Sticks and Stones.
Sticks and stones may break my bones but words will never hurt me. How many times have you heard that phrase on the playground? You’ve no doubt seen the scene before as two young kids stand nose to nose with hands on hips shouting at each other when one of the young combatants yells out sticks and stones. Of course, words do matter.
Reckless words pierce like a sword, but the tongue of the wise brings healing. ~ Proverbs 12:18
The tongue of choice today is Twitter. 140 characters pierce like a sword in the arena of social media. Twitter is fast and unfiltered giving equal access to all. However, some Twitter users have a larger pulpit than others. One of the largest pulpits now belongs to our President Elect. His tweets are becoming infamous.
The Trump Twitter Trade or T3 is in full force. A tweet from Trump can send your stock on a wild ride. His tweet will likely send your stock or industry down as we’ve seen from Lockheed Martin, Toyota Motors and the biotech sector. The Trump Tweet is now a risk investors must factor into their investment models.
What should you do if your stock is subject to a Trump Twitter attack? Can you profit from a Trump Twitter Trade (T3)? Here a few suggestions.
After the tweet has harpooned your stock take a few moments to access the damage. Will the damage be long term or cause a permanent loss of capital? The odds are the tweet and the stock drop will be short lived. A sharp drop in your stock can be used as a buying opportunity especially if you’re a long-term investor.
Will the tweet cause collateral damage? An assault on the biotech sector may bring down other sectors like big pharma or hospital stocks. Can you find a diamond in the rough? It’s possible to profit from a stock with no direct connection to the tweet.
If you’re a trader, keep some extra cash on hand to take advantage of a Trump Twitter Trade. The tweet may give you a buying opportunity for a stock or sector you’ve had your eye on for some time.
Index funds will help cushion the blow of a Twitter tirade. An index fund will own hundreds, if not thousands, of stocks. A strike on one stock or sector may drive down the price of the index fund for a short time giving you an opportunity to buy more.
A sector ETF or specialty index fund should be limited to 3% to 5% of your overall portfolio. A small weighting in your holdings will help reduce the impact from a Trump tweet.
A diversified portfolio of large, small and international companies will help cushion the blow. Your account should also include bonds and cash. A well rounded and balanced portfolio will make you immune from a 140-character offensive.
As you construct your portfolio, focus on your long-term goals and financial plans. Your long-term goals will be more beneficial to you than a short term tweet.
...but no man can tame the tongue. ~ James 3:8
Bill Parrott is the President and CEO of Parrott Wealth Management. www.parrottwealth.com
January 15, 2017