Trump’s Supreme Court Pick and YOUR PORTFOLIO [EPISODE #246]

by | Mar 1, 2017

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Trump’s Supreme Court Pick and YOUR PORTFOLIO [EPISODE #246]

The Big Idea

There are two fundamental philosophies when it comes to interpreting law as a judge, and one of them is absolutely better for anyone who makes their own investment decisions.  How does Neil Gorsuch, President Trump's nominee for the US Supreme Court, stack up?

Points To Ponder

  • President Trump just nominated Judge Neil Gorsuch to serve as the next US Supreme Court
  • It matters greatly because judges who ascribe to a particular judicial philosophy are very bad for investors and businesses
  • The two philosophies are Originalist and Acitivist
    • Originalism says:  The plain words of the law are the guide and absolute limits of my ruling in any case.  It’s the job of CONGRESS to create or change laws, not the job of judges to do so
    • Activism says:  The law is a guide I’ll consider.  But if necessary, I’ll subordinate the law to other factors, including my own political beliefs, the legal system in other jurisdictions, social preferences, etc so that I can arrive at a decision that I believe to be suitable.
  • This all boils down to whether a particular judge makes decisions that create reliable precedent so that we can make decision about investing our money
  • Originalists tend to make more consistent decisions based on the law itself - regardless of whether the law is "conservative" or "liberal"
  • Neil Gorsuch is definitely an originalist and is an excellent pick for the US Supreme Court

Resources

Full Transcript

We interrupt this podcast to bring you a clear understanding of how something called JUDICIAL PHILOSOPHY profoundly affects your portfolio, and how President Trump’s nominee for the Supreme Court, Judge Neil Gorsuch, fares in this light.  This is big, folks.  I’m Bryan Ellis.  This is episode #246 of Self Directed Investor Talk.

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Hello, every single person out there in the vast, vast audience of Self Directed Investor Talk.  This show is the voice of the exploding self-directed investor movement in America, and I, your humble host, am the Chieftan, the Boss, the Prime Minister, the Commander in Chief… yes, even the Supreme Leader of said burdgeoning movement.  Whether you’re hearing me by podcast, by radio, or even on one of the many websites who ruthlessly rips off this podcast each and every day… welcome!  You’re listening to the podcast of record for savvy self-directed investors like you.

Before we get going, a quick note:  If you’d like to learn how you can get access to CASH CREDIT of $50,000 to $250,000… and not pay a single penny of interest for that capital, then stop by SDITalk.com/credit right now.  This is for real, and you’re going to LOVE what you see there.  SDITalk.com/credit.

At the end of yesterday’s episode of this show – the link to which you can find on today’s show notes page at SDITalk.com/246 – I told you that today I’d tell you about the potential for solo 401k’s that’s built into the law, and how to choose a solo 401k plan that maximizes that potential, because all of those plans are NOT the same.

But we’re going to have to put that one off for a day because there’s BIG NEWS from last night that is really important for your portfolio.  Because of that, this show is going to be a little longer than our normal 7 minute format.  We might even get to a whopping 13 minutes or so.  Who knows <g>

So the BIG NEWS is that last night President Trump made a nomination for the vacant Supreme Court seat.  His nomination:  Judge Neil Gorsuch, who currently serves on the US 10th Circuit Court of Appeals.  From an objective point of view, the guy’s resume is pretty amazing, but that’s not what we’re here to discuss.  Gorsuch will quite certainly be confirmed by the US Senate, so we’re going to analyze how his judicial philosophy will have a HUGE impact on your portfolio.

And for those of you who are already bowing up on me because you know I’m quite conservative philosophically, just cool your jets.  This has nothing to do with conservatism or liberalism.  Judicial philosophy transcends those issues, and it WILL impact your portfolio.  So let’s be adults about this, shall we, and get the ECONOMIC lesson – and WARNING – out of it that I’m conveying to you.

First, a very brief civics lesson, with a clear tilt to how this relates to investors.

