Post Election: Pause, Reflect, and Act Carefully

Take a deep breath. Or maybe two.

The biggest trap for investors during an aggressive political campaign? Allowing the political narrative to become the foundation for your portfolio decisions. I have frequently advocated that investors should be “politically agnostic,” willing to make sound investments regardless of who is in power. This is always easier said than done, particularly in an environment of extreme claims.

Acting emotionally and without sufficient thought is usually a costly mistake. Those who sold all stocks when President Obama was elected missed a huge rally. Those who sold futures contracts on the breaking news last night also have big losses this morning. Here are some key points:

  1. Do not go “all in” if you supported Mr. Trump or “all out” if you backed Sec. Clinton. We have a resilient economy and a political system with many ways of resisting extreme actions.
  2. Things will change less than most people expect. Many proposals that sounded attractive on the campaign stump will prove impractical. The responsibility of governing also has an important effect on every new President. There will not, for example, be a recession just because of the election.
  3. The trading reaction is swift and large, but often overdone. I see price weakness in nearly every company that Mr. Trump criticized during the campaign. Does this make sense? Every aspect of the Trump agenda is reflected in this morning’s trading: Hospitals and technology down. Companies with strong links to Mexico down. Drug stocks higher. Interest rates higher. Banks higher. Construction stocks higher. The general ideas sound reasonable, but there is a great distance between concept and achievement.
  4. There will be new opportunities. Careful analysis will provide a better idea of where policy change is likely. Stock picking and sector picking will be more important than in recent years.

I wanted to provide some of the important considerations right away, but there is plenty of work to be done. If you focus on objective analysis, you too can find profitable investments no matter who is in power.

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