Trump's Policies Are Irrelevant to Investors

01/31/2017 04:43 pm ET Updated Jan 23, 2018

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The financial media is in overdrive with hyped up stories about the impact of the Trump presidency on your portfolio. There's endless speculation about how the stock market will perform "in the Trump administration."

It's all nonsense. You should ignore it.

Predictions are unreliable

I'm sure "trading legend" Art Cashin feels great when he muses, "the fade over the past few weeks portends a rocky near-term future for the market."

Actually, it "portends" nothing at all.

According to statistician Salil Mehta, who studied stock market forecasts for years, "...these supposedly 'expert' predictions [are] less accurate than random guessing."

One of my favorite financial journalists, Jonathan Clements, had this to say about those who predict the direction of the market:

"We all know that the pundits can't predict short-term market movements. Yet there they are, desperately trying to sound intelligent when they really haven't got a clue."

Larry Swedroe, Director of research for The BAM Alliance, correctly observed: "I have learned that there are only three types of market forecasters: those who don't know where the market is going (count me among them); those who don't know that they don't know; and those who know that they don't know, but get paid a lot of money to pretend they do."

A bigger problem

Given the dismal track record of market predictions, it's irresponsible for the financial media to give those who engage in this misleading exercise a platform. By doing so, they perpetuate the false belief that someone has the expertise to reliably peer into their crystal ball and tell investors what the future holds for the market.

Short-term data is irrelevant

The focus on how Trump's policies might impact the market is both misplaced and irrelevant to intelligent investors.

The stock market is for long-term investors only. It's far too volatile for short-term investors. The annualized returns of a moderate portfolio consisting of 60% stocks and 40% bonds from 1995-2014, ranged from a high of 18.5% in 1995 to a loss of 24.1% in 2008. But the annualized return during that entire period was 9.9%.

If you're seriously concerned about the direction of the stock market in the next 3-5 years, you should have little or no exposure to stocks. Your investments should be concentrated in Treasury Bills, insured Certificates of Deposit and high quality money market funds.

The bottom line

The best way to resist the temptation to "do something" with your portfolio, is to ignore the financial media, ignore all predictions about the direction of the market, focus on your asset allocation, and invest in a globally diversified portfolio of low management fee index funds.

If you are looking for a real "legend" whose advice is grounded in sound academic principles, you are unlikely to find one in the daily grist you see on TV. Instead, you can find sound advice by heeding the wise counsel of John C. Bogle, the founder of Vanguard. His book, The Little Book of Common Sense Investing, should be required reading for all investors.

To paraphrase the famous debate quote from Lloyd Bentsen: I know Jack Bogle. Jack Bogle is a friend of mind. Art Cashin: You're no Jack Bogle.

The views of the author are his alone. He is not affiliated with any broker, fund manager or advisory firm.

Any data, information and content on this blog is for information purposes only and should not be construed as an offer of advisory services.

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