Lessons from the 2012 election
By Barry Ritholtz,
Wisdom can be found in many places. Whenever I encounter some momentous event with winners and losers, I try to discern broader lessons to apply elsewhere. The 2012 presidential election was no different, with lessons that can be applied to investing and business.
1 Process, not outcome, is what matters. When it came to forecasting the election, the winner was mathematics. Sharp data analysis beat squishy feelings every time. The accuracy of the new class of data junkies and statisticians was the single most important story line of the election for investors. Nate Silver showed data, logical reasoning and mathematics outperform “gut feel” and instinct. The bloviating punditry got it wrong, the stat geeks got it right. To quote the delightful nerd comic XKCD, “To the surprise of pundits, numbers continue to be the best system for determining which of two things is larger.”
2 Do your homework and practice. Yes, I refer to the first debate. “No Drama Obama” created a lot of drama by making an awful showing. He looked unprepared and surprised that his opponent wasn’t simply going to lie down. Perhaps he was cocky after enjoying a comfortable lead for most of 2012. Regardless, the lessons were obvious: You can never be too prepared. And practice is crucial, even if you are the president of the United States.
3 Think deeply before you speak. Grand pronouncements have a big appeal to our egos. They can make us look smart, and play to the policy wonks of the world. But they have limited upside and immense downside. In Mitt Romney’s case, his Nov. 18, 2008, New York Times opinion piece, “Let Detroit Go Bankrupt,” probably came back to haunt him in Ohio, where one in eight workers was employed by the auto industry.
4 Avoid clichés. The media completely misread this election. There were a series of narratives about razor-thin margins, another late night waiting for results, even the House of Representatives having to break a tie. In the end, the incumbent received 3 million more votes than the challenger. But that margin understates the electoral college blowout, with the incumbent winning 332 electoral votes to the challenger’s 206. The one cliché the mainstream overlooked: There are strong advantages to incumbency.
5 Don’t live in a bubble. Large swaths of the conservative movement seem to live in a world of their own creation. The balkanization of media outlets allow people to read only that which they agree with. This selective perception and confirmation bias creates a self-reinforcing alternative universe. Facts don’t matter; data and science are irrelevant. You only hear exactly what it is you want to hear.
Outlets like Fox News and pundits like George Will and Dick Morris were forecasting a Mitt Romney landslide. Don’t like the polling data? Create a site called “UnskewedPolls.com” to provide numbers you do like. As it turned out, UnskewedPolls was the least accurate polling aggregator this election cycle. If you spend most of your time rationalizing why the polls are inaccurate and the media are biased, you will probably be surprised at what happens next. As smart investors know, this sort of bias can be very expensive.
6 Have influential allies. At times, the GOP primary seemed to be a Federal Reserve bashing contest. There was a constant critique about Federal Open Marketing Committee interventions, quantitative easing and the zero interest rate policy. Rick Perry accused Fed chief Ben Bernanke of treason, and seemingly threatened to lynch the man (“I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas.”) Ron Paul’s book “End the Fed” made his intentions clear. It was a far cry from George H.W. Bush’s complaint that then-Fed Chairman Alan Greenspan didn’t do enough to help the economy during his 1992 election campaign.
Have a look at Gallup’s Daily U.S. Economic Confidence Index. This survey combines responses to polls on current economic conditions and future economic outlook. The survey reported big spurts in August 2011, following the Fed’s Operation Twist. There was another spurt after September 2012’s announcement of QE3, the third round of quantitative easing. The Fed seemed to be driving economic confidence higher.
The lesson I learned? It is smart not to alienate powerful, well-placed people of influence and authority, especially those who might assist you.
7 Be true to yourself. Romney was a moderate, pro-choice governor who worked as bipartisan chief executive in Massachusetts to deal with a health-care budget crisis. He created a statewide health-care program that was the basis of Obamacare. But Romney ran from that record, tacking hard to the right to win over the base during the GOP primaries before shifting to the middle during the general election campaign.
He would have been much better off running on his credentials instead of morphing into a series of personas trying to please everyone. That is an important lesson to anyone running a business: Understand who you are and what you do best. Focus on providing that.
8 Choose your business partners well. The vice-presidential choice is a major decision any presidential candidate makes. Romney’s selection of Rep. Paul Ryan added nothing to his electoral chances. Ryan failed to deliver his home state, Wisconsin. He fumbled his debate to a grinning and goofy Joe Biden. And Ryan’s plan to “voucherize” Medicaid probably hurt Romney with Florida seniors.
9 It takes more than money. No one is happy about all of the money in politics, but the impact may be more muted than we believe.
Consider the outsize money interests in this election cycle. Sheldon Adelson poured $100 million into six races, and lost them all. Karl Rove’s super PAC put more than $300 million into myriad races; he found success in Indiana – but was shut out everywhere else. And the $91 million dollars Connecticut candidate Linda McMahon spent in two Senate campaigns yielded her exactly zero electoral success.
A threshold amount of money is necessary to be competitive in any business endeavor, but only to a point. Beyond the marginal utility of a minimum dollar amount, pouring more money onto a project is no substitute for substance, a clear value proposition and a product consumers want.
10 It helps to make your own luck. In the waning months of the election, two tragedies presented each campaign an opportunity to respond. The first was the tragedy in Benghazi, Libya, where four Americans, including the U.S. ambassador, were killed by terrorists. The second was Hurricane Sandy, which became a superstorm and devastated parts of New York and New Jersey.
The responses to these to circumstances were markedly different: Obama put partisanship aside, worked closely with New Jersey Gov. Chris Christie and focused on managing the response to the storm. Christie, the keynote speaker at the GOP convention and vocal Obama critic, was effusive in his praise of the president.
Romney’s response to Benghazi was not nearly as bipartisan. He came across as opportunistic, even craven in response to the tragedy. He was, in the light of American deaths, not especially presidential.
Emergencies are opportunities to demonstrate an understanding of priorities, a sense of what matters most. How you respond to circumstances is important. There are times to focus on your business, and times to put that aside and focus on your people.