President Trump is making news again, and investors are getting worried.
There has been no shortage of drama from the White House. Some of the actions taken have real consequences. Take the trade war, for instance. The US imposed tariffs on Chinese imports, and the Middle Kingdom retaliated with tariffs of their own on American-made goods. In this instance, carmakers such as Ford and General Motors have felt the sting from higher steel prices resulting from recent US tariffs.
President Trump has also taken direct aim at a number of US companies such as Amazon (NASDAQ: AMZN), making them a target of his disapproval.
Tweets That Move the Market?
At the face of all the commotion, investors may feel compelled to react, avoiding companies that are in President Trump’s crosshairs, and instead, invest in companies that would benefit from the US administration’s tariffs.
But before you start following President Trump’s Twitter account, consider this argument by economist Greg Ip:
Suppose on Jan. 1 you correctly guessed that Trump would impose steel tariffs and attack Amazon so you went long U.S. Steel and short Amazon. With U.S. Steel now down 17% and Amazon up 73% you might rethink how much to credit presidents for the stock market's performance. https://t.co/vBTt419xOJ
— Greg Ip (@greg_ip) September 4, 2018
In one paragraph, Ip captured why investors should not attempt to guess what the White House is going to do. And, he is not the only person to saying so. As it turns out, Warren Buffett has long advocated that investors should ignore political and economic forecasts.
What Really Moves The Market
These are uncertain times, and for investors, it can be unsettling.
But doubts around trade and politics are not new, and has been around for decades. In 1994, a young Warren Buffett wrote:
“We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen.
Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.”
As the youthful Buffett explains, the stock market has undergone political and economic turmoil in the past, from actual wars, not just trade wars, to Presidential resignations. All of the above has not shaken Buffett’s belief that good investment principles will continue to apply, prompting the Oracle of Omaha to say:
“Fear is the foe of the faddist, but the friend of the fundamentalist.”
Buffett asserted that none of the uncertainties has made a difference to how he invests, and the companies that he invests in. The passage above is a timely advice from Buffett for the uncertainty that we see today. As investors, we should take heed.
While we shouldn’t turn a blind eye to trade wars and political repercussions, our focus should be on companies that benefit from long-term secular trends, rather than short-term political fits.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.The Motley Fool Singapore has recommended shares of Amazon.com. Motley Fool Singapore writer Chin Hui Leong owns shares of Amazon.com.