Stocks and elections


November 2, 2020

PLUS: A masterclass in copywriting.
November 2, 2020
The Hustle
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The legendary actor Sean Connery died this weekend at the age of 90. It’s indisputable that he was the greatest Bond ever and we reiterate back to him our favorite quote from Finding Forrester: “You’re the man now, dog.”

The Big Idea
President

How does the S&P 500 perform after a US presidential election?

When it comes to the stock market, one of the best ways to get a sense of what the future holds is to look to the past.

To do so, The Hustle teamed up with Toggle AI — an analytics firm that provides insights to both hedge funds and retail investors — to analyze the S&P 500 index across 14 prior elections dating back to 1964.

Here’s how the index performs after 2 presidential election-related scenarios: 1) the incumbent party wins; and 2) a new party takes power.

To be sure, the election outcome is one of many factors that drives stock performance. This analysis will keep a narrow focus.

Incumbent party stays = double-digit stock gains 1 year after

Since 1964, 7 elections have resulted in the same party staying in power.

The market was higher 3 months after the election in all 7 of these instances, with an average gain of +5.7%. By the 1 year mark, all but one election (Nixon, 1972) saw gains…the average gain was +14.4%.

One caveat to keep in mind is that a solid economy is often a positive tailwind for a presidential re-election bid — so a case could be made that the market is set up favorably for the incumbent president (and, secondarily, his/her party).

New party in power = stocks down slightly 1 year after

Looking back at the same data (1964 to present), the sitting party has also lost 7 presidential elections — and a shift in party typically comes with a negative short-term market result.

A White House flip sees an average decline of -1.5% after 3 months. A year out, the market has been down in 4 of 7 of these instances, with an average dip of -1.0%.

Of course, what we’ve presented here is based on a small sample size.

Previous results can provide context. But as is oft-noted in the investment community, past performance is not a guarantee of future results.

All elections have something that makes them stand out…

… ’64, ’68, and ’72 were colored by the Vietnam War, riots, and political assassinations; ’00 and ’08 came during financial crises; ’04 was during the Iraq War.

However, this election cycle is particularly strange and unpredictable. We’re in the middle of an international pandemic, a misinformation war, and the worst economic downturn since the Great Depression.

This data doesn’t mean that the reelection of our current president would be better for the market. But it still provides some interesting historical perspective.

(You can try Toggle’s free portfolio dashboard here).

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Snippets
  • Square might buy the most square thing possible — a tax prep biz. The seller — Credit Karma — needs to divest some assets to avoid antitrust issues for its upcoming sale to Intuit, which owns TurboTax.
  • Chinese telecom firm Huawei may build a chip plant in Shanghai as the US tightens restrictions on its telecom biz.
  • Google’s URL2Video tool can convert a webpage into a short video. It’s not a Hollywood movie, but it’s very cool.
  • Halloween is over but if you want to terrify yourself, watch Disney’s new skinless robot head blink like a human.
  • AI has solved a difficult math puzzle known as partial differential equations. Not sure what this means, but there are applications for planetary motions and plate tectonics.
 
Masterclass

One way to learn copywriting? Watch a pro copywriter rewrite some landing pages.

Harry Dry operates Marketing Examples.

It’s a website that masterfully dissects marketing strategies in under 3 minutes.

He recently asked companies to submit their landing pages for a rewrite and — along with expert copywriter Annie Maguire — transformed the copy.

These are our favorite makeovers, along with explanations from the master copywriters:

An SAT prep company

Key Takeaway: Put yourself in your customer’s shoes.

  • Kids don’t care about the next generation of SAT prep. They care about acing the SAT.
  • We also pulled up the $1 trial. And made the “five stars” feel “REALER.”

An online cooking course 

Key Takeaway: Let the product speak for itself. 

  • Banquist is a unique product. But they waste their uniqueness with a vague title that could mean 50 different things.
  • The new title makes it explicitly clear what makes Banquist special. 

An app for football fans

Key Takeaway: Take ownership of the real problem.

  • European football (AKA soccer) fans don’t care about “tokens,” “surveys,” and “rewards.”
  • Fans are crying out to have their voices heard, and Socios solves this. So own it.
  • Also, add social proof. Highlight the fact that you work with Barcelona FC. 

Bonus: We challenged Harry to give Sam’s Twitter bio a makeover

Key Takeaway: More Jake and Logan Paul. 

  • First thing: Sam doesn’t have enough images of the Paul Brothers in his Twitter bio, so we fixed that.
  • He also needs a nickname that can double as a WWE character 
  • “Internet entrepreneur and investor” is vague. Own your portfolio.
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10 x 10
Dumb and Dumber gif

Software startups are crashing the 100x revenue club

Over the past year, the tech scene has seen the rise of the 100x Club, startups that score a valuation that is at least 100x revenue.

Per The Information, here are recent deals that cleared the bar:

Clubhouse broke my calculator as its $100m valuation is based on zero revenue while Notion ($30m; $2B) and Postman ($25m; $2B) are lurking.

What’s driving these eye-popping valuations?

There is too much money chasing too few ideas.

In 2020, US venture firms have raised $60B — that’s >3x the amount raised in 2010, according to Pitchbook.

Investors are looking everywhere for yield as governments have aggressively slashed interest rates in response to the pandemic.

Many have also been emboldened by Snowflake’s blockbuster IPO — the company is valued at 123x this year’s projected revenue, which seems to justify the existence of the 100x Club.

A big valuation = less founder dilution + more media headlines

But there are definite drawbacks:

  • Startups may be forced to grow too fast
  • It can be hard to raise subsequent rounds of money as future valuations may be harder to justify (and investors don’t like “down rounds”)

The scooter startup Lime was forced to slash its $2.4B valuation by ~80% in March, destroying significant paper wealth for investors and employees.

As Lime shows, the 100x Club is no guarantee of getting into another more popular club: the tres comma club.

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Legalese

When hedge funds try to own commonly used ideas

Last fall, LeBron James garnered some laughs when he tried (but, ultimately, failed) to trademark the phrase “Taco Tuesday.”

Common sense won out as we collectively thought, “you can’t own what every 6th grader looks forward to the most every month hahaha.”

Investor turned writer Mario Gabriele — a friend of The Hustle — is going through a similar ordeal with a $6B hedge fund (Durable Capital).

Gabriele co-wrote an essay about high-performing stocks

He called these companies “compounders” capable of going from “good to great” following years of consistent returns.

Common sense would dictate that these are words used by normal human beings, and can’t be copyrighted by some faceless corporation.

Being that it’s 2020, common sense… well, there is none anymore.

That $6B hedge fund is threatening legal action…

… if Gabriele continues to use terminology and concepts related to these high-performing stocks.

Mind you, Gabriele is a one-man newsletter operation that is currently bringing in $0.

We have 2 thoughts.

  1. Compounders. Compounders. Compounders. Compounders.
  2. If you want to enact some karmic justice and — more importantly, get amazing business analysis including pre-IPO deep dives — subscribe to Gabriele’s substack, The Generalist.

In sum: compounders, compounders, compounders.

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Editing by: Zachary “Stonks” Crockett, Erasmus B. Dragon (Head of Working Mother Support Group).

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