The Worst Possible Political Trade: When the Obvious Bet Backfires 

When it comes to investing, political narratives can be enticing. It seems straightforward: align your portfolio with the policies of the incoming administration, and you’ll be well-positioned to capitalize on the inevitable changes ahead. Yet history has repeatedly shown that some of the “obvious” trades based on political shifts can be the worst possible moves. 

At Glassman Wealth, we’re not in the business of betting on the latest political narrative. Instead, we take a balanced, fundamentals-driven approach to investing. By focusing on long-term trends and diversifying our portfolios, we aim to mitigate our clients from the risks of overexposure to politically-driven trades. 

We’ve seen time and time again how betting on the obvious political trade can backfire. And while there are plenty of examples, two trades in recent history—the Trump and Biden energy trades—stand out as two of the worst. 

But before we get there, let’s walk through a few other contenders for the title of “worst possible political trade.”  

 

Brexit: The British Pound Stumbles, But UK Stocks Jump 

In 2016, the UK’s Brexit vote shocked global markets. The idea that Britain would leave the European Union sent waves of uncertainty through the British economy. Many investors anticipated that British stocks would plummet alongside the British pound, expecting an economic downturn fueled by trade barriers and reduced market access. 

What Happened: While the British pound did fall, the FTSE 100, largely composed of multinational companies, defied expectations and held up relatively well, seeing gains in the aftermath.   

FTSE 100 Stock Performance 3 Months Post-Brexit Vote: +7.09%

The Lesson: The pound’s weakness actually boosted the potential earnings of UK-based multinational companies that generate substantial revenue overseas, offsetting local concerns. This unexpected outcome showed how global revenue exposure and currency dynamics can reshape the expected impact of political events. 

 

Cannabis Stocks and the Biden “Green” Agenda: A High That Never Came 

When Biden won the presidency in 2020, many expected cannabis stocks to flourish. After all, Democrats had campaigned on decriminalizing marijuana, or at a minimum, removing it from alongside heroin as a Schedule 1 controlled substance.  The path to federal legalization seemed more achievable with Democrats in control of both the White House and Congress. Cannabis stocks surged after Biden’s election, as investors assumed the industry was on the cusp of regulatory change. 

What Happened: Despite the early excitement, cannabis stocks failed to deliver. Federal legalization stalled as the administration prioritized other policies, leaving cannabis companies facing the same legal and regulatory challenges. The largest ETF (Exchange-traded fund) nearly doubled in value in the weeks after the 2020 election, only to see the stocks plummet, not only giving up the gains, but offering a loss of 72% since Biden’s election day. 

Cannabis Stock Performance (MSOS ETF) Post-Biden Election: -72%

The Lesson: Betting on campaign promises without considering the legislative hurdles is risky. Cannabis stocks suffered as the administration’s focus shifted away from reform, underscoring the dangers of relying too heavily on political rhetoric. 

 

Russia’s Invasion of Ukraine and the Strengthening Ruble: Defying Sanctions 

In early 2022, Russia’s invasion of Ukraine led to swift and severe sanctions from the international community. Many expected the Russian ruble to collapse under these sanctions, with the logic being that a crippled Russian economy would render its currency worthless. Investors saw a ruble freefall as inevitable. 

What Happened: The ruble defied expectations, appreciating by 34% against the U.S. dollar in the three months following the invasion. 

Ruble Performance (February – June 2022): +34%

The Lesson: Russia’s currency controls and high oil and gas revenues kept the ruble afloat. This counterintuitive result highlighted how extreme government interventions can insulate an economy from external pressures, at least temporarily. Relying solely on geopolitical expectations for currency predictions can lead to surprises. 

 

And Now, The Winners of the Worst Trade Award… 

While Brexit, cannabis, and the Ruble are memorable examples of the dangers of politically-driven trades, they don’t compare to the spectacular missteps of energy trades under Trump and Biden. In recent history, these two are tied for the title of “Worst Obvious Political Trade.” 

 

Trump’s Energy Surprise: Fossil Fuels Falter, Green Energy Soars 

When Trump took office in 2016, the logic seemed airtight. His administration was pro-oil, pro-coal, and focused on “energy independence.” Deregulation of fossil fuels was a cornerstone of Trump’s economic agenda, so it seemed obvious that traditional energy stocks would thrive, while renewable energy might struggle. Investors poured into fossil fuels, expecting a strong rally. 

What Happened: Fossil fuel stocks underperformed significantly following Trump’s election, while green energy stocks soared.  Here’s the performance from November 2016 to November 2020 (Trump’s election day to Biden’s). 

Traditional Energy Stocks (XLE): -49%

Clean Energy Stocks (ICLN): +154%

Why: Despite Trump’s pro-fossil fuel stance, global market forces overwhelmed domestic policy. Oversupply issues and weaker demand kept oil prices low, while advancements in renewable technology and increasing public interest in clean energy drove green energy stocks higher. Even before the shock of the COVID pandemic, energy stocks had vastly underperformed the broader stock market during the Trump administration. Betting on fossil fuels in the Trump era turned out to be one of the most misguided “obvious” trades in recent memory. 

 

Biden’s Turn: The Reversal of Fortune for Energy 

Fast forward to Biden’s election in 2020, the tables turned. Biden’s platform included ambitious plans for climate action, with a focus on clean energy and reducing reliance on fossil fuels. Investors piled into green energy stocks, expecting them to soar under Biden, while traditional energy stocks were expected to struggle as the administration focused on environmental regulations. 

What Happened: Instead of green energy thriving, it was traditional energy stocks that saw explosive growth, while renewables faltered.  Here’s the performance from Biden’s election in 2020 through October 28, 2024. 

Traditional Energy Stocks (XLE): +254%

Clean Energy Stocks (ICLN): -32%

Why: Post-pandemic demand recovery, inflationary pressures, and geopolitical events—especially Russia’s invasion of Ukraine—drove up oil and gas prices, benefiting fossil fuel stocks. Meanwhile, inflation, higher interest rates, and valuation challenges created headwinds for green energy stocks. The “obvious” Biden trade proved to be the exact opposite of what many had expected. 

 

The Key Takeaways: Why the Obvious Trade Can Fail 

The Trump and Biden energy trades illustrate a crucial point: when an investment seems too obvious, it’s often worth pausing to reconsider. Here are some reasons why obvious political trades can backfire: 

1. Global Market Forces  

Energy prices, currency values, and other economic indicators are often influenced more by global supply and demand than by domestic policy. For example, oil prices dropped under Trump and rose under Biden due to factors beyond either president’s control. 

2. Policy Complexity and Legislative Reality  

Cannabis stocks under Biden remind us that campaign promises are one thing; delivering on them is another. Legislative processes are complex and can stall expected reforms. 

3. Herd Behavior and Overcrowded Trades  

When a trade seems “obvious,” it often attracts an overwhelming amount of investor interest, inflating prices, and volatility. Overenthusiasm for green energy under Biden and fossil fuels under Trump led to crowded trades that didn’t pan out. 

4. Unpredictable Government Actions  

The Russian ruble’s surprising resilience shows how government interventions—like capital controls—can defy economic expectations. Political assumptions alone can miss the nuance of strategic moves by governments. 

These examples illustrate why it’s essential to look beyond the headlines and stay disciplined. 

 

Glassman Pro Tip:   

Avoid the “obvious” trade based on political cycles. Instead, maintain a diversified portfolio that considers broader economic conditions, global factors, and sound fundamentals.