Yesterday I made the point that the governments of the day don’t have that much impact on the property market over the short-run.

The charts show that prices normally do better after Coalition victories, but I argued that this was all about pre-existing momentum, and not about any significant policy differences. A year just isn’t long enough for policies to take effect.

And yet, I also said that a Coalition win this time round will give prices a bigger kick than if Labor wins.

So how does that work? How does it matter and not matter? How is it relevant and irrelevant?

The key here is confidence, and ‘the mind of the herd.’

As I’ve been saying for a while in these blogs, we’ve pretty much had all the property boom ducks in a row for a while now. The missing piece has been confidence.

And more than any other factor – more than interest rates, more than affordability, more than Renovation Rescue – it is ‘the herd’ that determines where the market goes.

Modern markets are like this. It’s what happens in sophisticated and highly-leveraged economies. Once the opportunity for speculation opens up, and once you can use credit to take on positions you could never hold with cash – the instinct of the herd starts to matter.

Now I’m not saying this is a bad thing. It’s just the way it is. But it does mean that as investors, we need to keep a close eye on the herd. We obviously need to understand the fundamentals driving the market, but if we get too caught up in the technicals, and lose sight of where the herd is going, then we can get trampled.

And a lot of really successful investors out there, guys like Warren Buffett, they just seem to have a sixth sense about where the herd is going. And by staying one step ahead, they can turn the power of the herd to their advantage.

Because the fundamentals (let’s call it the market for short) and the herd aren’t always flowing in the same direction. Sometimes they move together – the early stages of booms and busts for example. Sometimes the herd can still be going north while the market’s turned and is heading south – think about the years just before the dot-com bust for example.

And sometimes the herd can be leaning against a market that is trying to push forward. And that’s what I reckon we have right now.

Have you ever seen a bunch of penguins waiting to jump off an iceberg? They all gather at the edge, knowing that there’s food in the water, but also the possibility of dangerous predators. There’s safety in numbers, but no one wants to be the first penguin in the pond.

And so they all hold back. The waiting game goes on and on, until one of them jumps (or is pushed), and then over they all go, in one big rush.

That’s the kind of situation we’ve got right now. The market is pulling hard in one direction, prices are on the rise, but still the herd is holding back.

What will it take to tip the herd into the water?

What about a Coalition victory?

Ok, how would that work?

Basically, herd mentality works on what every individual thinks every other individual is thinking.

So what is the herd opinion about a Coalition victory?

Well, the Coalition owns the economy. In the public’s mind, the Coalition are better economic managers. It may or may not be true, from year to year, from treasurer to treasurer. But it doesn’t matter. It’s the perception that counts.

Studies have shown that in the public’s mind, the Coalition is dad, and Labor is mum. It’s a little mental short cut that a great number of people have taken on, without even realizing they’ve done it. So you go to the Coalition when you think you need a bit of level-headed, no-nonsense discipline. You go to Labor when you want a softer, caring touch.

And so the Coalition owns the economy, defense, law and order. Labor owns health, education, social services.

These little mental short-cuts (because humans have lazy minds at the end of the day) are incredibly hard to shift. We don’t trust cross-dressing politicians. No one believes the Coalition when they say they care about health (though of course they do.) And no one believes Labor when they say they’re all about the economy (though what government could ever not be?)

This is the herd mind.

And so everyone in the herd, will be looking at everyone else in the herd, and thinking, “if the Coalition wins, people will think the economy will get better. There are already signs that the market has turned. They’re going to jump in. The market’s going to go up.”

And they’ll be right. Whether the economy will or won’t do better is immaterial. Everyone thinks it will. Everyone knows that everyone thinks it will.

It becomes a self-fulfilling prophecy.

And so a Coalition victory could be just the trigger the market’s been waiting for. It could be a massive boost for property, though of course we’ll never know the counter-factual if Labor had won….

Now I’ve made a lot of money over the past 6 years under Labor. And I intend to make a lot more money over the next 6 years as well, whoever holds office.

But I haven’t spent too much time worrying about politicians. I’ve done it by staying ahead of the game. I’ve tried to rely on data sources and opinions I can trust. I’ve tried to spend time worry about the things I can control and influence, and ignore the things I can’t.

And I’ve tried to keep my finger on the pulse – to stay one step ahead of the herd.

These are the three keys to successful investing I reckon. Abbott’s not going to make you money. You’re going to make you money.

Get active. Get involved. And develop your own game.

And don’t spend too much time sweating the election. These three keys are everything and all you need to do.