You know someone is in denial when they only look at the positives but deliberately ignore the negatives. In some ways it is only natural. Nobody ever enjoys dealing with bad news….
…. But when the person in denial is the leader of the world’s largest free-market economy, then we could have a problem on our hands.
At a press conference on Saturday last week, Donald Trump referenced the surge in the Dow Jones Industrial Average the previous day.
Friday’s gain was undeniably the largest ever in terms of points. But despite the rally, it did little to recover the three recent days of losses that were the largest, the second-largest and the third-largest one-day points decline on record, which were not referenced.
What’s more, Trump’s triumphalism was short lived. The one-day surge was virtually wiped out the next day. Additionally, almost all the gains since his inauguration have evaporated.
But why would anyone stick their head in the sand like an ostrich?
MOMO, FOMO, JOMO
The answer should be obvious. Trump’s entire presidency has been predicated on wealth creation through the stock market.
But compare that with Warren Buffett’s approach to investing. The Sage of Omaha said:
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day, and not reopen it for five years”.
Unfortunately, that would be 12 months too long for Trump. He now needs US shares to recover in a matter of months to improve his re-election prospects.
But it’s different for us, long-term investors. Five years is the bare minimum that we should be investing for. Unfortunately, not everyone thinks like that…
…. Momentum investors, otherwise known as MOMOs, have jumped unthinkingly onto the stock market gravy train for fear of missing out, otherwise known as FOMO. But long-term income investors should embrace JOMO, or the joy of missing out.
We should never be overly elated when share prices surge, and we shouldn’t be overly dejected when share prices crater, either….
…. If we have invested in companies that can continue to reward us with dividends for the next five years or more, then we should be grateful for small gains that might come our way.
So, don’t forget to reinvest any dividends that you receive. You could look like a genius in five years’ time if you do.
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Disclosure: David Kuo does not own shares in any of the companies mentioned.