The Short-term Investor vs. the Long-term Investor

Warren Buffett once remarked his investing teacher Benjamin Graham taught him the stock market in the short run is like a voting machine, and in the long run like a weighing machine. These are apt metaphors for a market that can alternately delight and disappoint us at a moment’s notice regardless of technical indicators and trends.

Donald Trump isn’t even President yet, and already since his election, his announced plans have helped drive stocks up and brought them back down. After he mentioned he intended to spend heavily on refashioning America’s infra-structure and replacing the Affordable Care Act, equity markets reacted optimistically, if not wildly. Yet last week, immediately after Trump’s first press conference since he was elected in November, stocks backed off when investors showed disappointment in what the billionaire politician had to say.
As reported by CNBC, the Dow Jones industrial average traded 100 points lower on January 12, 2017, with Goldman Sachs registering the most losses. Bank stocks took a big hit, the S&P 500 dropped around 0.4%. The Nasdaq composite slid about 0.5%.
One of the problems with Trump’s press conference is that he bashed particular industries, such as pharmaceuticals, but failed to offer suggestions on tax reform and fiscal stimulus. Is it any wonder, then, that the dollar dropped, and that concerned investors reacted by flocking to safe havens such as U.S. Treasuries and gold?
It’s one thing for the President-Elect to talk in broad strokes about his noble plans for the nation. But according to chief market strategist Art Hogan at Wunderlich Securities, investors now need specifics. “We’ve baked in a lot of good news; now we need policy details,” commented Hogan.
Vanguard founder Jack Bogle boldly likened Donald Trump’s plans for those of America to the recipes of John Maynard Keynes for rebuilding a slackening economy (no doubt liberals will excoriate Bogle for this remark).
Still, observed Bogle, many of long-term Trump’s plans, like his import protectionism and anti-immigrant policies will have a toxic effect on the economy in the long term.
Which brings us back to Warren Buffett’s metaphors of the voting machine vs. the weighing machine. While it makes sense to buy some stocks, an investor is well advised not to be captive to short-term fads and trends.
The fact that investors flock to gold when the dollar and stocks plummet should demonstrates to us that the yellow metal is a solid long-term investment for the long term. It’s not trendy and it’s not flashy. Gold is safe, sensible, and ultimately profitable. Right now it comes at an especially attractive low price.
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