There’s a lot about markets we simply don’t and can’t know, especially about the future.
So what I like to do is to focus on the things that we do know.
Asset prices trend.
Momentum is a thing.
And humans are irrational.
Those are constants we know to be true.
Humans Are Irrational
The inability of humans to think and act logically is something we can profit from as investors.
In fact, I’d argue it’s foolish not to profit from this failure.
When stress levels are elevated, most humans can’t think straight, and, often, we make poor choices.
In 2025, our stress levels won’t get elevated because we’re being chased by lions.
In this day and age, we do get stressed when money is involved.
That’s one reason why you see people make such consistently poor choices in the market.
Then, when you add a layer of politics to the equation, humans completely lose their minds.
Don’t believe me?
Take a look at how Democrats feel about the trajectory of the stock market over the next six months vs how Republicans feel:
These kinds of headlines are gold: “Red vs. Blue Is Dividing Stock Portfolios Like Never Before.”
Indeed, “A political gap in optimism about markets is translating into trading decisions.”
As Gunjan Banerji of The Wall Street Journal reports:
Democrats who expected stocks to tumble over the next six months exceeded Republicans by 59 percentage points. Republicans expecting stocks to climb over that period topped Democrats by 47 percentage points.
What’s hilarious is just how pessimistic the Democrats are, just because their guy (or gal in this case) lost the Presidential election.
More Money for Us
It’s not just Democrats who lose their minds when things don’t go their way at the ballot box
Two years ago, the data showed the exact opposite.
The disparity between how Republicans and Democrats felt about the market was almost as wide but flipped upside down.
While President Joe Biden was in office, Democrats were full of optimism about stocks. Republicans were extremely pessimistic.
Look at the returns since peak Republican pessimism heading into 2023:
The Nasdaq literally doubled.
Meanwhile, the S&P 500 is up more than 60%, more than doubling its average historical return.
And even internationally, the Global 100 Index is up more than 67% since then.
The Republicans were wrong. And the Democrats are wrong too.
Everybody’s wrong.
You see, this isn’t a political thing. It’s an “understanding humans” thing.
This is just another classic example of humans making poor choices because they are too weak to overcome their political biases.
With this kind of irrational behavior comes tremendous opportunity.
Democrats are going to get smoked in the unwind. We’ll watch them chase stocks at much higher prices.
Good.
It’s going to be lovely.
More money for us.
Stay sharp,
JC Parets
Founder, TrendLabs