Nobody knows anything. At no other time in recent history does this seem more accurate. On November 8th, Donald Trump shocked the world with a stunning electoral victory over Hillary Clinton to capture the presidency. Very few people saw this coming, and most of those who did, were skeptical at best that they were right. All the consensus polls and pundits leading up to the election had Hillary with a very comfortable lead, but as we saw with Brexit, this doesn’t really mean much. While I will refrain from commentating on the new president-elect in much detail, as he has provided a significant amount of content himself with which to criticize, there are some important investing lessons to be gleaned.
- Nobody knows anything. The world saw an easy Clinton victory, how could she lose to Trump? And yet it happened. Don’t overlook the seemingly impossible (also known as Black Swan event, which we have discussed before), as it can and does happen, just we when least expect it. Just because your models show that your concentrated portfolio is a no-lose situation, doesn’t mean that something unaccounted for can come out of left field and completely blow it up.
- Pundits know even less. The pundit consensus on the market impact of this election was that Hillary Clinton would be good for the markets, and Donald Trump would be bad. As the hours got late on November 8th and it became more and more apparent that the Donald would win, overnight markets were showing a steep plunge, between 5-10%, and it looked like this prediction would actually come true. And yet, once the markets opened in North America, it was a solid day in the green, and we have now reached new all time highs for the S&P 500.
Despite your best efforts to predict the future, you are rarely going to be much better than monkeys, polar bears, or tigers. That is why, as always, we say it’s not ‘Timing the market’, but Time in the market’.