Here in the great United States of America, law becomes law when it’s written down, approved by both the House of Representatives and the U.S. Senate, and then finally ratified by signature of the President.  That’s what creates what most of us think of as “the law”.  Technically, this kind of law is called “Statute” or “Statutory law”.

But what most people don’t know is that there are 2 other types of law that are equally powerful:  Regulations and Case Law.

Regulations are an entirely different can of worms that we won’t get into today.  But we will focus on the one called “Case Law”.

What is “Case Law”?  Case law refers to judgements made in the past.  So if two parties are in court to resolve an issue, and one of the lawyers can find a similar past case that was decided in a manner similar to how the lawyer wants the current case to be decided, then the lawyer will likely cite that case to the judge, in effect saying:  “Your honor, this is how this type of case has been decided in the past by the courts, so let’s be consistent and make the same kind of ruling in this case.”

That’s a pretty reasonable thing, I think.  If a competent judge has made a ruling on an issue in the past, and the same issue comes up again, then it’s pretty reasonable – and an efficient use of time, which is always in short supply in the court system – to apply that previous decision to the current dispute and render a similar decision.

That also gives lawyers the ability to help you stay OUT of trouble in the first place.  You consult with them about the thing you want to do, and they look to see if there are any past cases already decided – case law, in other words – which shed light on how the law is likely to view the thing you want to do.

Now that’s all well and good, but what happens when those previous decisions… the CASE LAW… is itself fundamentally corrupt?

Here’s a good hypothetical:  Imagine that somewhere back in time, Congress passed a law that said that anybody who buys land is allowed to use that land in any way they want, as long as they don’t hurt their neighbors.

So, based on that law, some guy named Bob buys some land and builds an office building on it.  Then somebody sues Bob on the basis that they are being hurt by the presence of his office building.  The judge looks at the case and decides that since the lawsuit against Bob is NOT actually being brought by a neighbor, but by a competitor living in another state, that Bob is completely within his rights to have that office building on his land.  This case, which we’ll call “Sore Loser vs Bob the Investor”, is now a decided case and permanently part of the U.S. legal structure and public record.

So then in the future YOU come along, and you buy some land.  You’re a smart, careful investor, so you call up your attorney and say:  I want to build an office building on this land, but I’m afraid my cross-town competitor will fight me on it.  Can we do this?

So the lawyer researches your question and happens upon that case called “Investor vs Sore Loser” and that gives him great confidence that, if you ever had to go to court with your cross-town competitor, that the decision would go your way, and so he advises you to proceed.

Make sense?  Case law is just a way to short-circuit the decision making process for judges.  In law school, attorneys actually spend very little time studying the statutes written by Congress, and a great deal of time studying case law, because it’s case law that wins arguments.

But here’s the big question:  What if in the case of Sore Loser vs Bob the Investor, the judge had chosen to interpret the word “neighbor” in some wishy-wash, cosmic, we-are-the-world sort of way, such that EVERYBODY is effectively Bob’s neighbor?

Well, Bob would have lost the case.  That’s bad in and of itself, but what’s worse is that decisions like that actually make the law LESS CLEAR.  So when you called up your lawyer to find out if you could succeed in putting an office building on your land, your lawyer won’t be able to give you an answer, other than “who knows”.  It puts you in the position of dramatically INCREASING the probability you’ll face legal challenges for your activities, which puts you back in court, and back in front of those judges to make important decisions that affect your life.

Well, this whole scenario is a pretty good example of the distinction between two JUDICIAL PHILOSOPHIES called Originalism and Activism.

Originalism says:  The plain words of the law are the guide and absolute limits of my ruling in any case.  It’s the job of CONGRESS to create or change laws, not the job of judges to do so.

Judicial Activism says:  The law is a guide I’ll consider.  But if necessary, I’ll subordinate the law to other factors, including my own political beliefs, the legal system in other jurisdictions, social preferences, etc so that I can arrive at a decision that I believe to be suitable.

YES, this is all still about YOUR PORTFOLIO and last night’s appointment of Neil Gorsuch to be the next U.S. Supreme Court justice, so stick with me… this is REALLY important.

