Donald Trump has been inaugurated as the 45th President of the United States and a number of hearings already have been held by the Senate to ready the approval of his appointees for various cabinet posts and other executive positions. Whether you like him or not, the president is moving forward with his staff and government policies.
The investment markets initially celebrated Trump’s election by rallying from Nov. 8 through the end of the year. Then the rally in stock prices paused through this past week before the inauguration. It would seem that initial investor euphoria has spent itself, awaiting actual policy changes from the new administration.
Policy changes alone are not necessarily the end point for the markets. Ultimately, any policy shift will have to reflect measurable positive economic changes such as increased GDP growth rates, new business formations, initial public offerings, rising employment numbers and a pullback in welfare participants and other public assistance programs. The investment markets will not wait for the actual economic numbers but will most likely anticipate better numbers and react accordingly. This is known as a “buy on the rumor, sell on the news” strategy.
Stock market performance is measured by the change in stock prices over time. The usual numbers are widely measured in percent changes per year or perhaps in percent changes from a purchase price. No other rationale can trump the results shown in the raw numbers. Investors come in many varieties and use an endless array of investment strategies.
That said, all investment strategies are based on identifying stocks that should advance in price in the future, either short term, medium term or long term or all of the above. Pick good stocks and hold them forever, say some gurus. However, no single investment strategy works in every market. Just ask the holders of General Motors who saw their investment become worthless as the government bailed out the company, but not the shareholders. The current General Motors is not your father’s General Motors.
When selecting stocks, one can encounter a variety of disappointments. There are those companies which produce wonderful sales and earnings growth but have declining or flat stock prices. Then there are the inexpensive stocks, those fundamentally cheap that tempt investors but never deliver the expected price increase. Others invest in growth stocks and momentum plays (if the company is growing then shouldn’t the stock price?) only to see the trend change soon after they buy a substantial position. I hate when that happens.
As you get older, ideally you should be moving from trading time for money (working for a living), to allowing your money to work for you as you spend more time however you see fit, be it traveling, consulting or volunteering. So you should become more competent at investment in stocks, real estate and/or your own businesses.
We are at another inflection point in the economy and perhaps in the investment markets. How well you take advantage of these circumstances depends less on your stock picking ability than your management ability after the investments have been made. In my view, there is too much talk about stock picking and not nearly enough talk about portfolio management.
Let’s hope improvements in the economy are not accompanied by a stock market that ends up treading water for many years to come. That would be disappointing. Of course, no one knows what the future will bring, but one thing is certain: to win, you must participate. People who never participate, never win. You may considerably increase your chances by getting into this market (at whatever amount is comfortable for you) then follow it carefully and make the appropriate adjustments over time.
You will notice that I didn’t recommend any investments or any investment strategy. I just said that if you don’t participate you cannot win. That is a good place from which to start your investment experience.
*Nothing contained in this article should be interpreted as a promise or guarantee of earnings or investment results nor a recommendation for the purchase or sale of any security or sector.
