15 Sep General Elections 2015 – Acquiring Worldly Investing Wisdom From Politics
Singaporeans have spoken! Votes are cast and counted. General Election 2015 is officially concluded and it will be filed into the history books as one where the ruling PAP reversed GE2011’s decline and cruised to a landslide history.
In the run up to polling day, I put out two articles about GE 2015. I first wrote about the Why Rational People vote Irrationally. Subsequently I also wrote about the Politics of Hope and Fear. As much as I have tried to keep the articles neutral, we still ended up with hate mails like this.
We are a financial blog without a doubt, but there is also a very good reason why I took such a strong interest in the hustlings. So much so that I felt strong enough to write about it on BigFatPurse. Politics and investing have one thing in common.
Essentially, both involve a process whereby many human beings come together to make a choice. And after making that choice, the outcome is taken out of the hands of each individual.
Voters come together to choose who is to represent them in parliament while investors vote with their money the instrument that will give them the best returns. In both cases, after voting/investing, the eventual outcome whether it is a good decision or a bad decision, will only be known many years later.
There are many more invisible threads of similarities between the two. Investors who want to do well in the markets have a lot to learn from how the game of politics is played.
So here are three takeaways from this General Elections that investors will do well to be aware of.
1.The Role of Emotions
I wrote about how the PAP’s campaign is anchored in a message of fear while the opposition parties peddle hope to win votes.
The battle is fought this way because it offered each side a strategic advantage. The PAP being the incumbent behemoth with the 50 year track record would be in the best position to intimidate and impose. Opposition parties and candidates who are largely unknown could only bank on big promises and hope that enough people would bite.
A kind reader commented that the PAP also offers hope – in that of a glorious SG100, while the opposition also plays on the fears of a 6.9million population, one party rule and higher GST. I concur.
If anything it further reiterates the importance of emotions in the game. We may not realise it but the messages are sublimal and crafted to play on our emotions.
The Alien Voter
I shared with friends in a private conversation that the most rational way to vote would be to disregard the entire premise of voting that politicians would have us believe – that we are voting for our future and the future of our country Singapore.
Rather, we ought to imagine ourselves as a little alien, a citizen of the galaxies, zipping around in our little spaceship. We come across this little red dot called Singapore conducting her General Elections and we are invited to cast our votes before we continue on our way.
How we vote will have absolutely no implications on our lives at all. We will be galaxies away when the results are announced. Of course we want the best for our Singaporean friends but truth be told we will not be affected whether the country lives long and prosper or if it goes to the dogs.
Doing so allows us to remove all forms of emotions in the voting process. We will be able to vote unclouded with fear and hope. Of course, it is easier said than done. To many, it remains merely a thought experiment.
Emotions and Investing
Emotions prevent us from being better and more profitable investors. It is one thing to say that you would stay cool at all times no matter how the market behaves. It is another to remain indifferent when your investment portfolio is depleted by half from a bloodbath that shows no signs of abating.
If we are able to invest with as much detachment as the little alien in the far away galaxies, I am sure we would be able to achieve much better results. In both voting and investing, the key to success is to understand the role emotions play in your decision making process!
2. Biases in the Voting and Investing Process
Both the process of voting and investing involved intepreting huge amounts of information before coming to a decision.
In investing we plough through fundamental data, understanding how well the company is doing vis a vis its competitors, how well the entire industry is doing and even how the entire global markets are faring, before deciding whether to purchase a stock.
During the GE, we scrutinise the candidate, his or her qualifications, track record, speeches and also the party he or she represents. This is to obtain a good picture of the person and team we are voting for.
In the ideal situation, we would process ALL the information out there before making a decision on our stock and our candidate. Unfortunately there is simply too much out there to take in. In order to be a functional voter/investor, we need to discard and filter most of the information.
The confirmation bias is the tendency to search for and recall information that favours one’s originally held beliefs while giving proportionately less weightage to information that contradicts it.
Imagine a supporter of the ruling party – he reads the Straits Times daily and finds comfort in the fact that the PAP campaign is doing well on all fronts. One afternoon a friend sends him an article from an alternative news site which claims that the PAP is arrogant and has lost touch with the ground.
The article contradicts his entire belief. It makes him feel uncomfortable. It makes him angry even. He dismisses it as untruths and a smear tactic to undermine the credibility of the party.
Lest I be accused of being biased again, I shall state that the phenomenon is not specific to PAP supporters. It is prevalent in every single one of us. As a result, we end up seeing the gap between both sides widening and the polarity between both sets of supporters increasing.
The Search for Disconfirming Evidence
What rational voters should do is the exact opposite. Instead of reading and taking in information that makes them feel good, do otherwise and seek out information that refutes their beliefs. Take in arguments on both sides with an open mind before coming to any conclusion.
This is a crucial trait of successful investors. In investing, it is easy to be caught up in waves and waves of confirming evidence that your decision is right. When you are invested in a stock and it tanks, you would find it comforting to read all the reasons why it will recover in no time.
If you are a believer of the recovery, the trick is to find out all the reasons why it will continue to fall in price. Once again, the execution is tougher than it sounds, but yet so absolutely crucial in investing right.
3. The Stock Market as a Voting Machine
On the evening of polling day, Channel News Asia provided live coverage of the vote counting and result announcements. In the studio with the presenters were a panelist made up of Devadas Krishnadas, CEO of Consulting company Future-Moves Group, Dr Gillian Koh senior research fellow at Institute of Policy Studies and Prof David Chan, Director of Behavioral Science Institute at SMU.
Prof Chan was a faculty member at NUS when I was an undergraduate many years ago. I was largely surprised to see him on TV! It is telling though, for the broadcaster to think that a behavioral psychologist would be able to contribute to the discussion on a national election.
And contribute he did. In fact, one of the more insightful nugget he provided was when early on in the evening, he was asked by the presenter to account for the rather massive vote swing towards the PAP. In the most neutral and unbiased manner possible, he stated that it is possible that many middle ground voters had actually wanted a larger opposition representation without toppling the PAP government.
Seeing how well the opposition rallies are attended and how everyone on the ground is predicting the opposition gaining ground, many might have been spooked last minute and decided to give their votes to the PAP at the polling booth. In doing so, they have tried to double guess what everyone else is going to do and moderated their choices accordingly.
So much so that even the ruling party is caught off guard by the results.
Higher level thinking
The psychological process of voting is very similar to picking stocks. We want to pick winners in the stock market and we also want the outcome of the election to reflect our wishes. In order for that to happen, it is not good enough to know how we are to act. We need to figure out how others will think and act, which could be what more than a few voters tried to do. I wrote about higher level thinking here and here.
There are many other parallel threads between politics and investing. As investors, let us look beyond partisan politics and continue to pick up worldly wisdom from the world around us.
In politics as in investing, fortune favours the brave. Good luck investors. Good luck Singapore!