It’s going to blow up the deficit, won’t create any jobs and will cause all sorts of other problems.”

A hedge-fund manager was lecturing me about the Jobs and Growth Tax Relief Reconciliation Act of 2003, better known as the Bush tax cuts. I had been suggesting that this fund close its short positions on technology stocks, and move to a more constructive equity posture. I was getting nowhere.

The fund manager, active in New York Democratic politics, couldn’t see past the policy issues involved. As long as George W. Bush was the U.S. president, this manager’s bias was against long positions. But as an astute market observer noted at the time, “Give me a trillion dollars, and I’ll throw you one hell of a party.”

How did missing that party work out for him? From the pre-Iraq war lows, U.S. markets rallied 96 percent during the next four years. Chalk up another bad investment decision to political bias, emotional involvement and lack of objectivity.

Before Republicans chuckle too hard . . . Continues here

Category: Apprenticed Investor, Investing, Politics, Psychology, Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “Your Ideology Is Killing Your Portfolio”

  1. Jaminiosilva says:

    Agree with this 100% and fell into the trap personally between mid 2011 and mid 2012.Taking a step back, trying to be objective (stopping reading the ZH commentary) and remembering the old adage “the markets don’t care about you” should be a mantra before any analysis is undertaken as it is too easy to fit a trade around a narrative that you want to happen rather than what the numbers suggest should happen.

  2. george lomost says:

    “Ideology” is to blame for my non-prowess in investing?

    Get me the entry and exit points of the big players in any equity and I will make a very nice living while practicing Ferriss’s four-hour workweek and reveling in my ideology, thank you very much.

  3. TKT says:

    Barry–Point taken, but I think you are irresponsibly conflating ideological basis and “socially responsible” investing here. I try to avoid the former and have never engaged in the latter, but it does not follow that avoiding specific stocks (tobacco, defense, etc) necessarily harms portfolio performance. I’m surprised to hear a table-pounding asset allocator like yourself make such a claim…where’s the evidence?

    • I specifically am saying SRI is different from biases: “None of these apply to willful decisions like socially conscious investing, or applying Sharia law, or any other decision made with full knowledge of the options”

  4. “Obama’s policies have yet to take full effect – the disaster is only starting. Apparently , you FAIL to study history – Jimmy Carter did the same thing, with economic disaster to follow – 17% inflation and the “misery index”. It took a while to develop; it will get worse. Bloomberg writers are liberal shills.”

    Caught this in the Bloomberg comments section . . . you may as well be talking to a brick wall . . .

    • BennyProfane says:

      Oh, man, you should scan the reader’s comments to almost any article in the WSJ. It’s all Obama’s muslim socialist agenda’s fault. It’s automatic and vicious.

      Not that the NYT is much better. When they publish an article about anything to do with the economy, it’s all the bankers and owned politicians fault. Just a little less vicious.

      Thanks, Mr. Ritholtz. This is one of the very important things you have taught me. Don’t let one’s politics affect your investing decisions. It’s hard, though, to follow.

  5. san_fran_sam says:

    In a manner of speaking he was right, it did blow up the deficit, job growth was anemic coming out of the recession (just look at that chart you post showing jobs relative to pre-recession employment peaks for the last several recessions), and it eventually led to the Tea Party.

    But you were right in terms of his investing strategy being wrong. He didn’t think about how it would affect corporate profits.

    • Angryman1 says:

      I disagree. He is talking about the next 4 years. Nor was Job growth any “weaker” coming out of the recession than the last 2 recessions. Adjusting for demo, it was actually a somewhat better(which isn’t saying much considering the larger makeup room).