Investment Lessons to Learn From "The Donald"

by Dominique Schuh

NOVEMBER 4 2016, four days BD (Before Donald). The ASX had wormed its way down to 5263 and the Dow Jones was at 17,888. Market timers had driven both indices down, selling their own assets and their clients', so they could sit in cash and safely ride out any uncertainty. A day earlier in the Australian Financial Review, Tim Samway, managing director of Hyperion Asset Management, confirmed the uncertainty was causing investors to move to cash. Sounds like a good idea, right? A noted publication reported an important sounding person saying investors were moving to cash, why wouldn't you follow?

November 24 2016, sixteen days AD (After Donald). The ASX closed at 5545 and the Dow Jones was at 19,083. That's a 5.3% for the ASX and 6.6% for the Dow. Those would be acceptable returns for a full year. This is the way markets work. Gains often come in short spaces of time. You sit out a few weeks thinking an orange billionaire will make the world a scary place and suddenly you've forgone a freely available 5-6% increase in equities.

Once again, the market timers blew it. The cash sitters blew it. The currency speculators blew it. The stock pickers blew it and the gold mavens blew it. Plenty of people believed Trump would push the US dollar down (it went to its highest level in a decade) and send billions flowing into gold. As Trump would say "wrong!"

After a brief spike, in US Dollar terms gold has lost 11% since Trump was elected. The loss in Australian dollars was around half that due to the increase in the US dollar. If you want to know if anyone would have actually sold shares and jumped into gold, one investment newsletter advised readers of a "Trump Trade" where they sell their shares and pile into gold. For the past few weeks they've been making excuses as to why it didn't happen. "Finally, anyone who thinks they can forecast market movements is a fool"

Back to that noted publication, the Australian  Financial Review. On November 2, Trevor Sykes wrote a column titled "Safe Havens in an Unsafe World". After listing numerous financial and political boogeymen (including Trump) around the world, Sykes suggested investors find solace in gold:

"The classic refuge in any money panic is gold, which can be either held physically or by buying shares in gold mining companies ... if you're seeking insurance against a financial Gotterdammerung, putting a few per cent of your portfolio into yellow bars or gold equities should help you sleep better at nights."

Columnists like Mr Sykes have space to fill. Inevitably they'll cycle through a list of varying investments every few months to keep things interesting. Or on cue, when things are looking uncertain, they'll bring up gold and toss in terms like "safe haven". As an investor, you need to be aware that gold pays no interest or dividends and it's no less volatile than any other asset class.

Finally, (and we'll keep saying it) anyone who thinks they can forecast market movements is a fool. You'll see advisers and fund managers quoted in the media from time to time talking about how they're sitting on cash. Convinced of their own genius some of them sit out bull markets. The losers are their clients. Just because these strategies are printed in the media doesn't mean they have any authority. No one knows when the best or worst days will occur. Staying invested is the only approach that works.

For all Trump's faults, he's just reminded us of some big investment lessons and many investors learnt the hard way.