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Oct. 21, 2020, 6:56 a.m. EDT

If there are ‘Biden’ and ‘Trump’ stocks, why not own a little of each group?

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By Jared Dillian

Five months ago, people thought Joe Biden would be bad for stocks, because, well, higher taxes.

That seemed reasonable — every other election in recent history had an effect on markets due to projected changes in tax policy.

Remember 2004? The stock market thought John Kerry would raise taxes on dividends. When Bush won, dividend stocks were off to the races — see below.

Today, people think that Biden will be  good  for stocks, because of stimulus and infrastructure spending. Everyone is talking about how a “blue wave” is good for stocks, having given up on the short thesis due to taxes.

Here’s an alternative take: Maybe Donald Trump  or  Joe Biden winning is good for stocks. Maybe getting the election out of the way is good for stocks. Maybe stocks rally no matter what happens.

These things are always obvious in hindsight. The 2016 election was incredibly obvious in hindsight. But in the months leading up to it, we did the same game theory simulations. And, at the end of the day, nobody got it right.

Nobody is going to get this right, either. Anyone who says they know with certainty what is going to happen is suffering from overconfidence or is a charlatan. Or both.

Maybe nothing happens! Maybe the stock market is  unchanged  after the election.

Ultimately, this comes down to an exercise in risk management. There are stocks that will clearly do well if Biden wins, and there are stocks that will clearly do well if Trump wins. Own a little bit of both. Own some bonds, some gold and some real estate.

This may seem like a nihilistic approach, but my experience is that the more people are looking at an opportunity, the less of an opportunity it is.

The trend in tax policy is toward increasing progressivity, the idea that rich people pay more than poor people.

The tax code has become increasingly progressive since 1988, when there were only two tax brackets:

In today’s dollars, $29,750 is about $62,000. I would like to go back to those days.

My quibble with our current system of taxation is not the absolute level of rates; it’s the progressivity. It’s not so much that people are paying a lot on the high end — it’s also that people aren’t paying very much on the low end.

As you travel around Europe, taxes are high, for sure. But on the low end, they are not especially low. Everyone pays. Everyone has skin in the game.

Here, people with lower incomes do not have much of a financial stake in what goes on in the country.

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