WHAT THE U.S. ELECTION TAUGHT ME ABOUT INVESTING

20161202_01

SUMMARY

  • No one has ever proven to be able to consistently predict the stock prices
  • When share price fall, most people sell. That’s when they lose money.
  • Main stream media’s prediction is usually wrong

1. Introduction

The madness is finally over.

The world woke up on 09 November 2016 to find out that the person they hoped for (or didn’t hoped for) to be the President of the United States has come to past. If you were in touch with the news and the polls that were created, you would be well aware that the media and perhaps almost everyone we heard of would like Senator Clinton to win. One prediction that I followed closely was that of what the media said about the stock market.

2. Voices from the Mass Media

We all know it; If Clinton wins, the stock market goes up. If not, it’s the end of capitalism as we know it. And true enough, the markets around the world did plunge even as the tallying of votes took place.

Let’s take a look at some of the headline news that attempted to predict the direction of the market:

  • This is what could happen to the stock market if Donald Trump wins [CNBC, 03 November 2016]
  • The stock market could crash if Donald Trump is elected president [Market Watch, 01 November 2016]
  • What Happens to the Markets if Donald Trump Wins? [New York Times, 31 October 2016]
  • Citigroup: Stock Market Will Fall If Donald Trump Is Elected President [Fortune, 05 November 2016]
  • Forget Brexit – This is what will happen to the world economy if Donald Trump wins the US election [The Independent, 19 October 2016]

The above headlines predicted, to a large extent, that if Trump wins, the market would be in free fall. The DOW Jones Industrial futures and the S&P 500 futures did plunge before the market opened. During the middle of the day, it barely dipped and before it closed, markets are back to normal.

20161202_02

[Source: Google Finance]

At the time of this writing, the U.S. stock market is nearing its all-time high. Again.

As I revisited some of those predictions and compared it with the outcomes and reflected on my own actions and judgment, I learnt some very valuable lessons. Here are some of them.

3. Lessons Learnt

1. No one has ever been able to predict the stock market. However, knowing that isn’t going to stop anyone from trying again.

After the S&P 500 index soared by 30% in 2013, the media has been predicting that there would be a market crash in 2014 and 2015.

Here are some of the predictions:

20161202_03

[Source: CNBC]

20161202_04

[Source: Business Insider, Singapore]

20161202_05

[Source: Market Watch]

And it did. During August 2015 and early 2016, the markets did fall by a huge percentage. When Brexit took placed on 27 June 2016, the market took a nosedive again. While there is a general prediction about a falling sky, people are not able to foresee the exact time. So yes, the markets will fall. However, we need to stop acting as if we know the exact timing of the event. Still, knowing this will not stop people from trying to do so again in the future.

2. The idea of “buy low, sell high” is rarely displayed in the stock market because investors are emotional about money. Even if they claim that they are not.

The market will fall every now and then. For the savvy investor, that’s good news. For most of the market participants, however, it always seem to be the end of the world. With so much buzz in the media about selling all of your positions and heading for the hills, many investors see the election as a hindrance to their portfolios rather than an opportunity to add more stocks at a discounted price. As 2017 approaches, know this: The market will fall again. Will you be focused on deploying your capital wisely or seek the foetal position when the market dips?

3. Majority may win. But majority may not be right.

The mainstream media has predicted a market crash and they were wrong. They were also wrong about who had a higher chance of winning the election. What then can we infer about the credibility of the media?

4. Conclusion

Before you pay attention to the next market prediction, take a look at the previous predictions made.

You will never again take the next one seriously.

**Here are the links to the news sources. They have been sorted in order.

http://www.cnbc.com/2016/11/02/this-is-what-could-happen-to-the-stock-market-if-donald-trump-wins.html

http://www.marketwatch.com/story/the-stock-market-could-crash-if-donald-trump-is-elected-2016-10-31

http://www.nytimes.com/2016/11/01/business/dealbook/what-happens-to-the-markets-if-donald-trump-wins.html?_r=0

Citigroup: Stock Market Will Fall if Donald Trump Is Elected President

http://www.independent.co.uk/voices/donald-trump-president-what-happens-to-global-economy-world-hillary-clinton-brexit-markets-a7370221.html

If you want to learn more about how to find cheap and good stocks to Generate 3 Sources of Passive Income for you, click on the picture below to join our Free Value Investing Masterclass ….

cta

Marcus Ho
Research Analyst, Mind Kinesis Value Investing Academy

Disclaimer: Please note that all information stated in this article is just for education purpose only and should not be used as any form of recommendation or advice.

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