The build-up and level of fear of a Trump Presidency was at a crescendo leading up to the election, with some analysts placing the potential disruption to the market immediately after similar to that of a world war (I am not kidding!).
I will leave the political commentary to other people, however I wish to make the following observation. Due to our position on this planet of ours, as is often the case when events occur, our share market was the first to open. We were hit pretty hard (although having lost 200 points during the day, to end at around 100 points down was quite a recovery). The US futures (which indicate how the US share market would open) was down 5-6%, which indicated the US market would open with a fall of up to 1,000 points! The nightly news and media broadcast from our media, including Alan Kohler who truly does seem to delight in bad news, was full of the atypical comments “$30 billion wiped off the market” etc etc etc etc.
So what happened to the US markets overnight I hear you ask? Well, far from a 1,000 point fall, the US market (Dow Jones) rose 257 points (1.4%)! In fact, there was not even really an initial sell off in early trading. To be honest, I had to check a couple of times this morning when I awoke at 4.30am, just to make sure my blurry eyes were not deceiving me. (Our market futures in Australia is indicating we will open up close to 3%...more than compensating yesterday’s loss, however I am not sure if Alan or other journalists will write about $45billion being added to the market if this eventuates). This does not necessitate that markets will not wobble in the days to come of course….maybe…maybe not…but I think it does prove a valuable lesson.
The moral of this story is quite simple. As we saw in the rapid market recovery after BREXIT, and as we saw last night, in the short term markets are quite inefficient and can do some weird and wonderful things. However, share investment is not for the short term (well ought not be), but the medium to long term 3-5 years+. Share markets are priced on earnings of companies, and whilst politicians can have an influence on this to some extent, ultimately in the western world we have relatively free markets which are amazingly agile at navigating the aftermath of geo-political events. Short term shocks have always happened, and the chance of them happening in the future is 100%. However a well-managed and diversified portfolio, together with an appropriate investment time-frame, will help investors to achieve their long term goals. A person who panics and sells, for example, sold when Trump is elected and buys back today, has only managed to rid themselves of 3-5% of their wealth.
As always, if you have any questions or concerns regarding the last 24-48 hours, and wish to discuss, please contact me at your convenience.