All of this comes down to one question:  What are the RULES of the game for whatever asset class you invest in?

Because if what you have is Originalist judges making decisions based on the plain text of the law, you have something that is ESSENTIAL to strategic decision making:  You have PREDICTABILITY.  You know that if you buy real estate, you own it forever, as long as you pay your property taxes.  You know that if you lease a house to a tenant, that tenant has to pay you as long as you comply with your commitments too.  You know that if a tenant doesn’t pay you, that you have the right to evict that tenant and pursue damages.

You know these things.  They’re clear.  There’s slight nuance to some cases, but there’s real clarity about the fundamental rules.  And it’s those RULES… those GUIDE RAILS that make it possible for you to make intelligent decisions about how to invest your money.

That’s why EVERYBODY – whether you’re politically a conservative, a liberal, or anything else – EVERYBODY should be in support of judges who subscribe to the Originalist philosophy.  It’s only that type of judicial philosophy that recognizes the law as written as an absolute, and results in judgements and case law that create clarity for future litigants.

But Judicial Activist judges believe it’s both their role first to INTERPRET the law if it’s consistent with their worldview, and second to CHANGE the law by issuance of rulings based on their worldview, which is then citable in the future as CASE LAW, which effectively overrules the power of Congress to create, change and repeal laws.

Again, Originalism and Judicial Activism aren’t themselves aren’t necessarily related to the political philosophies of liberalism or conservatism.  It’s more about whether the law as created by both the Founding Fathers and later by Congress will be interpreted and applied according to the way those words were original written, or whether they’ll be interpreted and applied totally arbitrarily.  The law itself could be a conservative-leaning law or a liberal-leaning law, it doesn’t matter.  A judicial activist could be liberal or conservative.

That’s why, again, EVERYBODY should support Originalist judges.  That’s the only way we have any confidence that laws our elected officials create will be honored…. And it’s the only way we’ll have a framework that enables us to plan how we’ll invest… and do everything else in our lives.

So where does Neil Gorsuch, President Trump’s appointee to the U.S. Supreme Court stand on this Originalist versus Activist spectrum?

Good news:  He’s firmly in the Originalist camp.  Quite firmly, in fact.  In his acceptance speech for the nomination just last night, he made a very telling comment.  He said:  “I respect, too, that in our legal order it is for Congress and not the courts to write new laws.  It is the role of judges to apply, not alter, the work of the people’s representatives.”

And folks, this is the part that really got to me… he continued:  “A judge who likes every outcome he reaches is very likely a bad judge, stretching for results he prefers rather than those the law demands.”

Do you hear that, folks?  In this brief but profound statement, Gorsuch is saying clearly that, even if it means making a ruling on an issue that’s contrary to his own preferences, he’ll issue rulings based on what the LAW demands, rather than those preferences.

That, my friends, is EXACTLY what wise investors want and desperately need on the highest court in the land.

I, for one, am really quite thrilled with this pick.  I predict he’ll be confirmed by the Senate, despite instant resistance from the minority party, that despite his impeccable background which includes degrees from Harvard and Columbia, and a PhD in Philosophy from Oxford, just for good measure… along with having served as a clerk for two different Supreme Court justices and his own experience as a US appeals court judge in the 10th circuit.

All of that, and his judicial philosophy will make it more possible for you and me to truly know the rules of the game we’re playing as investors, so we can make truly wise investments.

My friends… invest wisely today, and live well forever!

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Bryan Ellis is host of Self Directed Investor Talk, America's #1 radio show and podcast for affluent self-directed investors.  He's also an expert in self-directed IRA's, solo 401k's and turnkey rental property investing... at least, that's what his wife tells him 🙂  He's a contributor to well-respected publications like TheStreet.com, Entrepreneur and ThinkRealty.  Bryan lives in metro Atlanta, Georgia with Carole Ellis - his wife, business partner and best friend - and his 4 children ranging in age from 2 to 19.