Debunkery: Learn It, Do It, and Profit From It—Seeing Through Wall Street's Money-Killing Myths

BUNK 41

MY POLITICAL PARTY IS BEST FOR STOCKS

Too many investors are prone to fall prey to their ideological biases. If you’re a strong Republican, you see the world as being better when Republicans are in charge, and vice versa. Folks also think their “team” has been and will be better for stocks. And you can slice and dice the data various ways to support either Democrats or Republicans being better. But inherently, neither party is better or worse. There are timing differences. Thinking otherwise is just an ideological bias at work—a form of cognitive error—and in investing, biases are your natural enemy.

Yes, in long-term history, Democratic presidents have had slightly higher returns on average than Republicans. But think the way a statistician would think. They would routinely throw out the couple of highest and lowest returns by both parties as likely quirky weird phenomena that don’t mean anything in and of themselves—and then consider what happens with the rest of all the years. Is there a difference? With statistical consistency? When you do that, throwing out those few outlier quirky returns, Republican and Democratic presidents on average look almost identical (see Bunk 40).

Plus, some of those years when a president did very well or badly, his party controlled Congress and other years the opposition controlled Congress. When you start adjusting returns tied to congressional power versus presidential power things get murkier still.

But by now you know the forces behind ...