Mr. Market and the Georgia Runoff

Lewis Walker |


“Mr. Market,” the personification of the thinking of stock market investors at large, was introduced by British-born American professor, economist, and investor, Benjamin Graham (1894-1976), in his 1949 classic book, The Intelligent Investor. 

 Observing the volatility of stock prices, Graham, “the father of value investing,” noted, “The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.”

Prior to the election, clients asked about selling or buying stocks based on one outcome or the other. Despite votes being counted and recounted as this is written, Mr. Market assumes Joe Biden is president-elect. On Friday the 13th, 2020, the S&P 500 average soared to an all-time high of 3585.15. Euphoria  centered on positive Covid-19 vaccine trials and the assumption of “divided government,” Democrats presiding over the White House and House of Representatives, with control of the Senate in Republican hands. However, between now and January 5, 2021, Mr. Market will be humming Ray Charles’ hit song “Georgia On My Mind,”  potentially spawning seesawing market volatility.

Two Georgia Senate seats are up for grabs in a January 5, 2021, runoff election. If Republicans hold onto only one of the seats, they will retain the majority with power to influence Joe Biden’s agenda. If Democrats prevail and win both seats, they will have a working majority since with a 50-50 Senate split, VP Kamala Harris would cast a tie-breaking vote. The thinking is Mitch McConnell will retain control of the Senate, but this is 2020, and taking things for granted has proven fallacious. 

As of November 14, the three major U.S. stock index averages were well above their 65-day moving average. Job recovery numbers are ahead of expectations, but by Inauguration Day millions still will be unemployed. However, Mr. Market is looking beyond current strains such as rising cases of Covid-19 and possible business shutdowns in viral hot spots, seeing the possibility of Mitch McConnell working with President Biden and Nancy Pelosi to bring forward “bipartisan comity,” more stimulus, and an infrastructure package. Split government may prevent passage of legislation Mr. Market might detest, however, executive orders will  have to be weighed and reckoned with.

Market pundits have publicized data showing that 46 years of split power led to an average S&P 500 return of 7.2%, indicating that Mr. Market likes divided government. But if Professor Graham were holding class, he’d point out the problem with basing a strategy on averages. An “average number” tells you nothing about variances from the mean. In any given time frame you will experience market corrections, bear market interludes, bullish surges, and sideways action. The Wall Street Journal (11/9/20) opined, “Don’t Expect Split Government to Lift Stocks,” noting, “Since 1929, there hasn’t been a year where Republicans controlled the Senate and Democrats controlled both the House of Representatives and the presidency.” In other words, there’s no data for the most assumed scenario! 

Four years of a presidential term is a long time. And with apologies to William Shakespeare, “what’s past may not be prologue.” We have long suggested, regard all market forecasts as pure entertainment. Every president encounters surprises that torpedo markets, 9/11 and Covid-19 as examples. Mid-term elections are only two years out and with roughly half the electorate potentially convinced the 2020 election was stolen, anything is possible.

Base investment decisions on a long term strategy and your risk/reward profile, not which way punditry winds are blowing. Long term data suggests that America will keep growing despite recessionary interludes, creative’s will keep innovating, and investment diligence and patience will be rewarded. Over the long run, stocks as a liquid investment medium are likely to beat inflation in your quest to accumulate future purchasing power. Safe alternatives like insured bank deposits, while essential to peace-of-mind and “down market protection,” are not likely to build future purchasing power net of inflation and taxation. 

Warren Buffett instructed, “Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.” Good advice! Keep calm and carry on.