Some of the more frequent questions we get these days are about the election. What’s going to happen if one candidate wins, or worse, the other? What are we doing to protect your investments? Should we move to cash and just be careful? 

First, let me say that the trading crew here at Shadowridge (Ryan, Christine, and I) work on probabilities, not possibilities. Possibilities are too many to count because anything is possible. And, possibilities are often of no help when directing investments. What is probable, or more probable than something else, is what can be used to direct investments to minimize risk or maximize gain. 

We do know that, over long periods, both parties have very similar records of stock market gains made during their administrations, so changing investments based on which party gets elected is not a worthwhile investment plan. 

We also know that stock market weakness before the election means a change of administrations is more likely. Investors can live with rules, but they don’t like the rules changing. This kind of uncertainty makes investors hold back, creating fewer buyers, which is a scenario that usually drives markets lower. But this year we have an incumbent VP with her administration’s track record already well known, pitted against a former President whose style and goals we have also seen the results of.  So, the question of whether there will there be a meaningful change of administration this time is anyone’s guess. Regardless of who wins the election, their administration is not a total unknown like in most elections. I don’t think this usually reliable election indicator is going to be much help this time around. 

Should we just move to cash to be safe? Since money is generally lost in getting out of a market altogether and then having to play catch up when the markets do begin to recover, this is usually a losing proposition. In other words, doing this is really not a safe play. Successful “all-in-all-out” moves are rare because both moves have to be done with good timing, magnifying risk of getting the timing of one move, or the other, or both, wrong. 

What is highly probable during this election is that there will be volatility in stock market prices leading up to the election, so that is what we are prepared for. 

In the Future Technologies portfolio that I manage for Shadowridge, I like to invest in big, profitable companies. Their stock prices might go up and down, but I believe these companies will be around for decades to come. Several of our Future Tech investments had over sizable gains and were allowed to run as long as the market was being kind to them. As the market weakened in July, I took profits from those big winners, converting them to “free trades.” This means that the money left invested was mostly profit and the principal amount had been withdrawn during those profit-taking sales. In Las Vegas terms, we are playing with “house money” on those stocks. 

I also look for the next generation of tech leaders to invest in. Since these companies often have higher volatility, smaller profits, and do not yet have the deep pockets of the tech leaders, I invest more lightly in them until they prove themselves. This tier of more speculative stocks were the ones I cut back on the most in July, increasing my focus on profitable companies offering sought-after products. 

Using the profits from free trades and paring back on second tier tech stocks is a risk-reducing technique that Shadowridge clients enjoy the benefits of. With money from sales, I began hedging in July. Hedging involves pairing investments that go up with ones that go down at the same time. Hedging is to investors like a shock absorber is to your car. By thoughtfully selecting the weaker investments to use as hedges, I can hold onto some of our stronger tech leaders while dampening the volatility of the portfolio as a whole. This risk-reduction approach allows our portfolios to ease into and out of investments and take what the market is actually giving us, rather than rolling the dice on “all-in” or “all-out” decisions. 

This is what we do at Shadowridge that makes us different from the average investment adviser. We actually manage your investments. Hands on. The buck stops here (no pun intended). If this is what you prefer for your money, you are in the right place. Please let your friends know.