What a grand finale, despite all polls pointing to a Clinton victory, Trump has won the US Presidency. The stock market initially took the news quite badly having priced in a Clinton victory but dramatically reversed earlier losses as Trump struck an inclusive and conciliatory tone in his acceptance speech.
If you’re an investor, what does all this volatility mean? More importantly, what should you avoid doing if you are a long term investor?
Here are our top 2 tips.
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1. Beware the urge to sell during this uncertain period
Trump’s uncertain policies and anti-global trade rhetoric prior to the election caused market fears that a Trump presidency would negatively impact global economic activity. Whether this will be true or not remains to be seen. However, let’s look at two well-known events that resulted in huge market volatility in recent times and the key lessons for investors:
– Brexit (2016): Against the prediction of polls, a majority of the UK population voted for Brexit. Global markets sold off for a few days and rebounded within the space of only 2 weeks despite earlier significant warnings from leading politicians and economic institutions about the potentially dire economic impact of Brexit.
– Fall of Lehman Brothers (2008): Yes, it took the S&P 500 index just over 2 years to recover to its pre-Lehmans’ level. However, the more interesting thing is, this period provided a great opportunity to generate substantial investment returns simply by regularly investing during the market turmoil as shown in the following diagram.
Beware, don’t get suckered into panic selling just because the market is still trying to figure out what impact a Trump presidency may have. For long term investors, this period might present some of the best buying opportunities around.
2. Beware the urge to become too emotional
One of the things the best fund managers do is separate their emotions from investing. It is hard, because we are all human and driven by emotions. If you switch on the TV and read news on the internet, no doubt there will be blanket coverage of Trump’s victory. Endless questions will be asked about the impact of his unclear policies. Commentators will fret over what they mean for the economy, certain industries, the global markets etc.
This will no doubt cause most investors more angst than providing any useful information. Our tip, turn down the volume and focus on the facts.
If you’ve invested in strong listed companies, industries or themes, ask yourself, are customers going to stop or significantly reduce the amount they use the certain product or services just because Trump is President? In many cases, the answer is no. Some in the mainstream media might not agree as they speculate about the potential damaging economic effects of a Trump presidency but don’t forget they also said Clinton would win.