With Donald Trump having made his way into the White House for a second time, his penchant for volatile behavior should once again be front-and-centre for investors, serving as a signal for undervaluation to be capitalized on and as a reminder to make sure portfolios are ironclad (as they can be) against uncertainty.
4 moves investors should make under a Trump presidency
- Diversify away from the United States.
- Capitalize on irrational movements in share price.
- Give cryptocurrency your full due diligence.
- Revisit your financial plan.
1. Diversify away from the United States
Given that the U.S. represents about 60 per cent of global market capitalization, according to Visual Capitalist, there is no way around the fact that a diversified portfolio must invest in it.
That said, for the same reason, the U.S. should not be the only country where you put your money to work, with dozens of stock markets around the globe creating value for shareholders.
Developed markets such as Europe, Australia and Japan have earned a 4.41 per cent annual return since 2000, while emerging markets, including China, India and Saudi Arabia, have delivered 7.54 per cent since 2000. Both fall short of the U.S. market’s over 10 per cent return over the period.
While each region has outperformed the U.S. and had their moments in the sun, the rationale for investing in them extends into innovation, offering you maximum exposure to the power of human creativity to improve quality of life at a profit.
Consider at least a 24 per cent allocation to developed international and a 12 per cent allocation to emerging markers to approximate their global market caps, as calculated by Dimensional.
2. Capitalize on irrational movements in share price
As we all know by now, Trump will say what he wants when he wants, frequently leading to statements and/or policies that can materially affect value in financial markets. Here are three recent examples:
- Since Trump’s “drill, baby, drill” comment on Inauguration Day, the price of oil has fallen by 3.3 per cent, reacting to a potential near-term increase in U.S. supply, enabling investors to build positions in profitable producers and picks-and-shovels names weighed down by negative sentiment but positioned to thrive over the long-term.
- Trump’s proposed US$500 billion plan to harness artificial intelligence (AI) is likely helping to prop up widespread gains among AI stocks year-to-date, creating an opportunity to short story stocks and buy into data-driven value propositions experiencing positive momentum.
- Trump’s threats to institute tariffs potentially all over the world are weighing on public companies in every affected industry, from cars to cosmetics to fruits and vegetables, opening the door to identify strong brands being excessively underpriced by tariff-induced fear.
The actionable advice here is to do your research and built watchlists with companies whose operational efficiency makes short-term investor pessimism a buying opportunity. To get you started, consider:
- AKITA Drilling (TSX:AKT.A), an oil and gas drilling services provider on track for positive net income for the third consecutive year.
- Perion Network (NASDAQ:PERI), a digital advertising technology provider, which posted an almost 10x jump in net income from US$12.89 million in 2019 to US$117.41 million in 2023.
- Costco (NASDAQ:COST), a business that has been creating shareholder value by maximizing customer satisfaction since inception in 1983, whose shares tend to trade at a price-to-earnings ratio over 50.
3. Give cryptocurrency your full due diligence
Trump’s fondness for cryptocurrency, unavoidably tied to his US$6.6 billion meme coin and approximately US$10 million portfolio, positions the emerging US$3.5 trillion asset class for an environment conducive to business and further growth.
His most prominent policy to date is the establishment of a U.S. Bitcoin reserve, which would encourage price stability as well as appreciation for the largest cryptocurrency at over US$2 trillion in market cap. Should the reserve come to pass and other nations follow suit, Bitcoin will likely look far beyond its approximately US$104,000 price point as of January 23, encouraging more investors to consider an investment in the space.
The prospect of at least two years under a crypto-friendly administration, contingent on mid-term elections in November 2026, grants investors a prospective runway to add to the highest-risk portion of their portfolios, selecting for projects with dominant market share creating real-world value.
Besides Bitcoin, consider smart-contract platform Ethereum, crypto exchange Uniswap and crypto borrowing market Aave, each of which generates significant daily fee revenue, according to data from CryptoStats, separating themselves from the common crypto criticism of the asset class not generating any cash flow.
4. Revisit your financial plan
While checking in on your finances should be kept brief, given that most joys in life lie beyond refreshing your portfolio holdings page, it’s an important part of making sure you’re on track to meet your life’s goals.
Most tend to conduct these reviews quarterly, bi-annually or annually, but exceptions should be made during extraordinary circumstances – as many might describe Trump’s second win – because of their heightened potential for the unpredictable.
The process does not have to be fancy, so long as it captures an accurate sense of your relationship with money and the future you envision for yourself. Foundational questions to ask include:
- Why am I investing? When would I sell each of my investments and for what purposes?
- Borrowing from Move #1, Does my portfolio reflect my risk tolerance and return requirements, regardless of where the macroeconomic wind blows or what follows from Trump’s next bully tactic?
- Are my assets protected through an accurate will and account beneficiary designations?
- Is my emergency cash reserve, including bonds, large enough to suit my type of employment? How long would it buy me to search for another job?
The next few years will be volatile, both as investors and world citizens, as Trump’s right-wing ideology, broadly favoring business and hindering individual rights, is propelled by the might of the largest economy in the world. But if you follow your financial plan, he will end up being temporary noise as the global stock market continues its generational track record of rewarding value over hype.
Whatever is in store, remember that market volatility is for you to take advantage of, not react to, so keep your eye on companies with high-quality income statements trading at depressed prices and put that dry powder to work.
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(Top image: Adobe Stock)
