Investment Insights: January 2017

2017-01-16

Hello and welcome to Investment Insights for 2017.

It has certainly been an interesting few months since we last wrote and of course the big news was that Donald Trump, despite almost everyone declaring that he couldn’t win, is soon the be the President of the United States. It is somewhat ironic that in Trump’s win, some of the same biases and mistakes that many make when investing, were, in hindsight, applied to the Presidential race. So in this quarters e-mail we thought we would look at a couple in more detail.

Did that just happen?

Without going into too much detail I think we can all agree that very few people actually believed Trump would win. Take for example the following headlines at various stages of the campaign:

  • August 6, news.com.au – Why Donald Trump won’t win the election

  • September 27, CNBC, Why the Donald Trump who appeared on stage Monday can’t win

  • October 17, news.com.au, Donald Trump can’t win the election: ‘He can’t come back from this’

Notwithstanding all of the information, polling data, analytics, algorithms, political analysts and last but not least “experts” almost everyone got it wrong which again proves our regular thesis that predicating the future is hard…..really hard.

At the same time as people were writing him off, financial commentators were warning that if he did win, we would be faced with some kind of financial Armageddon. Most of the major financial sites posted articles on this very topic, with some of the more glib, in no particular order, listed below:

And last but not least, November 5, Herald Sun - Panic buttons in markets if Donald Trump wins US presidential race, which included the following paragraph:

Given the brittleness of financial markets anyway, a Trump success in the election could be the "black swan event" that has been a lurking and growing threat to markets and economic stability the longer the post-crisis period of unconventional monetary policies has gone on.

The irony of it all

So in summary the consensus of most experts and those who have a platform to shout from was that he couldn’t possibly win and if by some miracle he did, it would be the end of the world as we know it for financial markets. At this point I will resist the temptation of doubling down on the irony that many of these experts were the same ones who said that the U.K. would not leave the E.U. but if they did it would also be the end of the world as we know it (in case you missed it, they did vote to leave and the markets were just fine).

As we all now know, he did win and markets reacted drastically indeed, with the ASX200 rising 12% since November 10. In fact the ASX posted its biggest jump in five years (more on that in a moment) and the S&P500 in the U.S. rising almost 5% since the election and 17% since the beginning of last year.

The biggest one day jump in the ASX in 5 years illustrates two very important points:

  1. Predicating the future is hard…..really hard; and

  2. If you think that getting out of the market and waiting for it too all settle down is your best strategy, consider that missing these returns (as we discussed in our last e-mail) can have a substantial negative impact on your long term return (to the tune of 25% based on historical data).

As for what the future will hold once the new President is sworn in only time will tell, however it should not be lost on everyone that Mr Trump will be inheriting a substantially different America to the one that Barack Obama did 8 years ago. During his term we have seen financial markets return to record highs, his policies contributed significantly to ending the 2008 recession, the number of Americans with private health insurance increased to 95% of the population and he reduced unemployment from 10% to 4.7%, including 75 consecutive months of job growth, a record.

Let’s all hope that Mr Trump is just as effective as his predecessor, as a strong American economy is a key driver in the continued growth of China and Asia and the catalyst for a prosperous Australia.

If you would like to discuss any aspect of your strategy and investments, or you would like help putting one together, please contact one of our advisors today.

Daniel Minihan
Partner, Private Clients and Wealth

Matthew Oakey
Partner, Private Clients

David Foord
Senior Manager, Wealth Management

Matthew Baum
Private Client Advisor, Wealth Management

Keegan O'Rourke
Private Client Advisor, Wealth Management

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