From Potomac Fund Management, this is the Conquer Risk Podcast. Join us as we discuss the business of running an RIA firm and the practice of investment management. And now, our hosts. Welcome to our election and Halloween special.
You know, we're going to throw a few things together here. I know a lot of people listen rather than watch, but I have to be really clear about this. Manish and I are dressed up in character. So Manish, what should I say?
Mr. Incredible, before we get started on the podcast, welcome to the show. Yeah. What made you think Mr.
Incredible was the right thing? Oh man, we've seen Incredibles 1 and 2 in our house maybe 500 times. And so, you know, we're all, my wife's Edna, you know, the kids are Frozone and Jack-Jack. And so we take Halloween seriously.
This is, as a father, it's my duty to hold down the fort and dress up. So this is who I am. Yeah, I've seen, I've seen, the giraffe was my favorite. I love the giraffe.
Was that last year maybe? That's 2018. Last year I was Kristoff on Frozen. All right.
So, yeah. So anyway, for those of you who aren't watching but are listening, obviously Manish is Mr. Incredible from the cartoon movies, I am, where's Waldo? But there's a reason for this particular outfit and I have to have to describe just briefly.
It's amazing to me. It's fun, frankly, that how many people that I end up talking to, how many advisors communicate with me, set up a meeting, et cetera, and they've already watched podcasts. They've seen, you know, social media, they've seen our website, et cetera, and understand that I full-time RV, my wife and I do. And so the question is always basically, where's Good No?
I have not dressed up in a Halloween costume since college. And so Manish basically said, hey, we're doing a Halloween special. Get a damn costume. So here I am.
This seemed to make sense to me. So where's Good No? Now I'm going to pull another one out of my hat, which is, this is my take on Mr. Rogers, because right now, if you know where's Waldo and you aren't actually watching, Waldo has these ginormous, big, round black glasses.
And I can't see shit right now. So in the effort of Mr. Rogers, I'm not changing shoes. I'm changing glasses to my own black glasses.
They're not going to be much different. Wow. Hey, man. All right, let's go.
Leave my coat bottles alone. All right. So here we go. Let's hit on this, right?
We're going to have a little chat about elections. And look, I realize I've gotten stuff from many of the big players, other big managers and complexes out there on their own take with, you know, 47-page diatribes about what's good, bad, or other in the circumstance. But our take is this. We say this all the time, which is until the data changes from an investment standpoint, you know, we're not, you know, it just doesn't matter.
And so we wanted to dive in. And this is something we sometimes find that we're right. Sometimes we're wrong. Who knows?
So that's what we want to do is bring some tidbits for you, the advisors, to be able to talk to clients and have an understanding about whether or not this one word, worry, is really appropriate in this particular time, right? Well, because it comes up all the time. And it comes up even more now where advisors reach out and say, listen, I have a client who's extremely worried about, insert headline, trade wars, extremely worried about the election, you know, who's going to become president. And what we want to address is, are any of these worries valid?
And so that's the point of this election special is to really uncover that situation. Yeah, yeah, absolutely. Absolutely. This is not a pitch for a Republican or Democrat or independent or anything else.
It's just that. Do these events really matter in the market? So on that note, the first thing that we need to understand or have some sense of perspective on is, does it matter whether it's a Republican or Democratic president when it comes to the markets? Well, first things first, my neighbor has a sign in their yard that says, f*** all, it's 2020.
I love it. Anyway, so all right. So some of this data is courtesy of Investec Research, which has given us permission to talk about this and republish it. So shout out to them.
And so going back to 1913, and we'll talk about why we chose 1913 in a second, using the Dow. And if you wonder why we're not using S&P, it's just because the track record, consistent track record going back over time. So let me pull this up. So going back to 1913, under a Democratic president, the annualized return of the Dow Jones has been 11.3%.
Under a Republican president, the annualized returns have been 8.4%. Wait, wait, wait, wait. Time out. Time out.
Is it just me? Or it seems like when I talk to advisors around the country, more of them are Republican than Democratic minded because sort of the theory is Republicans are going to drive a better market, pay less taxes, et cetera. You just said Democratic presidents have a better DJIA return. Correct.
On an annualized basis, going back to 1913, the market performance is about 4% better annualized under a Democratic president. That's interesting. I look at it, that's almost a 50% improvement. That is not what I expected to hear you say.
Okay. So, all right. Well, on that note, sir, let me find a different point. Ha ha ha.
Okay. So what about, you know, presidential situation is one thing. What about the Congress? I mean, when House and Senate, does it make a difference, you know, if they are matching the president or sort together or split or whatever that, you know, those different combinations?
