So that happened.
We’ve had a political shock in our country in the last 12 hours that few predicted. I certainly did not see the election of Donald Trump as the 45th president of the United States coming at any moment, right up to the point when key battleground states like Ohio went for Trump.
In periods of high stress our focus turns inward first. There’s nothing like a good health scare to get your mind off distracting nuisances like traffic or that the yard needs to be raked. The election of Trump is akin to that right now. This is what’s behind the surge of cortisol and adrenaline (the fight or flight hormones) coursing through America right now.
It won’t always feel this way. Hormones will level off and the rational side of the brain will begin to re-emerge. This is where you not only endure this stress but prevail over it.
We have been through shocks before and we will see them again. What did NOT help last time?
- Staying glued to cable news or the minute-to-minute gossip factory on the internet.
- Believing you could time the market (either at the top or the bottom).
- Charging yourself with the responsibility of seeing this coming.
With regard to the last point, recognize that in the aftermath we will identify some people who put all their chips in on the idea of a Trump victory and are now seeing some marginal benefits. Every spin of the roulette wheel yields some winners: that does not mean that roulette is a game at which one could ever expect to profit.
The most recent example of this was the Brexit shock. Markets sold off dramatically in the first two days following that, and then rebounded right back to previous levels.
In periods of highest stress, attention to fundamentals yields the highest returns on effort:
Is your portfolio truly diversified? Do you have the right mix of volatile and non-volatile assets? The best way to answer this question is to remember why you are investing: what will you need this money for, and when will you need it? The longer your time horizon, the more volatility is your friend.
What happens when things go sideways? Do you have sufficient cash available to ride out periods of peak stress?
When I came downstairs this morning my dog Monty still wanted his breakfast and to go for a walk. I suspect that in the coming months life will be like that: more like the recent past than different from it. America has voted and now it needs to figure out how to govern. We always have and we will do so again.
Our job now is to govern ourselves.
Year end planning: you have 60 days left!
So that happened. We’ve had a political shock in our country in the last 12...