One week / one topic: Pennsylvania for the win

What happened?

Given the noise level, it’s virtually impossible to avoid paying some attention to the upcoming US election.

As is often the case, hyperbole and accusations are rife in the heat of the political battle and investors have to navigate the environment without losing focus.

Yet, even Silicon Valley – arguably the epicenter of 21st century capitalism – is getting more and more polarized:

While the election remains a coin toss which will apparently be decided by a few thousand votes here or there in Pennsylvania, financial storytellers have been recommending all sort of ‘Trump portfolios’ or ‘Harris portfolios’ – as if pre-positioning before event was somehow advisable.

Why should you not pre-position before the event, you ask?

Starting with the fair assumption that investors have no edge in predicting elections, to profit you would not only need to correctly guess who wins – but also how markets might react to the results, and if prices are already reflecting this or not.

(As for all the news coverage about prediction markets, remember that market prices are not probabilities)

Assuming even odds at each step of the process, the chances of getting this right and therefore benefiting from pre-positioning are:

• 50% chance of guessing who wins, multiplied by

• 50% chance of guessing how markets will react, multiplied by

• 50% chance of guessing whether prices are already discounting this information, equals…

…12.5% chance of success!

Not a great game to play, then.

So, what should investors do as we face this allegedly watershed moment?

Our observations