We’ve witnessed the peaceful exchange of power in the most powerful country on the planet. Now, how do we create a “Trump Portfolio” of only the best, really the greatest, everybody says so securities? Does it make sense to overweight small cap manufacturing stocks that might benefit from a strong dollar or perhaps bank stocks to take advantage of rising rates?
Here’s a better question: What’s more important, the person in the White House or the person who owns the portfolio? It doesn’t make sense to put Grandma in volatile small cap stocks if what she really needs is income. Likewise, it wouldn’t be prudent for a 20-something to move everything to cash because they don’t agree with the President’s politics. I hope you already knew this, but there is no optimal “Trump Portfolio”. Rather than rebuilding their portfolio every time the winds change in Washington, D.C., investors should build around their personal needs and goals.
There is some concern that for the first time, one person is able to move the market with just a tweet. Shouldn’t we be taking advantage or protecting against that? This is really an old issue playing out in a new medium. Headline risk has always been a part of investing and a diversified portfolio has always been its foil. Also, it’s not really the first time a person has been able to move markets with a tweet. A Hillary Clinton tweet hammered biotech. Carl Icahn moved the largest publicly traded stock in the world.
Preparation is key, but premature reactions erode wealth. For example, what if an investor thinks self-driving cars are inevitable? That’s a probable outcome, but one that’s not here yet. It’s not prudent to adjust one’s entire portfolio around a concept that may take decades to play out and if it does play out, it will likely do so in ways no one predicts. History has also shown that it probably won’t be an existing company that becomes the flagship for the concept, but a company that has yet to be created. Blockbuster Video and Netflix come to mind. Blockbuster was the incumbent with the resources and infrastructure to bring streaming video to the masses, but it took the creation of Netflix to truly disrupt the industry.
Have a plan and stick with it. Control what you can control: expenses, taxes, and your behavior. In this way, you untie your fortune (and more importantly, your state of mind) from the news cycle and the whims of the political class.