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How To Time Your Trump Trades

Credit: Gage Skidmore

It was my first visit to Mediacorp’s new studios at One-North. I have a feeling that it was also my taxi driver’s first trip there.

But between the two of us – mostly his, I have to say – we somehow managed to find the right road to Mediacorp Campus.

Mind you, I think I might have problems next time – building construction is going on, relentlessly. The road layout could change appreciably when I next go there.

But it is not just at around Buona Vista that there is a buzz of building activity.

The Thomson-East Coast MRT Line that will connect Woodlands in the north with Bedok in the east is causing traffic snarl ups at the most inconvenient of times.

And let’s not forget the construction of Terminal 4, which is slated to open soon. If that isn’t exciting enough, we are already talking about Terminal 5, which will be bigger than Terminals 1, 2 and 3 combined.

Clearly someone is planning for the very long term.

So should we.

Recent event

Trouble is, it is easy to get trapped in short-term events. We spend too much time pondering the here and now…. and lose sight of the future.

We fret about the things that America’s new president, Donald Trump, might or might not do.

We worry about when interest rates will rise, rather than looking closely at the balance sheets of the companies we invest it.

We worry about daily share-price movements, rather than whether a company is performing well.

New name, old story

Currently, traders will jump in and out of the market, based on the whims of President Trump. They even have a natty name for it – The Trump Trade.

But Trump can blow hot and cold more often than my temperamental air conditioner.

If the market thinks that Trump’s policies of the day could be good, then they jump into the market. In other words, it’s Trump On.

But if they believe that Trump’s policies could be bad, then they jump out of the market. It’s Trump Off time.

It wasn’t that long ago, though, when we had Risk On and Risk Off, depending on whether traders thought that central banks would maintain their policy of easy money.

Easy money was reckoned to be good. So, it was time for Risk On, which meant it was time to pile into shares.

But if they thought that central banks might raise rates, then it was time for Risk Off. In other words, it was time to take money off the table.

What a dreadful waste of time. The market went up, regardless.

Trump On

But now it’s time for the new game of Trump On and Trump Off.

Tax reforms and infrastructure spending are expected to be good for shares. It could help drive corporate profits, asset prices and consumer spending.

On the other hand, trade wars, geopolitical squabbling and a jaw-war with China could be bad for shares. They could damage corporate profits and create tension.

So, markets could rise or fall depending on which of Trump’s policies happen to be flavour of the day.

That’s not a good way to invest…..

… But it could be…

… a good way to capitalise on uncertainty and market volatility. Uncertainty is the friend of long-term investors.

However, many investors can’t resist the temptation to constantly buy and sell.

Some investors also don’t know why they bought a share in the first place.

But not long-term investors. We will look at the yield on a share over the life time of the share.

When we invest, we should try to work out what a company could look like in a decade’s time.

If you like what see and the valuation looks fair, then now will always be a good time to buy, regardless of whether it is Trump On or Trump Off time.

You can take a look at what I mean here.

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