Why Did Trump's Win Send The Stock Market To All-Time Highs?
Much of the world(myself included) was shocked to hear that Donald Trump won the US election for president last week. While the votes were still coming in on Tuesday, Asian markets began to tumble merely on the surge that Trump experienced in some key states. Once the results were finalized and the next day started, the Dow Jones hit an all-time high. But why exactly did this happen? I personally can't say why, because I do not view Trump or Hilary winning as anything but negative for the market. To me this only proves the irrationality of the market. Perhaps some of Trump's basic, free-market hyperbole is enough to make the market think that the US economy is just fine and dandy?
I don't mean to rant against Trump, but I have trouble seeing how the policies he advocates for are bullish for the US economy. Economists Adam Smith and David Ricardo dismantled the idea of protectionism over 200 years ago(Bastiat did as well in the 1840s), yet millions still think that protective tariffs are a good thing for the US. It's amazing that these old and bad ideas can still be as a strong as they are, it's like the ideas themselves are stubborn old tortoises that refuse to die out. I would say that it's partially a side effect of hyper-nationalism, which makes people so emotional that they can't even reason through some basic economic laws.
The Dow hitting all-time highs just proves that the stock market is NOT rational, and it confirms Benjamin Graham's famous view "In the short run, the market is a voting machine but in the long run, it is a weighing machine." Short term sentiment drives prices in the short run, while the long run shows a little more accurate view of the reality.
As far as investing in this current environment, my general view is the same. Most people should rely on low cost, index investing for the stock portion of their portfolio. For those that choose to pick individual stocks, the premise is the same also. Find the highest quality companies, and buy only the ones that have the price lowest to their real value. Of course it becomes very difficult to find stocks that are a trading at a real discount, especially the biggest companies in the market. I'll be talking more about this topic a lot in the future.
*This post is not intended as financial advice in any way. It is merely informational purposes only.
This post has been ranked within the top 80 most undervalued posts in the first half of Nov 13. We estimate that this post is undervalued by $4.81 as compared to a scenario in which every voter had an equal say.
See the full rankings and details in The Daily Tribune: Nov 13 - Part I. You can also read about some of our methodology, data analysis and technical details in our initial post.
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