I expect you would have seen the news regarding Donald Trump’s seemingly ‘improbable’ victory in the U.S. Presidential election. Love him or hate him, Trump’s victory is effectively middle America’s retribution against the political establishment.
You may be wondering what on earth happened to the financial markets overnight. For example, the U.S. share market looked like it was going to tank, but in the end, closed the day higher. You wouldn’t want to be the person who hit the sell button based on the news at the time.
Trying to ‘time’ such volatile markets only highlights that having an investment strategy based on reacting to news headlines probably isn’t going to help in building long term wealth.
The reaction in markets (and even more so, the media) reminds me of the Brexit vote by the British people to leave the European Union in late June. While there are fundamental differences between the two (i.e. that a presidency is not permanent), some parallels can be drawn – a divisive campaign, an unexpected result and palpable fear about what the future holds.
Like Brexit, it is near impossible to measure what the outcome immediately means for the country’s citizens, let alone for the economy and financial markets. What we can measure however, are valuations in investment markets. A good portfolio is driven by long-term valuation-driven investing, which means, not peering into a crystal ball and trying to predict the outcome and implications of elections.
While it may feel uncomfortable to read the headlines when you pick up the newspaper, the rollercoaster ride in financial markets is nothing new. On this occasion (as in the past), I encourage you to look through the market noise and panic and remain focused on the bigger picture.
As a long term, valuation driven investor, with a focus on the preservation of capital, it is my belief that under or overvalued markets will return to their fair value, or what they are really worth, over time.
Negative sentiment and heavy selling, often driven by fears of what might happen, have historically created the best opportunities for value investors. From your current conservative positioning we’ll continue to monitor markets and look to buy quality assets that are ‘on sale’ using your higher levels of cash that are held for times like these.
A great portfolio is well positioned to take advantage of any investment opportunities that may arise from any irrational investor behaviour in this period of uncertainty. While we should never wish for markets to crumble, we can stand ready to profit from any such opportunities that may present themselves.