On the Money
Stay calm and Trump weak hand
On 7 November it was reported that Chris, a technology worker in California was so terrified Donald Trump would win the US Presidential Election he sold his entire diversified portfolio of shares and bonds worth some $250,000.
He stuck them in “safe” Indexed Treasuries ( Gilts to us). This was the second time since July. Wonder what “diversified” meant to him ?
He admitted to freaking out because as a technology specialist and part time emotional investor he concluded a Trump victory could cause a depression. He panicked despite a consensus of “experts” predicting a Hillary Clinton landslide.
A day earlier, Blackrock, the world’s biggest fund manager, with access apparently to the best detailed research around, had her victory down as an 80% certainty. And this was backed up by most talking heads mustered by the various TV channels around the globe. Racing certainty, then.
Chris calculated if Clinton won he could miss out on the 5% to 10% stock market rise that would likely follow, but concluded the downside of a Trump victory would be far worse. Then he’d just buy again.
Except that he most likely will not be able to bring himself to. If he’s a typical emotionally driven investor he’s more likely to sit with his near zero return waiting for the next obvious buying opportunity. So when would that be? Higher or lower? Ah, there’s the rub.
We have a client who is one of our best “contrarian indicators”. He sells everything now and again, reacting to what he hears on “Bad News at Ten”, confirmed by his favourite paper and the chums at his club.
He always says he’ll buy again “when it’s better”. So is that when the market’s higher or lower, we ask? Higher, he replies.
Does he realise what he’s just said? Seems not. For the record, thanks to some doom laden predictions last November about the latest “insurmountable economic problem”, he cashed out.
Twelve months later he’s still there, earning zero less inflation, while one of his previous core defensive holdings Newton Global Income is up (income reinvested, less all costs) by 31% . Doh!
Even the boring goalkeeper fund he dumped is up 14.1%.
Meanwhile, back in California, Chris plans to wait until the market falls 5% to 10% to buy in again. Except he won’t. Because when, or if, that happens the news channels will be filled with more dire warnings about stock markets thanks to another recession or political crisis on the horizon.
Ten minutes after the FTSE opened on Wednesday following Trump’s victory a headline appeared on Sky News, as follows…”FT 100 Sees £37 Billion Plunge as Trump Win Sparks Market Turmoil”. Almost immediately the FTSE rose and finished the day up 0.8%. Nobody mentioned how many billions of pounds were added.
Over in the US wise long term investors have a nickname for the Chris’s of this world… “2% Investors”. That’s what they earn after taxes, apparently, thanks to buying and selling according to their emotions. Sadly, it’s estimated three out of five investors behave the same way.
Meanwhile, cool-headed Ned Davis Research of Venice Florida, looked back through US Election history and calculated there’s a good chance that a Republican President backed by both Republican Houses could see patient equity investors gain a 7% annual real return over the next four years. Trump that.
Alan Steel is chairman of Alan Steel Asset Management
Alan Steel Asset Management is regulated by the Financial Conduct Authority. This article contains the personal views of Alan Steel and should not be construed as advice. Do check your individual circumstances with your advisers.
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