The great investors of the world have some common traits, including unusual levels of rationality and emotional fortitude. They not only don’t get rattled by news and events that send most investors running for the hills, they invariably take advantage of it (think of Warren Buffett putting billions into BAC in the late 2000s as investors fled in droves, only to net a cool $12 billion in a matter of a few short years).
While not as dramatic as the events of the 2008/2009 financial crisis, there are mini headline-inducing situations that occur almost daily which create opportunities for nimble, rational investors who have the attention span and patience beyond that of a cat chasing a red laser beam. Many of these headlines are caused by none other than our President – via Twitter of all things. This is not a political discussion (stock markets have done well under what most people believe are anti-market parties; think the roaring 90s under Clinton, and poorly under traditionally pro-market administrations; recall the paltry returns under Bush XLIII), rather one of using discipline and rationality to take advantage of non-fundamental news.
Trump set the tone early on by tweeting scathing comments about BA in the context of costs associated with Air Force One. BA dipped within seconds of the tweet, dropped a few points over the next couple days, and proceeded to soar 89% in 2017, one of the greatest DOW stock performances in history. There was nothing fundamental about Trump’s initial tweet. It didn’t change the fact that BA had been making planes for just about as long as planes have existed (a century), or that it is part of an effective duopoly. But it made great headline news, the weak minded or uniformed reacted by dumping the stock, those with a deeper understanding and longer investment time horizon held or added on the weakness, and the rest is history.
More recently Trump set his sights on AMZN. It was transparent to anyone with a basic understanding of facts that his real issue was with the Washington Post that happens to have a common owner as Amazon in the form of the richest man in the world, Jeff Bezos. It didn’t seem to matter to some so-called ‘investors’ that what Trump tweeted was factually incorrect, that the postal system was not going to change its pricing policies based on a tweet, etc. This was nothing more than the beef of the day for Trump – or perhaps hour or even minute.
Yet the stock plummeted on the news, and gave those with a more measured perspective the opportunity to buy shares in the very same company at a lower price than the day before. Of course, that news cycle lasted its usual 15 minutes, people moved on to other things, AMZN kept crushing its rivals, and the stock rebounded quickly.
For those who use options, this phenomenon is an even greater gift as the spike in volatility associated with short-term stock price movements makes the income you can earn from option sales potentially even greater.
Putting politics aside, the take away should be that what matters over time in investing is, and always has been, long-term fundamentals. Earnings, cash flow, balance sheet strength, market share, etc. From time to time (and thanks to our President combined with new technology, seemingly more often than ever) non-fundamental headlines create opportunities to enter new positions or add to existing ones at favorable prices. So whenever you see information that on the surface may look dark and ominous, dig a little deeper to see if there might be a treasure buried underneath.