My Top Election Night Prediction

Let’s get this out of the way first…

I don’t have any pressing Election Day insights for you.

I don’t know which polls to trust. I have no idea whether the race is going to be a nail-biter or a blowout. These days, you can just dig up whatever data you want to support your own biases. You’ll even find wildly different odds on the various election betting markets.

In short, nobody knows nuthin’.

Meanwhile, the stock market doesn’t seem to be suffering over who might win the White House. The major averages have trended higher since early September. There was no “October Surprise” (unless you count the get-check drop that spiraled averages lower on Halloween). In spite of the divisiveness and bile the anxiety-inducing media throw our way, life goes on. Stocks mostly go up. Today’s results simply don’t feel like a life-or-death moment for the markets.

As the results begin to trickle in tonight, I’m going to do my best to ignore the spectacle and get to bed at a reasonable hour. No portfolio adjustments are necessary. There are no last-minute bets to make.

Sure, futures might dart in one direction or the other as the electoral map becomes clearer. Anxious investors might even try to position their portfolios into stocks or sectors they see benefiting from their chosen candidate.

But my trading plans can wait until we have more information on what the next four years might have in store for the nation… and the markets.

An Election Night Party-Pooper

The longer I trade, the less inclined I am to pay any mind to the talking heads on the TV.

This philosophy has also spilled over into politics. Learning to ignore outside opinions is a major trading hurdle that everyone in this business has to eventually scale. And once you develop some consistency in your trading style, you find you aren’t as interested in interacting with the media noise machine. Every soundbite that manages to sneak between your ears is thoroughly scrutinized.

Friends and family tend to dislike this evolution. Some might even think you’ve become a flake. They’d much rather speculate about the current state of the world and argue about politics.

Also, I don’t have friends and family texting to ask who I think will win the election. They know I have no clue. After all, who could predict the results of an election that has been too close to call for months? Not me!

But I do get a lot of similar questions about stocks…

Is NVDA going to double again?

Is RBLX going to rally after reporting earnings?

What’s going to be the best-performing stock on the market next year?

I can usually cobble together an adequate non-answer to these questions to cut off any follow-up requests.

But a more honest response would be: I have no idea.

I can’t predict the future. More importantly, the lines I draw on a chart do not dictate where the price will be tomorrow, next week, next month, or next year.

Just as a political pundit can’t change an election’s outcome, a trader cannot magically change the direction of a single price chart.

Unfortunately, political and market pundits alike hate admitting this simple truth because it means their predictions don’t matter.

This admission is also one of the most difficult concepts for novice traders and investors. Most of these casual market watchers assume market greats like Warren Buffett or Steve Cohen possess otherworldly powers that somehow allow them to see into the future. They simply buy the stocks they know will outperform, sit back, and watch billions of dollars magically flow into their accounts.

If only that was the case…

Your Predictions are Worthless

Most investors rely too heavily on predictions and guesswork instead of simply weighing actual evidence they can gather in the market right now.

The right now part of this statement is critical. The more you try to predict how the future will turn out, the less you’ll understand about the market forces acting on your investments at any given moment.

One of the big gripes I hear about technical analysis and charting is that these disciplines have no predictive power. This commentary is, of course, complete nonsense, because there is no type of analysis – fundamental, technical, or astrological – that doesn’t completely rely on past or current information.

No rigorous analysis of the markets can glimpse the future. But that doesn’t make it worthless! In fact, today’s price holds incredible power. How the price of a stock reacts (or fails to react) to news, earnings, or any other event is some of the most valuable information you’ll ever receive.

Here’s what will change when you finally admit that your predictions are worthless and you begin to use actual, real-time information to inform your decisions:

• You’ll stop buying stocks locked in downtrends. Newer investors are almost always tempted to bottom fish for “cheap stocks” that are stuck in ugly downtrends. When you finally figure out you have no clue when a stock is going to stop going down, you’ll quit guessing and just wait for the price to begin to recover. No, you’ll never buy the exact lows. But you’ll also avoid prematurely betting on turnarounds that never materialize.

• You’ll quit making big earnings gambles. It’s tempting to bet that your favorite company will crush earnings. But there’s no way of knowing how the market will react to the numbers. I actually put on some of my best trades after earnings are released when I have a clearer picture as to where the stock is trending after buyers and sellers have digested the latest report.

• You’ll embrace trends and the madness of crowds. Some investors insist on fighting the markets. They dig into balance sheets and sit through endless conference calls in an attempt to find a magic piece of information that will prove their contrarian bet correct. Sure, you might find a needle in a haystack. But most of the time, the trend will win. Don’t fight it!

If we do get a clear winner at some point tonight, It will be tempting to start mapping out how the next four years will affect the investing landscape.

My best advice: Just wait. The market might flash a false move or two (remember what happened in 2016). Give it some time to work through these moves and it will reveal everything you need to know.