What’s an investor to do?
Just when it was getting quiet for five minutes, the headlines are full of Donald Trump again. Trump’s done this. Theresa May should have done that. The Queen’s not happy. The markets are worried.
What’s an investor to do?
Put simply: ignore it.
Donald Trump has caused chaos at airports in the US and protests around the world by temporarily banning visitors from seven countries and barring refugees. He then fired the acting attorney general when she refused to defend the ban in court. It’s messy and a clear reminder that Trump was serious about his pre-election promises. It also has an effect on the market. When Trump got elected, investors seemed to be focusing on the upside (tax cuts, more spending) and weren’t considering the downside (protectionism, micro-management). This behaviour tends to make the downside a lot clearer.
One of the big problems with all of this is that it makes you feel like you should be acting to protect your investments. There’s so much noise, so much shouting, so much hysteria and the political noise is only going to get louder and is not going to go away. Trump is just one of many noisy political issues out there and I’m sure he’ll dominate the headlines for months to come. His actions so far suggest that he is hardly likely to bed-in quickly. He’s not a consensus builder, he’s a blower-upper. He clearly likes to march in, shake things up, and see what happens.
That sort of management style can work in a corporation, where people have actively chosen to work for you and accept you as a benign dictator in exchange for a monthly salary. The jury is out as to whether it’s the best way to run a country though. And unfortunately, Trump is not a “small government” kind of guy either. You might get tax and regulation cuts, but you’re also going to get a lot of intervention. He’s not one to stay out of the limelight. He has courted celebrity all of his life and he’s clearly very thin-skinned. That lends itself to the prospect of plenty of “Oh Lord, what’s he done now?” headline moments. Throw in the fact that the US is incredibly divided – so it’ll be impossible to get any sense out of the American media for quite some time – and you’ve got a recipe for confusion.
On top of that you’ve got Europe; the French election has been thrown wide open (again) after Francois Fillon – the right-wing candidate who everyone hoped would beat Marine Le Pen – ended up in a scandal involving his wife’s payment for working as his parliamentary assistant. As Credit Suisse puts it, the French presidential elections pose the “greatest existential risk for Europe” of all the problems out there.
That’s all without thinking about Brexit, Italy, Germany, Greece or any of the other potential Eurozone trouble spots.
Now it’s possible that none of this will amount to anything at all, although you can expect it to hog a lot of the limelight and to be given a lot of credit for the various daily ups and downs in the market over the next few months. If you’re feeling stressed, it’s probably best to go on a news diet.
As a serious investor, your investment horizon is not measured in days or weeks or months; nor is your strategy based on who’s in charge of the US or Europe – or Britain, for that matter. So the vast majority of ‘news’ that appears on the front pages is likely to be either irrelevant or of only temporary importance. In terms of the big picture, the basic underlying trend remains reflationary; whether that’s accompanied by strong growth or not has yet to be seen.
In short, to give yourself peace of mind you should maintain a portfolio of diversified assets, perhaps own some gold for insurance and rebalance when your asset allocation gets out of line.