The 2016 election has come and gone, and now a new President sits in office. For investors, it is increasingly clear that we have a elected a person who is perfectly willing to use social media to express himself, even tweeting about specific companies.
That can do a lot of crazy things to a retirement portfolio in the short run, if you happen to own a lot of any given stock that Donald Trump might decide to criticize, laud or even mention in passing.
Boeing, the airline manufacturer, saws its share pummeled within seconds of a Trump tweet about the cost of a new model Air Force One. Lockheed Martin, a defense contractor, soon after got hit by a Trump tweets on a fighter jet deal.
However you have voted, a president willing to shake up the markets with an offhanded comment is new and shaky ground. Yet we believe that for the serious long-term investor there is little here to worry about at all, for a number of reasons.
First and foremost, change in Washington isn’t necessarily news. It happens every four to eight years and always has. Consider the position of investment legend Warren Buffett, cited in Fortune recently, about the Trump presidency.
“Long term, the stock market is going to be higher, and I’ve written that many times. In terms of what it’s going to next year or tomorrow, I have no idea,” Buffett said. “The stocks we were buying and selling the day before the election were the same stocks we were buying and selling the day after the election.”
Of course, we know that’s not much comfort to anyone who owns a significant holding in Boeing or Lockheed, but let’s unpack Buffett’s analysis.
First of all, the long term is what matters to retirement investors. Even if you are already in retirement, you might live for 20 years more and you probably have a spouse, children or charities for which you might be investing as well. The long term is long.
Any investment portfolio looking out of more than 10 years and even five years cannot be guided accurately by short-term decisions today regarding one stock or another.
Yes, Buffett buys and sells, but he buys with an eye toward holding for long periods of time. “Our favorite holding period is forever,” as Buffett has put it repeatedly in the past.
Secondly, beyond the tweeting, investors are trying to figure out his policies, in part by examining his picks for cabinet positions.
But there’s a heck of a lot of miles to go before these picks are even on the job, much less formulating and carrying out policy.
Winners and losers
Some of these cabinet picks will directly affect the fortunes of certain sectors of the economy, but it’s really not possible today to decide which and by how much, positive or negative.
Remember, too, that Congress controls the purse-strings and makes the laws, not the executive nor his appointees.
It’s easy to find articles online that list which sectors will be winners and which will be losers under the Trump administration.
But doing that is market timing based on conjecture, a guess about a guess about a guess. It’s hardly investing at all. By definition, that’s trading.
As Buffett told Fortune, when asked about Trump’s potential policy changes, “I’m not looking at it. I don’t know what the market’s going to do. Never have, never will.”
To sum things up, own stocks, don’t trade and diversify. Index funds provide the kind of safety in numbers approach that can insulate a portfolio from the occasional errant tweet, besides dozens of other unknowable factors.
The serious, long-term investor knows Buffett is right about the future of stock prices. Presidents come and go. Serious investors who avoid big mistakes always prevail.