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Portfolio > Portfolio Construction

When Trump Tweets, Investors Listen

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With the inauguration ceremony over, Donald Trump is now the nation’s 45th president — and he has a new Twitter handle, @POTUS.

“Together we will make America great again,” President Trump said during his speech at Friday’s event.

Given Trump’s proclivity for using Twitter, one Wall Street insider quipped, “Trump’s tweets increase the opportunities for day trading. Let’s make America trade again!”

The president’s tweets over the past few weeks have helped bump up the stock price of Ford, while putting a dent in Lockheed Martin’s shares, for instance.

Tech firms like Trigger Finance have developed mobile applications — aka “Trump Triggers” — to let investors know when the president tweets about an individual stock.

Just after his inaugural speech, the new president — using his older @realDonaldTrump handle — declared: “We will follow two simple rules: Buy American & Hire American!” (That probably won’t help the shares of IT consulting groups like Infosys and Tata.)

What does a tweeting president mean for advisors and their investor clients?

For some advisors, like James Osborne, CFP, of Bason Asset Management, it is a cry for diversification and investing that focuses on indexes, for instance, rather than specific equities.

“T***p presidency might be the single best reason to avoid individual stock risk in a long time,” Osborne said on Twitter earlier this month. “Never know who is the next target of ire.”

Other market watchers point out that Trump’s tweets are a new source of volatility that investors have to consider.

“This is unprecedented,” said Mike Loewengart, head of investment strategy for E-Trade, in an interview. “It’s tough to say, though, if this will continue after Inauguration Day or not and become the norm. If so, investors of all shapes and sizes are going to have to get used to it and consider [its implications] for all their investments over different time horizons.”

Core and Satellite

In early January E-Trade found that 60% of millennial investors were trading off of Trump tweets. Plus, nearly 40% of investors of different ages were doing so.

“Clearly millennials are the most likely [group of investors] to respond to Twitter and have been placing Twitter-based trades,” Loewengart said. “They … clearly recognize the power of social media when it comes to potential trades.”

The E-Trade poll also discovered that half of investors are changing their portfolio allocations or are moving from cash to new positions as Trump takes office.

“These tactics should be conducted within the context of investors’ long-term goals and with monitoring,” Loewengart said.

E-Trade uses the core and satellite approach to investing. “We’d suggest trading off Trump tweets in the satellite [segment] of a portfolio,” rather than the core, and “include a risk-management focus,” Loewengart explained.

Investors overwhelmingly favor financial stocks during Trump’s time in office, according to the firm’s poll: 55% see this group benefiting from his presidency, followed by the energy and industrial sectors, 53%. 

“Advisors at large working with more millennials in particular … would be well advised to counsel them with a message of diversification and [reliance on] the core-satellite approach,” Loewengart said.

For instance, trading on Trump tweets — considered a tactical strategy — should only be able to impact up to 10% of a portfolio.

“Any [investing] approach needs effective diversification and for investors to be mindful of the risks they are taking,” he explained.

Buffeting Trends

Another individual with a large amount of influence over billionaire investors is Warren Buffett, who favored Hillary Clinton in the election.

But Buffett’s role in the markets is different from that of Trump, Loewengart says: “Buffett has a large amount of people who respect him, but do not necessarily follow exactly what he does.”

For instance, “In 2009, Buffett said everyone should buy stocks like he was doing. But how many investors really did it?” the E-Trade executive asked.

Buffett doesn’t use Twitter to describe his daily outlook and advocates investing for the long haul.

“Never bet against America,” he told CNBC on the night before Trump’s inauguration.

While unsure of the short-term direction in the markets, Buffett said: “It’s going to be higher 10 years, 20 years from now.”

“America works,” explained the chairman and CEO of Berkshire Hathaway. “I’ve said this before. It’ll work wonderfully under Hillary Clinton, and I think it’ll work fine under Donald Trump.”

The Sage of Omaha seems to share that outlook with Commander in Chief Trump. “When America is united, America is totally unstoppable,” the new president said after taking the oath of office.  

— Check out Ahead of Inauguration, Investors Not ‘Fully Bullish’: Merrill on ThinkAdvisor.


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