MENU

What Will Trump Do Next?

Image: Public domain

The English language can be full of peculiarities and oddities.

Some words have hidden meanings; some have double-meanings and some have implied meanings.

Writers can, sometimes, use the subtleties of the English language to great effect.

Consider a recent headline: “Stocks set to test record highs this week”.

At a superficial level, it looks like a harmless enough statement. It shouldn’t really need any further explanation.

A little test

But take another look at the eye-catching title? What does the word “test” actually mean?

Does it mean that we, as investors, have failed, if the stock market doesn’t push beyond its record highs?

Or does it mean that we should be doing cartwheels, if the stock market climbs ever higher?

The answer will depend on whether we are short-term punters or long-term investors.

A dangerous mind-set

People who invest with only the short term in mind will probably want shares to rise quickly, so they can realise a profit, as soon as possible.

But it can be a mistake to grab a small profit without thinking.

It can also be a mistake to think of stock-market falls as something dreadful. As net buyers of shares, we should not be frightened if the market drops.

It can be dangerous to get trapped into a mind-set that thinks of a rising stock market as being good, while market falls are somehow bad.

When we invest, we should consider buying shares in much the same way that we would evaluate buying a business, lock stock and barrel.

What we want

We firstly want the business to be one that we can understand.

We also want it to have favourable long-term prospects. We want it to be run by honest and competent managers. And of course, we want to buy it at an attractive price.

But we can’t buy something at an attractive price, if stock market sentiment continually drives the market value of the company above its intrinsic value. We want the stock market to fall, every now and again.

In fact, outstanding investment opportunities happen when wonderful businesses experience a one-time event that pushes down the stock price in relation to its intrinsic value.

So, a stock market fall is actually a good thing. Not the other way around. You are not going to find too many bargains in rising markets.

Pessimism is good

One of the most common causes of low prices is pessimism. Low prices can sometimes be quite universal. Sometimes it could be specific to just a company or an industry.

So we want to welcome those pessimistic moments. That is not because we are pessimists or that we especially like pessimism. It is because we like the prices that it produces.

It is optimism that is the enemy of the long-term buyer of equities.

Consequently, we should try to focus on the things that are important and knowable.

There are lots of things that could be important. But unfortunately they are not always knowable. So it is best to not bother about those things at all.

We can’t predict tomorrow

A case in point is the musings of Donald J Trump.

There are lots of people who will tell us what President Trump will or will not do. But I doubt if Donald Trump knows himself.

They may even tell you the impact of Trump’s action on the on the US dollar, the next interest-rate decision by the US Federal Reserve and the deals that could be struck.

Just ignore them. I have yet to meet a forecaster who is right every time.

We can’t predict what tomorrow will bring. But we must be prepared for what it might bring.

That means we should simply focus on buying wonderful companies at fair prices.

That is what we do at Stock Advisor. What we do is not beyond anybody’s ability. We don’t try to do extraordinary things to get extraordinary results.

We just do the ordinary things very well. Take a look at what I mean here.

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.

Like us on Facebook to keep up to date with our latest news and articles. The Motley Fool's purpose is to help the world invest, better. 

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.