So that just happened

So America has elected a convicted felon to be their leader. Whatever your political views are, you have to pay attention as an investor, because of the size and influence of American capital markets, culture and geopolitical power.

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What is unclear, however, is what you should do about it? Some people definitely have some ideas.  

This week, Tesla stock went up 31%, presumably on the news that Elon Musk's bet on the winning horse will give him power in the new administration, which he can leverage to his business' advantage.

The reality however..... is very uncertain. These are early, heady days. We very likely do not know what will happen in the next week, month, or year. 

Case in point, does anyone remember Steve Bannon? Mastermind of Trump's 1st presidential victory? He was unceremoniously ousted after he appeared in a Time magazine cover page, incurring Trump's anger. 

We know that Trump is famously thin-skinned. Long time Elon Musk observers know this is the same of him as well. A very good example of this took place during the Superbowl, when President Biden's tweet got more views that Musk's, leading him to haul his Twitter engineers in at 2.30am in the morning to find out why.

Will 2 big egos (among other big egos) continue their loving relationship into the future? Who knows. From this perspective, betting on Tesla because of this election victory is a very .... bold choice.

Market will move

One thing is for certain, as Bank of America noted in 2019, market volatility will increase.

The brokerage’s chief equity strategist, Savita Subramanian, wrote in a note that “since 2016, days with more than 35 tweets (90 percentile) by Trump have seen negative returns (-9bp), whereas days with less than 5 tweets (10 percentile) have seen positive returns (+5bp) — statistically significant.” A basis point is 0.01 percent.

In other words, when Trump tweets more than usual, the stock market tends to fall slightly, on average.

“Trade talk, political campaigning and tweets have contributed to volatility, from China to Fed policy to tax policy,” she wrote. “And new tariffs announced in August indicate downside risk to our 2019/20 EPS growth forecasts of +2%/+7%, where indirect impacts

As some traders and investors have noted, volatility creates opportunities.

The problem is you can't easily make predictions on the direction. During the 1st term, Trump had feuds with... everybody, including Jeff Bezos. Yet from 2017 to end of 2019, before COVID, the stock price more than doubled.

Circle of Competence

What can you do, if the opportunities abound, but you do not know where they will come from? You can use your circle of competence to narrow down the areas you should be focusing on.

You may not be familiar with Amazon or want to guess if Trump will lash out at Jeff Bezos and go after his businesses. You may be familiar with the defence industry and more accurately predict the impact of Trump's NATO hate on European defence contractors, such as Leonardo or Rheinmetall.

Do your homework now so you don't have to rush when opportunities present themselves.

Go look elsewhere

You can put some distance between yourself and the US. America is the giant gorilla and her actions will affect everyone. However, smaller stocks in nations far away from the US might provide more stable business to invest in. 

Look to Europe, the United Kingdom, Japan, Singapore, Australia to buffer yourself against capricious Presidential pronouncements. 

An often overlooked part of the investing environment is the importance of rule-of-law. Other democracies offer more protections against emotional lashing out of heads of states.

Keep your emotions in check

When volatility hits however, you need to maintain your composure. Don't panic when Mr Market offers bargains to you. 

On 5 August 2024, a surprise rate hike by the Bank of Japan caused the Nikkei to drop 12.4%. On 5th August, Sega Sammy (maker of Sonic games) closed at JPY 1,883, a drop of 13.6% to 2nd August's close. 

If you had picked up some of the stock, you would have made a nice 15.8% after it rebounded on 6th August.

If you intend to continue investing in the US markets, there will be opportunities but keep your head cool and your options open.

Stay safe everyone.

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