BARRY RITHOLTZ: How to invest while Donald Trump is the centre of attention
'Let me try to offer a few words of advice that might be helpful during the years of distractions that go hand-in-hand with the presidency of Donald Trump'
That is the question we must all wrestle with in the Trump era.
An endless stream of tweets, announcements, firings, policy shifts, outrages and absurdities greet us each day -- and that is before the market even opens. Psychographic microtargeting, the president and the porn star, CPR for gunshot victims, fine people among neo-Nazis -- events and ideas that in the context of U.S. political life would have been unimaginable just a few years ago.
Investors can easily fall down this rabbit hole, where their adventures are filled with nonsensical distractions.
Let me try to offer a few words of advice that might be helpful during the next two-plus (or six-plus) years of distractions that go hand-in-hand with the presidency of Donald Trump. These won’t help you beat the market, but they should a) help you avoid falling too far behind, and b) make sense of the nonsense. On to the lumber yard:
• Stick to your plan: This is obvious, but it needs to be said: Whatever your plan is, execute it. This remains true regardless of what your investment strategy may be. If you are a value investor, well then, go find cheap stocks. If you are a trend follower, look for asset classes in defined up or down trends, and trade accordingly. Momentum investors seek out momentum.
Unless your investment model is interpreting news flow to determine trades, then the ephemeral background noise shouldn't distract you. So then ask yourself:
• Why are you so distracted?: This is a question all traders and investors must put to themselves. Figuring out why it's so hard to avert your eyes and ears from all the sturm und drang could help you manage it better. Are your investments suffering declines? Are returns not what was predicted by back tests? Or are you simply frustrated with or bored by these markets?
I am not suggesting you ignore a substantial flaw in your methodology; but I am suggesting not misdiagnosing the background static or normal market volatility for a systemic error. It is too easy to lose sight of the important signal among all of the noise. Learn to separate the two. You can do this by:
• Managing your media consumption: Perhaps the problem is that you are overconsuming the daily firehose of news and commentary. It is too easy to believe a half-dozen provably false things before breakfast.
A few solutions beckon:
No. 1. Throttle back your input. Less is more in this case
No. 2. Focus on the quality of what you read, not the quantity
No. 3. Avoid the bias of getting lost in a media bubble of your own making
No. 4. Use technology to make all of this easier
I use cheap and simple tech to help organize my daily routine. Chrometabs allow me to quickly sift through the morning news. I open lots of AM and PM tabs, then work my way through by scanning and closing them. This works well in conjunction with Instapaper’s save-for-later feature -- it lets me create lists of items to read when I am less pressed for time. It also helps to reduce time on Facebook, and to learn to use Twitter as an intelligent research assistant. Each will go a long way toward helping manage the endless static. But there's one more thing:
• Learn new skills: One of the great pleasures of youth is the simple joy of learning. Once we graduate from school, we forget the invigorating thrill of acquiring new skills. Embracing new concepts and challenges can be a wonderfully healthy distraction, a cleansing for a weary soul. For me, it is a mixture of tennis (a game I came to late in life), learning French and cooking.
There is a lovely and pure goodness to undertaking new challenges. Stepping away from your daily grind is to refresh and recharge, and can only be helpful to your daily work. It also provides much-needed relief to whatever it is that you are obsessing over. This is a polite way to tell you to stop whatever it is you are doing and get out of the office.
Perhaps the biggest risk of the fake-news era is the natural tendency to go among mad people. Don't get lost in the salacious details of meaningless ephemera. My advice is to focus on what matters: Add context, perspective and balance to data and supporting or contrary evidence. Almost everything else is a distraction.