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When Will The Trump Rally End?

Credit: Gage Skidmore

Singapore’s Orchard Road can get pretty chocka around this time of the year. It is not too hard to understand why.

First we had Christmas, which is followed closely by Chinese New Year.

That is great news for the malls, shops and restaurants that pepper the shopping district. More footfalls could mean more tills a ringing.

But there is a drawback.

For those who need to get through the bustling popular shopping district – whether it is by taxi, by bus, by car or on foot – the crowds can delay our journey, appreciably.

Decision time

So we have a choice. We can either join the madding crowd or find alternatives. I generally opt for the latter.

Investing can be a bit like that too.

The stock market can, from time to time, be a very crowded place, especially when traders flock in their droves in search of investments that happen to be in vogue.

The latest stock-market frenzy is a good example. It has been driven by the election of Donald J Trump as the next US President.

His victory was supposed to bring on financial Armageddon. But so far the exact opposite has happened.

The Dow Jones Industrial Average is flirting with 20,000 points. It’s been a boon for those who have been fully invested. But those who weren’t are now scrambling to avoid missing the boat.

What’s happening?

Currently, there are two schools of thought.

There is the “populist” view that America could become insular, anti-trade and anti-globalisation.

The other side of Trump’s plan could mean that America might be less insular, more pro-business and anti-regulation. Favourable tax cuts for both high earners and companies have been mooted too.

There could even be a tax amnesty, of sorts, for companies that are parking money overseas.

It is hard to tell which point of view will triumph. But the market is betting that both pro-business and pro-spending could prevail.

Inflation worries

The market is also betting that Trump’s plans could be inflationary, which is why bond prices are falling. Higher inflation could push up interest rates, which in turn could further drive down bond prices.

There are a lot of “ifs” and “buts” about what might happen. However, investors should not try to speculate. That is called gambling.

Instead, we should be looking clinically at shares to work out how they could generate an acceptable yield for us over the long term, regardless of what might happen.

To make money from shares we need to find something that nobody else knows. We need to do something that other won’t do because they are too busy following the crowd.

This is not being contrarian for contrarian sake. Instead it is looking at how a share could reward us adequately over the long term.

We call this the “Stock Advisor Way”. It is investing in wonderful companies at fair prices.

Rising tide

These could include some of the companies that have missed out on the recent stock-market rally. There are many.

But not all companies that have been left behind are wonderful. They might seem cheap. But cheap rubbish is still rubbish.

So spend time picking through the market. There are still lots of opportunities, for those who are prepared to look.

The rising tide has not lifted all boats. It might seem like it has. But that is only if you are following the crowd.

The best bargains can generally be found where people aren’t looking. So break away from the herd and avoid hot stocks in hot markets.

Look for stocks and buy them with a good margin of safety. That way you won’t get burnt, when the Trump rally ends.

A version of this article first appeared in Take Stock Singapore. Click here now  for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

 Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can GROW your wealth in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.