Will President Trump Finish His First Term? The Inside View and The Outside View

If you want to bet on anything there is a market ready to take your bet. Like if you want to bet on whether President Trump will complete his first full term as President or not.

After President Trump fired FBI Director James Comey the probability for President Trump not finishing his first term jumped up to 50%.

Not finishing his first term includes impeachment, resignation, and death by natural causes.

My immediate reaction is these odds seem high. While other people, maybe under the influence of the Halo and Horn Effect, believe these odds to be too low.

Whatever your viewpoint, what this does offer us is a look at the Inside View and Outside View.

Inside View

The inside view can be described as intuitive forecasting. From Michael Mauboussin in his book Think Twice,

An inside view considers a problem by focusing on the specific task and by using information that is close at hand, and makes predictions based on that narrow and unique set of inputs.

The inputs may include and grossly overweight “anecdotal evidence and fallacious perceptions.”

Michael uses the example of Big Brown and his bid to win the Triple Crown in 2008.

Big Brown won the first 2 legs of the Triple Crown (the Kentucky Derby and the Preakness) with the Belmont Stakes remaining. Based on how handily Big Brown won the first 2 races and how weak the field would be in the Belmont, Big Brown was the overwhelming favorite to win. Even Big Brown’s trainer, Rick Dutrow, proclaimed it was a “foregone conclusion” that Big Brown would win.

Right before the race bettors pushed Big Brown’s odds of winning to 3/10 or a 76% chance to win.

Then Big Brown lost and he lost big. Big Brown came in dead last.

Racing fans and bettors put too much weight on Big Brown’s recent wins. A belief that Big Brown was just too dominant to lose permeated bettors’ minds.

What the majority of bettors never asked was how many has horse been one win away from the Triple Crown? And then how many times has that horse won?

Outside View

Again, Michael Mauboussin in his book Think Twice describes the outside view as such.

The outside view asks if there are similar situations that can provide a statistical basis for making a decision. Rather than seeing a problem as unique, the outside view wants to know if others have faced comparable problems and, if so, what happened.

Continuing with Michael’s example of Big Brown.

Of the 29 horses that were one win away from the Triple Crown, only 11 have done so. This is a 38% success rate.

But Michael then points out that before 1950 8 out of 9 horses won their Triple Crown bid but after 1950 only 3 out of 20 horses won their bid, a 15% success rate.

Base Rate

The outside view is also known as the base rate.

The base rate for winning the Triple Crown falls within the range of 15-38%. With the post-1950 numbers being the most applicable.

Big Brown’s chances of winning the Triple Crown were pushed up to 76%. A large divergence from the base rate.

What is the Base Rate for a President not Finishing Out a Full 4-Year Term?

We need to know a couple things.

How many President’s have died in office but were not assassinated?

  • William Henry Harrison
  • Zachary Taylor
  • Warren G. Harding
  • Franklin Delano Roosevelt

Only 4 out of the previous 44 Presidents or 9%.

How many Presidents have resigned from Office?

  • Richard M. Nixon

1 out of the previous 44 or 2.27%.

How many Presidents have been impeached while in office?

  • Andrew Johnson
  • Bill Clinton

2 out of previous 44 or 4.55%.

How many Presidents were impeached and removed from office?

  • Zero

The House starts the impeachment process but the Senate conducts the trial. No President has been found guilty by the Senate.

For the most part, these events are mutually exclusive and we can simply sum each probability.

(We could make it harder by focusing only on those events that happened in a President’s first 4-year term but let’s keep it simple.)

The base rate for President Trump not finishing his first term because of either death, resignation, or being impeached by the House and found guilty in the Senate is.

9% + 2.27% + 0% = 11.27%

Base Rate is the Starting Point

The lesson from Phillip Tetlock’s book the Superforecasting: The Art and Science of Prediction is any prediction needs to start with the base rate. Then given new information and specific knowledge you will incrementally raise or lower your odds based on the new information.

If you do not have any new knowledge or specific insights then stick with the base rate.

The firing of James Comey is definitely new information. Optically, the timing of his firing – with the FBI opening up an investigation into Trump’s Russia connections – is bad. Even if it is just that, poor timing.

Some people are comparing the firing to Nixon’s Saturday Night Massacre. When President Nixon fired the special prosecutor investigating into the Watergate break-in.

Is it enough new information to move the odds that President Trump doesn’t finish his first term up to 50%?

I don’t know.

What I do know is I don’t have any special insight into such matters. So I’ll stick with 11.27%.

What I Wish I Wrote ~ June 2, 2017

This is a great twitter thread on how Amazon is disrupting consumer brands and which items are most likely to be disrupted.

And as a follow-up, the presentation from the 2017 Ira Sohn Conference on why Energizer Holdings (ENR) is a short. (Ira Sohn)

The Invest Like the Best Episode with Royce Yudkoff and Rick Ruback focuses on buying small highly profitable businesses in a model they call Really Private Equity. The criteria they look for in an acquisition candidate are equally applicable when looking for a publically traded company. Especially when they talk about recurring versus repeating revenue.

“More money has been lost reaching for yield than at the point of a gun.” If you’re investing in a high yielding retail stock, how safe is that dividend? (A Wealth of Common Sense)

Which would you rather own a Ferrari or a Tesla? Now, which stock RACE or TSLA? If you’re a Return on Invested Capital fan then Ferrari is your pick for both. Plus, RACE pays a dividend. (Intrinsic Investing)

Autonomous cars are coming. When exactly? I don’t know. But LIDAR will the be key. A brief introduction to LIDAR (Voyage)

Pepsi (PEP) dividend growth analysis (The Dividend Groth Investor)

The iPhone has a tremendous loyalty and retention rate in the U.S. and around the world. Except in China. The Chinese smartphone user is driven by WeChat and Apple needs to find a solution to this issue. (Stratechery)

On position sizing in your portfolio (Covenant-Lite on Medium)

Got 11 hours to listen to some music? The complete history of Punk Rock in 200 tracks. (Open Culture)

President Trump is Affecting Tourism to the U.S.

The potential spillover effect from President Trump’s travel ban that we mentioned as a risk to our investment in Hilton is starting to show up in the data.

The US tourism business is in trouble — and President Trump may be to blame.

America’s share of international tourism has dropped 16% in March, compared to the same month in 2016, according to Foursquare data released Wednesday.

The decline began in October 2016, the month before the presidential election. From October to March, tourism-related traffic has fallen an average of 11% in the US, compared to the previous year. Meanwhile, tourism in the rest of the world has increased 6% year-over-year during the same period.

The hotel industry reported a flat year-over-year room occupancy rate. The Average daily raite and revenue per available room continued to grow.

From HotelNewsNow.com: STR: US hotel results for week ending 20 May
The U.S. hotel industry reported flat occupancy and slightly higher rates year over year during the week of 14-20 May 2017, according to data from STR.

In comparison with the week of 15-21 May 2016, the industry recorded the following in the three key performance metrics:

• Occupancy: Flat at 70.6%
• Average daily rate (ADR): +1.5% to US$127.91
• Revenue per available room (RevPAR): +1.5% to US$90.26

STR analysts note that occupancy for the week was pulled down due to comparison with a non-Mother’s Day Sunday in 2016.
emphasis added

The hotel industry isn’t showing the same decline yet but there is a lag between foursquare’s research data and what the hotel industry reports.