Yeah, that's the talking point, right? That the presidents don't matter and that, you know, it comes down to Congress and whatnot. And so let's do it by congressional party. Same 1913, using the Dow, a Democratic-controlled Congress, the annualized return is 10.3%.
A Republican-controlled Congress is 13%. And a split Congress is 4%. Okay. So this is, I'm just finding, is anybody else finding this funny?
So a Republican president is worse historically than a Democratic president, but a Republican Congress is better than a Democratic Congress. Okay. So, all right. Now when you split the houses, then that's when it gets kind of ugly because basically nothing gets done.
But that in and of itself, I find interesting because what does everybody agree to? And that is uncertainty is bad for the market. Certainty is good for the market. Well, we all know if the houses are split, there ain't shit getting done.
That's a certainty. Yeah. So you would think that a split house would probably be better. I mean, just anecdotally, to me, I would think that that would be a better case, but clearly that's just not even worse.
That's like way worse. Yeah. I mean, I guess the moral of the story is nothing that you think matters. Well, you're right.
And the reality here is, and I think this is sort of apropos, the reality is in all scenarios, the markets went up. Over time. Yeah. Absolutely.
Absolutely. On average, they went up. And look, let's face it, right? Markets, we all know that.
Markets have gone up more than they've gone down. It's just that when they go down, most people can't stomach it. So that's a whole other topic. Right.
But you mentioned 1913. So I want to address that. What's the deal with 1913 in this scenario? So the overwhelming topic when it comes to Republican and Democratic, in my opinion, at least in the finance advisor world, are taxes, right?
One party cuts taxes, supposedly, and is fiscally responsible. The other one raises taxes and adds to the debt. That's a theme. It doesn't always happen that way.
So 1913 is the inception of the federal income tax. So, you know, given that this is a podcast for advisors, you know, we decided that the dates should align with what those overwhelmed beliefs are when it comes to each party. Gotcha. Well, so, I mean, let's dig into taxes a little bit more.
And I have to say, this is bad for, I'm going to take a break here. This is bad for us to do Halloween costumes. I haven't done this in so long. While you're talking, I'm busy making like little fluffs on my hat, and I'm giving Christopher way too many gifts.
That's what it boils down to. God only knows what's going to come out on social media with this. Anyway, so let's dig in a little bit more about the taxes then. You know, this is something that, I mean, I've been in the business 25 years, crying out loud.
I've seen a lot of different scenarios. And that is one of the big themes that seems to be happening right now is, oh, well, you know, if X party gets in, then taxes go up. If Y party gets in, then taxes go down or stay the same or whatever. What's that really look like?
I mean, what is our tax environment? Well, yeah, what's interesting is tax increases have happened in different stock market cycles, different economic cycles. Historically, they have not triggered a bear market, as maybe some headlines would suggest. And what's really interesting is one stat that I pulled out here, that from 1936 to 1963, the top marginal tax rate was 79% or higher, which essentially today, you know, people would ship bricks over that stuff, right?
Like, what the hell is going on with 79%? During that 27-year period, Dow Jones gained 429%. Wow. Okay, I'm just learning all kinds of things.
This is definitely not what I expected. That's a pretty good kicker. Now, granted, that's a pretty solid time frame, too, though. I mean, 30 years, whatever.
I mean, I think one of the things that's clear, right? Great Depression, raise taxes while everybody's out of work is probably not the most brilliant idea. But, you know, the reality is, and you and I were having a conversation the other day where it kind of depends on what they're doing with it, right? I mean, can you speak to that at all?
Yeah, you know, we have these water cooler conversations with folks who are like, well, you know, the taxes go up and the economy's going to crash, you know, rich people aren't going to spend any money, they're going to high tax, whatever it may be. It's too narrow of a conversation. You don't know if taxes go up, is that going to drive economic growth? If taxes go down, are people who save money on taxes going to drive economic growth, or are they going to just hoard it?
Yeah, just save it. So it's an incomplete conversation. So when it comes to taxes and the markets, once again, we are not here to pick a side. We're just saying that roaring bear markets, tax increases, decreases, they've happened under both Republican and Democratic Congress, as well as administrations, presidents.
And frankly, it just, it has no bearing. It's more towards what else is going on in the world, whether you're in a bull or a bear or the technical or the economy. And so I think that's really, you know, the conclusion, right? I mean, it's from all these stats is that it just doesn't matter.
Yeah, well, and like I said, there are other things that are going on, too. I mean, you end up with wars and conflicts, and there's all kinds of things. And it goes back to that word I started with, which is worry, right? There is always a worry du jour.
