I’m not even going to try to answer that question outright!
To quote Donald Rumsfeld, the former US defence secretary: “There are known knowns. These are things that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. These are things we don’t know we don’t know.” There are plenty of known unknowns that have featured this year (Fed rate rises, QE, china, Brexit etc) and who will win the US election and what effect that will have on your investments is one of them! As with the known unknowns mentioned above which have already come about numerous times, we can clearly see that so many in money management are looking to try to work out how to make returns from events we simply don’t know the outcome for. Even once the outcome of the decisions is known, we often still don’t know the outcome of the outcome, in relation to our investments.
Confused? Good. Stop trying to invest based on short term news flow and politics! Before I attempt to simplify things for you, let’s just confuse everyone a bit further. So, back to the US elections which are now round the corner. . .
Stocks will sink with a Trump victory and if he gets to renegotiate US national debt, the bond market could capsize. A Clinton victory will see stocks rise but her tax hikes will cripple the economy and not to mention that her foreign policy would end up destroying the world! Those aren’t my words by the way, legendary investor Mark Mobius recently said “…I would vote for Mr Trump, because he may only destroy the US economy, but Hillary Clinton will destroy the whole world”.
But is it all as bad as that?
This infographic is from UOB Asset Management. There is some positive data here! But should we invest based on this?
Also Bloomberg offered up a 'cheat sheet' last night, showing what would happen, according to the analysts asked, if Trump won or if Clinton won.
Again some good data. So shall we decide who will win and position our portfolios accordingly? No!!! Some money managers made a fortune after the Brexit Referendum result, however whilst they can now boast to their peers and their investors are very happy - should they even have been effectively 'gambling' on the result which, I'm sorry, but whichever 'side' you might have been on, no-one the day before ever thought that outcome even had an outside chance. Isn't that irresponsible investing? Wouldn't that mean we've really forgotten all the basics of investment 101? Isn't that actually gambling?! So shouldn't we learn from that and not position portfolios according to predicted outcomes of events outside of our control?
So right now, let's not make any assumptions. Remember the election and subsequent market reactions are very much a known unknown. To highlight the point:
In 2008, the assumption was that Obama would put gunmakers out of business, turn health providers into wards of the state, and usher in a golden era for clean energy. Tell that to Smith & Wesson, whose shares have outperformed the S&P 500 by nearly 50 bps each year for the last five years. Or to the health care sector, which has outperformed global stocks every year since Obama was elected. Or to alternative energy companies, down as a sector nearly 50% so far under Obama's Presidency. Now obviously I’ve cherry picked somewhat, however I think my point is clearly evident.
The real good news is that, and please don't quote me, even if indeed Clinton wins and markets rally with the perceived 'stability' she brings, or if markets tank if Trump wins, looking more medium-long term, there will be stock market gains. Forget the short term ramifications and the 'knee-jerk' reactions that might follow in the immediate aftermath this next few days, weeks and months. Look long term and there will be gains. Really want to invest around the election? Try Healthcare stocks - if Trump wins they'll get a boost. If Clinton wins they'll slump (so buy some more or dollar cost average over the next few months). This is one sector that really is a bit of a no-brainer long term what with rising costs of healthcare, and a globally ageing population. Or get back into gold - someway off all time highs and likely to be seen as a haven to instability if Trumps wins. If not, a good USD and inflation hedge, and long term should be a small part of all portfolios anyway. Hold for (and profit from it over) the long term. This sort of approach would be a much more prudent one to invest around these elections rather than messing around with the Mexican Peso and other speculative plays that you and I don't really understand, and remember, these aren't really investments, which is what this was all about. Not sure? Then use a good manager with a long term track record. For example I and many of my clients own the CGWM Global Opportunities Fund. See below the long term out performance versus global stocks back to 2001.
Investments should be made over the long term...
Ah yes, the long term! How could I forgot. I've used these two words so many times today!
Drown out political views and all assumptions when investing. Let's not forget these events are known unknowns! Let’s not speculate who will win and therefore what to invest (or speculate) in! But let’s instead make sure we invest in good quality stocks and funds with proven managers, and overall make sure you have a diverse portfolio matching your risk profile. Investing is a long term exercise. I will leave you with a quote from another legendary investor: Terry Smith (founder and CEO of Fundsmith) who recently said to me “If you are a long-term investor, buying shares in a good business is more important than valuation. If you are not a long-term investor, what are you doing investing in the stock market?” Below is the performance of his fund versus global shares. Maybe he might be right! Invest long term, don'