How do you weigh the risk of volatility versus the reward of profitable investment? Do you have to avoid the stock market altogether because we have a president with a different, more emphatic and less predictable style, or can you find a way to manage a portfolio despite the presidential-inspired turbulence?
As I wrote earlier, I think that's a debate that's become front and center with all kinds of investors and it plays out every day.
Just consider the setup.
You want to own Apple (AAPL) , not trade it, in order to capture that $40 billion gain in one session.
Then the next thing you know, the president calls the head of Australia, a close ally, and hangs up disgusted about a deal to take in refugees struck by his predecessor in the White House.
But then president talks about the nuclear option to ram through his Supreme Court nominee, thereby assuring that it's likely no Democrat joins in the plan to cut corporate taxes or lower them for repatriated dollars.
You want to own Boeing (BA) because it had among the best quarters of any stocks in the Dow.
Then president tweets, as he did this morning, "Iran was on its last legs and ready to collapse until the U.S. came along and gave it a lifeline in the form of the Iran deal."
Hmm, that Iran deal is what got Boeing $16 billion worth of orders, a monumental piece of business.
So you have to ask yourself, is it even worth it to try? You've got thousands of dollars in stock exposure through your IRA or 401(k), don't you have to take that to cash? Can you bother to even think about individual stocks?
My answer is no and yes. No, you shouldn't go to all cash with that retirement money, unless you are on the verge of needing it, then you can take out some of it. And yes, you can still pick stocks, but they have to be part of a broader theme, a theme so solid that it can trump, well, Trump. Otherwise, you will just jettison the stock when the Tweeter-in-Chief frightens you into exiting at what will no doubt be an inopportune time.
So, what's the point of risking your retirement money given the volatile nature of this presidency? First, I am a huge believer in knowing thyself. I wasn't shy in 2008 about telling you to get out of the market because I thought there was a fire burning in the theater. I made it very clear back in the dark days that if you needed money for any time in the next five years, you would be good to go into cash.
Fortunately, the late Mark Haines, 5,000 Dow points down, convinced me that the worst was over, and no one was ever better at calling a crescendo bottom than the late Mark Haines. We had talked about the market for 15 years and he made his bottom calls few and far between, but his record was impeccable.
Let's compare those critical moments to these, though. Back then, I was worried about the possibility of an economic collapse, I was concerned the center would not hold and that there could be a financial cataclysm. Given that it did merit the rubric Great Recession and it was the worst downturn since the Depression, that was prudent and action had to be taken.
Now? It's political risk. You sell off the Australian phone call? Then you get an explanation, a bit of an apology and what were you thinking. Yes, this tweet is jarring, but maybe it's just a style we have to get used to, or should have been used to by now. OK, you conflate the nuclear option with Iran, then you have something to worry about. But then again, are you really worried about your money in the event of a nuclear war?
I do think the possibility of big tariffs with trading opponents can be viewed as suboptimal because we are a net-import nation and we would end up paying more for goods in return for some manufacturing jobs. The math -- and the history -- say across-the-board tariffs hurt our nation. But targeted tariffs when there's dumping, like the ones President Obama put on the Chinese to save our steel industry? Those make sense. Attempts to battle those who manipulate their currencies against us? Seems fair to me.
But then again, all of that is weighed against the possibility of an economic acceleration because of deregulation, lower corporate taxes, repatriation and large infrastructure spending, and that cuts in favor of investing.
So I come out and say that as dangerous as it may seem to some of you, it's not like 2008-09. Political risk is not systemic risk. You want to raise some cash because we've had a big run? Nobody ever got hurt taking a profit. However, I think a diversified fund or low-cost index fund of the S&P 500 variety isn't something that should be abandoned here. That would be a mistake versus taking a longer-term view.
How about individual stocks?
Let's go back to the themes that can trump Trump. Let's use some classic examples.
You know how I believe in buying stocks with good fundamentals that are cheaper than they should be because of blind spots in the investing firmament? You can't abandon that. You would end up doing maddening trading. You would end up selling the stock of Apple at $93 and buying it back at $128. That's what happens when you abandon a core discipline.
You know the Internet of Things is not something that's going away, its accelerating because of the plethora of gadgets and devices from Amazon's (AMZN) Alexa to autonomous cars to the connected house. Stick with it. Don't flit in and out of Nvidia or Broadcom (AVGO) or a stock like NXP Semi (NXPI) , which got a bid from Qualcomm (QCOM) precisely because it was a diversified Internet of Things enterprise with a specialty in cars. (Amazon is part of TheStreet's Growth Seeker portfolio. Qualcomm is part of the Dividend Stock Advisor portfolio.)
You believe in the social, mobile, cloud, artificial intelligence and machine learning? Then own an Alphabet (GOOGL) or an Amazon or a Facebook (FB) and don't bend with the wind as traders are doing today with Facebook. (Apple, NXP Semi, Facebook and Alphabet are part of TheStreet's Action Alerts PLUS portfolio.)
Or how about this? One of my favorite themes is the humanization of pets. It's a fact of life that more and more pets are treated like humans and we lavish spending on them and their health. That's not going to be impacted by a presidential tweet or executive order. You might have sold Idexx Labs (IDXX) before its astonishing 11% gain on a sharply better-than-expected quarter. You can't get shaken out of a theme that per se trumps Trump whether you like what he's doing or not.
Now this is not an excuse to just go own retailers or health care companies because you think his bark on a border tax that could crush retail profitability or drug price cutting will be worse than his bite. For that matter, you can't ignore the ability of Amazon to smash retail margins or the iPhone to make it so easy to stay at home and order wings, as you will see when we have Wingstop (WING) on Mad Money tonight.
Always remember we are investing in companies, not politics, and so many companies are so profitable and so in control of much of their destiny that you may have to strap yourself to the mast and not hear the sirens or the tweets. Sure, take some profits now if you know that you can't take the pain. Know thyself. However, understand that this isn't 2008 and the risks just don't add up the way they did back then, even as I mentioned earlier it's a gonzo time out there, a real Hunter Thompson moment that's worth googling just in case you don't get the reference.