.
“The economy is an iceberg where I think 90 to 95% of it is below the surface,” Galloway said. “And what the government does, does matter, but the majority of the economy just grinds on regardless of who is tweeting what or not tweeting what.”
His point was that political developments can affect markets, but investors can’t know exactly when those effects will show up in stock prices or when a correction will arrive.
For investors looking to build a portfolio without constantly reacting to headlines, Chime Invest offers access to stocks and ETFs as well as managed portfolios. The service can be another option for investors building a long-term strategy, though investments can lose value.
