Well, the people have spoken.
On January 20, 2017, Mr. Donald J. Trump will be inaugurated as the 45th President of the United States of America.
California wasted no time in protesting the result, with many in the state calling for a “Calexit” – a cry for succession mirroring Britain’s “Brexit” vote to leave the European Union.
All the Republicans who decried and distanced themselves from the Trump campaign are now kissing @$$ of the president-elect. Democrats are stunned. And, of course, Putin has sent his warmest congratulations.
Political pundits who, for the past 18 months, claimed Trump didn’t have a chance, are now the very same political pundits telling viewers exactly how a Trump presidency will play out.
The truth is: no one knows anything!
Only after a long stretch of time and actual actions (beyond purposely inflammatory campaign rhetoric) will we see the next four years of our country’s future begin to take shape.
Anything is possible. Anything.
And so I urge you to keep an open mind.
While we wait for the dust to settle, here’s one of the most poignant investment maxims to consider… And then you can choose your four-years-of-Trump strategy accordingly (Hint: Cycle 9 Alert is a great place to start).
The idea is generally attributed to Benjamin Graham, the so-called “father of value investing” and Warren Buffett’s mentor. His seminal works – Security Analysis and The Intelligent Investor – should be required reading for any investor who puts a dollar in the market.
I personally don’t identify myself as a “value investor,” although I very much appreciate both the philosophy and its empirical track record.
As a self-ascribed “momentum” and “trend-following” investor, I find it fascinating that even Benjamin Graham recognized the role of investor psychology in the movement of stock prices.
Here, I’m referring to investor psychology as the human-behavior component of investment activity – the irrationality factor that routinely drives market prices far too high… and far too low… than is justified by the intrinsic “value” of the company, as determined by Graham and Buffett-style metrics (i.e. Price-to-Earnings ratio).
Graham’s famous saying goes…
“In the short run, the market is a voting machine.
But in the long run, it’s a weighing machine.”
Value investing only works if other investors, eventually, recognize the true value of a company. Value investors buy shares of a company at a price below their true value… hold them for as long as it takes for the market to recognize their true value… and then they sell the shares for a profit.
This is the weighing machine function of Benjamin Graham’s quote. Given enough time and sufficient rationality, market participants will “weigh” the value of a company and subsequently adjust the market price of its shares (through buying and selling) until the value of the shares equals the value of the company.
The other side of Graham’s maxim speaks to financial markets’ function in the short run. He appropriately describes it as a voting machine because, in the short-term, the price of a stock is largely determined by how popular it is.
Investors “vote” with their dollars… buying stocks they feel good about, in the moment, and selling stocks that aren’t viewed as good candidates, at least for the present environment.
People are more fickle than we’d like to admit. And in the short-term, the popular “vote” – for or against a particular stock – can change rapidly and often.
The short-term movement of stock prices – driven by the “voting machine” – is exactly what value investors work to avoid. And it’s the phenomenon that momentum and trend-following investors seek to profit from.
Riding short-term waves of investor sentiment – either for or against a particular investment – has proven to be a very lucrative strategy. It doesn’t work in every instance. But it works often enough, and well enough, to form the foundation of a profitable investment strategy.
I’ve been running Cycle 9 Alert successfully for the last five years, helping subscribers capitalize on the voting-machine function of the stock market. My system consistently points us to stocks and sectors riding momentum waves of the “popular vote,” allowing us to pocket substantial profits along the way.
It’s this type of market-beating strategy that you’re going to need going forward. Because, while the next four years of America’s future remain unknown, one thing is certain: There are dark days of volatility ahead… and without a plan, you’re likely to get swept away in the current of popular sentiment.
To good profits,
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If “buy-and-hold” and the notion that you can’t beat the market have left you short of your personal and retirement goals, then you’re going to want to hear the truth about passive and active investing.
Chances are, if you’re more than 25 years old, you think it’s impossible to “beat the market!”
But today, there is MORE than ample evidence that proves:
- The stock market is NOT perfectly efficient
- Passive investing can be MORE risky than active investing
You CAN beat the market… you just need to use the right strategy!