How to cope with incredibly noisy markets

By John Stepek

published 31 January 2017

170131-trump-b — None of this political noise is going to go away

Just when it was getting quiet for five minutes, the headlines are full of Donald Trump again.

Trump's done this. Theresa May should have done that. The Queen's not happy. The markets are worried.

What's an investor to do?

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Put simply: ignore it.

Trump on, Trump offDonald Trump has caused chaos at airports in the US and protests around the world by temporarily banning visitors from seven countries Iraq, Syria, Iran, Sudan, Libya, Somalia and Yemen as well as barring refugees. He then fired the acting attorney general when she refused to defend the ban in court.

It's messy. It's also another clear reminder that Trump was serious about his pre-election promises. And it's also a warning for anyone who hoped that he'd perhaps try to ease himself gently into the job of "most important politician in the free world".

It also has an effect on the market. When Trump got elected, investors seemed to be focusing on the upside (tax cuts! More spending!) and weren't considering the downside (protectionism! Micro-management!). This sort of thing makes the downside a lot clearer.

And one of the big problems with all of this is that it makes you feel like you should be acting. There's so much noise, so much shouting, so much hysteria.

"The Trumpflation trade is on. The Trumpflation trade is off."

What can you do?

The political noise is only going to get louder

I hate to say this, but none of this political noise is going to go away. Trump is just one of many noisy political issues out there.

I can tell you now that he'll dominate the headline for months to come. His actions so far suggest that he is hardly likely to bed in quickly. He's not a consensus builder, he's a blower-upper. He clearly likes to march in, shake things up, and see what happens.

That sort of management style can work in a corporation, where people have actively chosen to work for you and accept you as a benign dictator in exchange for a monthly salary. I'm not 100% sure it's the best way to run a country though.

And unfortunately, Trump is not a "small government" kind of guy either. You might get tax and regulation cuts, but you're also going to get a lot of intervention. He's not one to stay out of the limelight. He has courted celebrity all of his life and he's clearly very thin-skinned. That lends itself to the prospect of plenty of "Oh Lord, what's he done now?" headline moments.

Throw in the fact that the US is incredibly divided so it'll be impossible to get any sense out of the American media for quite some time and you've got a recipe for confusion.

On top of that you've got Europe. Brexit is the least of it. The French election has been thrown wide open (again) after Francois Fillon the right-wing candidate who everyone hoped would beat Marine Le Pen ended up in a scandal involving his wife's payment for working as his parliamentary assistant. As Credit Suisse puts it, the French presidential elections pose the "greatest existential risk for Europe" of all the problems out there.

That's all without thinking about Italy, Germany, Greece or any of the other potential eurozone trouble spots.

Let's be clear: it's possible that none of this stuff will amount to anything at all. But you can expect it to hog a lot of the limelight and to be given a lot of credit for the various daily ups and downs in the market over the next few months.

If you're feeling stressed, go on a news diet

But as an investor (or as someone who likes to maintain their emotional and intellectual equilibrium), I'd advise that you actively avoid the general news. Or at least limit your consumption to specific issues and limited time periods.

If you're a serious investor, then your investment horizon is not measured in days or weeks or months. Nor is your strategy based on who's in charge of America or Europe or Britain, for that matter.

So the vast majority of stuff that appears on the front pages is either irrelevant or of only temporary importance. Of course, if you own individual stocks, you need to keep yourself abreast of announcements that matter to them. But that's what the Stock Exchange's Regulatory News Service is for.

In terms of the big picture, the basic underlying trend remains reflationary. Whether that's accompanied by strong growth or not has yet to be seen.

The area most at risk of a deflationary implosion remains the eurozone, primarily due to the structural problems of the single currency. But even then, there are still companies worth owning, regardless of which type of fiat money their shares are denominated in.

In short, avoid the expensive stuff, invest in the cheap stuff, own some gold for insurance, and rebalance when your asset allocation gets out of whack. And if you're feeling jittery, put down the iPad, switch off the 24-hour news channel, and get yourself a good book.

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.