And, you know, today it's the election, right? That's the worry du jour. And I think to make investment decisions based on the worry, that's kind of the point of this whole podcast, is that just doesn't necessarily make a lot of sense. Because, frankly, you probably have better odds to screwing it up than making it a better situation.
Well, so I had a couple calls recently from advisors who said, listen, I'm fielding calls from clients who are telling me, no, I'm worried about the election, you know, I don't want to be invested here. And so in my last commentary, I put in there, and this is my go-to. Anytime people come up with these kind of stats, it's my go-to. In 1963, when JFK was assassinated, the S&P went up for eight straight months after.
And so it just, sometimes it doesn't make sense. And so, you know, this is kind of the point of this, like you're saying, it's the stats don't bear the worry du jour that follows. So here's a quote from Mark Twain. I'm going to read it off my screen because I want to get it right.
October. This is one of the particular dangerous months to invest in stocks. The other dangerous months are July, January, September, April, November, May, March, June, December, August, and February. And that's Mark Twain.
And so maybe you've seen this before. I love this here because it's just many times that the market just doesn't make sense. And you cannot invest based on geopolitical events that may or may not happen. It's just, it's proven to be a horrible indicator historically.
Okay. Well, for the record, I just want to make sure that we get this right. You know, you make fun of my four eyes. I'm going to let you borrow my Where's Waldo glasses because apparently Mr.
Incredible mask doesn't come with anything. You had trouble reading it there. I just want to make sure you can see that. Okay.
All right. So what, any other parting thoughts or so forth on this topic? No, I think, I think that the overwhelming conclusion here is that you cannot invest on headlines, you know, and we've, we've been on record over and over with the trade war with all these things because we get comments and, you know, why would you be invested ahead of the election? Why would you be invested ahead of this trade war issue?
And we come across sometimes as flippant with our responses, I think, because it's always the same. None of this shit matters. It just doesn't matter. You can't invest on geopolitical events.
You're destined to fail. All right. Well, I think we've wrapped that one up on that note. What do you got for a recommendation?
So you brought up four-eyed freaks earlier. So my recommendation is to solve that problem. So let me, what's the actual name here? So you and Christopher both wear glasses.
Yeah. And so, where is this thing? Here it is. So it's called Great Video Maker.
It's a lighting solution for people who wear glasses because a lot of times you have that ring light that sits in front of you and you can see the rings in your glasses and even contacts. And so this is two side lights that you put on each side of your computer. I got you. Helps get rid of any glare on your glasses.
So we'll have the link in the show notes. But it's a fairly inexpensive lighting solution if you're going to make videos. Okay. Cool.
Yeah. Well, that's, you know, you and I, you know, I couldn't tell whether you're taking your mask off or not. So, you know, that's why I thought I'd have a little fun with glasses. But so my recommendation is a show called Apache Warriors on Netflix.
Pretty cool gig. It came out in 2017. It's really taking real footage, real audio from the Apache helicopter, our military helicopter, from, you know, prior desert, focusing on one desert excursion. And it's one of the longest in history.
It just is kind of a cluster from the word go. Fortunately, everybody survived. But, you know, sometimes it's easy for us in the midst of all this politics and all these other things to forget that there are actually real people putting their real lives at stake so that you and I can sit here in a stupid-ass costume and, you know, discuss how much money we're going to make or not make, you know, with advisors for their clients and, you know, the environments that we are existing in from a financial perspective. So, you know, it was a great movie.
Talking to the real people. You know, it is a documentary, essentially, but pretty cool stuff. So check it out. I'll have links in the show notes.
One last thing, a quick story. We were coming back from a pumpkin patch the other day and we stopped at a cup. Shut the f*** up. You're such a good daddy.
So we stopped at a cupcake place and it's like five minutes past closing. So we walk inside and the guy is just super grateful. It's a local bakery and obviously businesses are struggling. So I'm not going to go on a whole rant here, but support your local business.
Go get your shirt cleaned. You haven't been on a business trip for a while. Go to the dry cleaners. Buy a cupcake.
Do something. Stop f***ing going to Costco and Walmart. They don't have issues right now. Small business does.
That's awesome. Amen. All right. On that note, thanks everybody for listening, watching, et cetera.
If you have any comments, shoot to the Connect Us page on our website and we look forward to the continued podcast. Thanks, guys. Thanks. All opinions expressed by podcast guests are solely their own and do not neglect the opinions of Potomac Fund Management.
This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Potomac Fund Management may maintain positions and securities discussed in this podcast.