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.