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Commentary

In uncertain times, it may be best to go with your convictions

For Buffett, the answer lies in having stocks that generate long-term returns

They were adamant it couldn't happen. But it did. Donald Trump got elected the 45th president of the United States of America. Then, they said that his lack of political experience could damage the profits of corporate America. They said stock markets would crash. But that didn't happen, either.

If anything, stock markets rallied from the moment Mr Trump was elected to the time he was inaugurated. Against all odds, Mr Trump, who clinched victory from the jaws of defeat on Nov 9 , was inaugurated on Jan 20. In the intervening 10 weeks, the Dow Jones Industrial Average Index climbed around 7 per cent to within touching distance of 20,000 points. A few days after he was installed as president, the Dow breached the elusive barrier.

Mr Trump's victory, it has since been revealed, has been a boon for legendary investor Warren Buffett. The Sage of Omaha has been laughing all the way to the bank, as had anyone who'd shunned advice - from many professionals at the time - to ditch shares and buy bonds and gold instead. They said it would be prudent to wait and see. But Mr Buffett, who has been an outspoken critic of Mr Trump, did nothing of the kind. He was a supporter of rival presidential candidate Hillary Clinton, but that did not stop him from pumping US$12 billion (S$17 billion) into the stock market since the election.

That's an extraordinary amount of money, even for Mr Buffett. It was more than double the amount that he spent in the first nine months of last year. But as Mr Buffett pointed out, it didn't matter who had won the US presidential election - the stock market would still have gone up, regardless. So, he put his money where his convictions lay. And that is how we should be investing too. We should not be wasting time trying to second-guess the possible actions of the American president. Mr Buffett once said: "The future is never clear. You pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values."?

Uncertainty continues to reign. Since his inauguration, President Trump has been busy signing executive orders. These are written orders issued by the president to the federal government that do not require approval by Congress. They are, however, subject to judicial review. So the President is unlikely to have everything his own way. That said, he has already shaken the world with 19 executive orders that include an immigration ban, reduction in regulation for US manufacturing and the withdrawal of the US from the Trans-Pacific Partnership (TPP) trade deal.


The New York Stock Exchange on Feb 3. Stock markets rallied from the moment Mr Trump was elected to the time he was inaugurated. Mr Buffett pointed out that it did not matter who had won the US presidential election – the stock market would still have gone up, regardless. PHOTO: AGENCE FRANCE-PRESSE

Changes to the government budget cannot be achieved through executive orders, though. So, while Mr Trump's campaign mantra has been to make America "great" again, the world's largest economy may have to "wait" again to find out if he can deliver. He has pledged to lower taxes for Americans, cut corporation tax and simplify the tax code. There are no guarantees that his budget proposals will become law. The uncertainty has, understandably, given investors cause for pause.

Since his inauguration, stock markets have come off the boil. But should we do likewise? Should we take our cue from the markets?

The simple answer is no. We cannot do well in investing, unless we have the resolve to think independently. We are never going to be right just because people agree with us. We are right because our facts and our reasoning are right. In the end, that is really all that matters in investing.

Right now, markets are also worried about whether the US Federal Reserve will raise interest rates two, three or maybe four times this year. They worry about the impact of the US travel ban on tourism. They worry about the effects of import tariffs on countries that export to the US. They worry about the repercussions from the disintegration of the TPP. They worry about the sabre-rattling in the US and China.

In other words, the market loves to worry. Truth is, the only thing we should worry about is whether we have the right stocks in our portfolio that will enable us to generate a decent return over the long term. You won't find the answer by looking at the dot plots from the Federal Reserve. You won't find the answer poring over currency charts.

The answer is there for all to see in company accounts. They can tell us whether businesses have the ability to raise prices. They tell us whether a company can generate cash in good times and bad. In other words, they can tell us whether the company is wonderful.

And if you can buy a wonderful company at a fair price, then you, like Mr Buffett, could be laughing all the way to the bank.

•This is a regular column on stocks and investing by David Kuo, chief executive officer of The Motley Fool Singapore.

A version of this article appeared in the print edition of The Straits Times on February 13, 2017, with the headline 'In uncertain times, it may be best to go with your convictions'. Print Edition | Subscribe