The Trump Trade

by Garvin Jabusch

The first two weeks under the Trump administration have been a shock
to the system. With the change in administration, how will you
approach your stock portfolio(s)?

For starters, your fundamentals should remain unchanged. For me,
that means looking for great companies in expanding markets that
are enabling long-term economic growth, and reducing systemic
risks. Of course, this also means buying these stocks at low
valuations. Benjamin Graham and Warren Buffett were right about
‘wonderful companies at fair prices.’ That is never going to
change.

With that said, let’s look at what has changed and what to do
about it.

Unpredictability — that’s the first quality worth noting about
the new White House team’s leadership style. Trump’s comments and
actions concerning topics such as open global trade, immigration
and the US-China relationship will cause uncertainty, to which
markets usually do not respond well. George Soros recently
emphasized this point, adding,
“Uncertainty is at a peak, and actually uncertainty is the enemy
of long-term investment. I don’t think the markets are going to do
very well.” 

It is true that in the short time since Trump’s election, markets
have rallied. Traders perceive that uncertainty has actually
decreased because the election cycle is over, and they believe a
Trump administration will benefit business by removing
regulations. The possibility of fiscal stimulus via infrastructure
— something a Republican Congress never let Obama do — has also
rallied markets. But as
we witnessed on 1/30
and will likely continue to see,
uncertainty’s retreat will prove to be an illusion. 

For example, markets have largely appeared to accept the positive
business aspects of Trump’s rhetoric but equally, so far, to
discount the negatives, such as the possibility of a trade war.
Trump also promises to roll back financial oversight and
regulations such as Dodd-Frank, which raises the specter of
possible asset-bubble deflation, a la 2008. Good markets should
not be confused with a stable investing environment.

Beyond Soros, other qualified observers, such as Eliot
A. Cohen
and Ruth
Ben-Ghiat
have noted that there is enough personal and
political capriciousness swirling within this White House that the
consequences could extend far beyond market implications. We
should not make the mistake of not taking seriously the
administration’s actions over its first two weeks.

So, portfolio defensiveness is clearly warranted. What that means
for an individual investor’s portfolio, I leave to your best
judgement.

Yet the inevitable market volatility will present opportunity,
both in buying oversold securities as opportunities arise, and
also in making investments that benefit from volatility itself.

Trump’s worldview often contradicts global momentum, and this can
present buying opportunities. Energy policy is a prime example of
this. The global
transition away from fossil fuels toward renewable energies

is now clearly
underway
. Nevertheless, the Trump administration’s attempts
to prolong
the fossil age
a few more years may meet with some success.
It is possible that gas and oil may be about to enter their last,
large bull run. If this is the case, some investors may see this
as a short-term opportunity, before the much bigger opportunity in
being short fossil fuels indefinitely (or until it’s time to
cover). For those looking to grow their portfolios beyond the next
couple of years, a much larger opportunity appears — companies
that are trailblazing toward the interconnected, sustainable
economy.

Trump’s actions also spell out the need for diversification in
light of U.S. political risk. While Trump has removed
all references to climate change
from whitehouse.gov, approved
the Keystone XL and DAPL
pipelines, canceled all EPA grants,
and caused the CDC
to cancel its climate change and health conference
, he can’t
stop the global momentum of renewable energy (worth a post on its
own — stay tuned).

So, how does an investor respond? As a fund manager, this looks
objectively to me like any other case of political risk in a given
country, underscoring the importance of a diversified portfolio.
Saudi Arabia has policies against beer? Vatican City has ethical
restrictions on imports of contraceptive devices? Maybe place less
weight on companies trying to sell those products into those
markets. Obviously, these examples are extreme to the point of
absurdity, but they illustrate my point about political risks and
diversification, because both beer and condoms have huge markets
in other geographical areas that can be exploited for investment
return. My examples are also less than apt in that there is today
a booming market in the U.S. for both wind and solar but,
considering both the words and actions of Trump and his
administration, it seems only prudent to capitalize on renewable
energies’ opportunities in companies with large global
distribution networks and thus are not overly reliant on U.S.
distribution. Canadian
Solar
(CSIQ),
Vestas Wind Systems (VWDRY),
and JinkoSolar (JKS)
come to mind. Renewable energies worldwide are booming,
and if the U.S.
chooses not to participate
fully in these industries, at
least our portfolios can.

There may be opportunities in renewable infrastructure under
Trump’s watch, as he pushes
to develop transmission capacity
from windy middle America
to the coasts.

We are now, as much as at any time in recent memory, embarking
upon an uncertain landscape, both culturally and economically.
More than ever, investing requires a long view into how the
economy is most likely to evolve, regardless of short- and
medium-term gyrations, wild and scary as those may become.

In short, that means figuring out what’s next. What’s next in
energy? In tech? In consumer goods? The way to earn returns over
the long term entails investing in firms that are leading the way
to the future, holding and accumulating shares through volatility,
and looking for value.

Note: A version of this post appeared previously on Worth.com.

Garvin Jabusch is cofounder and chief investment officer
of 
Green
Alpha® Advisors
, LLC. He is co-manager of the Shelton

Green Alpha Fund (NEXTX),
of the 
Green Alpha Next Economy Index, the Green
Alpha Growth & Income Portfolio, and of the 
Sierra Club Green Alpha Portfolio. He
also authors the Sierra Club’s green economics blog, 
Green Alpha’s Next
Economy
.”


Source: Alt Energy Stocks

 

LAMP