Either of these titles are appropriate in consideration of President-Elect Donald Trump’s historic election win on Tuesday. This 16-hour period serves as perfect petri dish to explore the viral contagion that invades people’s emotions in irrational ways such that they can lead to false assumptions and potentially catastrophic investment decisions. This is not a political discussion, but an exploration of the machinations of the mind.
At about midnight on election night, the news of an apparent forthcoming Trump victory caught the world off guard, which led to the Dow futures dropping 750 points and roiled international markets.
As I woke up to the election results early Wednesday morning and scanned the social media and news feeds with my morning tea, I came across countless posts from people citing these headlines as a basis for predicting there would be a global market meltdown and the apocalypse was imminent — implying a need for a drastic change in investment strategy. From their comments, I believe these people really believed it and seemed somewhat hysterical.
And then, with a subdued whisper and confidence, the markets closed in very strong positive territory. The Russell 2000 was notably up 3.1% in one day.
Wall Street Journal “Markets”
And this, my kind readers, is a perfect example of how media headlines can disturbingly affect people’s emotions such that they jump to irrational conclusions. The damage comes financially when they act on these irrational conclusions. Many people just do not see that they are victims of their own prejudices and biases. Despite what we might feel or believe, the collective power of the markets has always, eventually, found a reasonable equilibrium.
So this is the potential fate of many investors all boiled down to 16 hours. The important thing to remember is that similar scenarios will play out in your mind subconsciously many thousands of times throughout your lifetime and you’ll need the right advisor to lean on to provide guidance. The secret is finding a good advisor who doesn’t necessarily tell you what you want to hear, but has built a resilient investment strategy for you prior to these events occurring that will weather turbulent periods and can provide some rational perspective during times of crisis, perceived or otherwise. As we say, a good advisor is really managing people, not investments.
For our investors, the Trump post-election strategy is this: Maintain the course for now; you are positioned well.
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