Elections 2024: How to position your portfolio ahead of significant events

livemint.com:

“There’s always been a market for people who pretend to know the future." —Charlie Munger Recently, social media has been inundated with inquiries from people seeking advice on how to position themselves in anticipation of significant events, such as trends emerging from the general election at 9.15am on 4 June, when India’s equity markets open for trade. Big events often create anxiety for most people regarding the decision to act or not. This response is quite natural and is part of human evolution.

Uncertainties, especially unfavorable ones, were historically addressed by the fight-or-flight response. For example, primitive humans living in jungles relied on their senses to survive in a hostile environment. So, when faced with a rustle in the bushes, their minds would enter hyper mode, first estimating whether it was a tiger or a rabbit behind the bush, and then deciding whether to flee or stay put.

Investors are also humans, and their brains have evolved in similar aspects to other facets of their lives. This extends to their investment journey as well. When faced with a planned event like general election results or an unplanned event like a war, their minds enter a state of hyperaction, attempting to predict the outcome and leverage it to their advantage or for survival to fight another day.

For an event like the general election results, both incumbents and opponents build narratives through moves and countermoves. These narratives create confusion, which then leads to uncertainty in the minds of market participants. They, in turn, start assigning probabilities to outcomes—incumbent win, opposition win or a hung parliament.