By DAVID DUPONT
BG Independent News
Nobody knows what President Donald Trump will do. Even the morning after his first address to Congress where his performance was deemed as more presidential, the new president remains an enigma.
Yet when all is said and done, Clint Pogemiller, president of MWA Financial Services, believes the fundamentals of investing for the long term apply – a diversified portfolio and patience to stay the course over the long haul.
Pogemiller spoke to local Modern Woodmen of America agents and customers last week for a breakfast time market forecast.
“Overall 2016 was a very good year,” he said. The market was up 16 percent for the year.
That included the “Trump bump” or “Trump jump” with the market rising 7.7 percent since the Nov. 8 election.
That election, Pogemiller reminded the audience confounded the experts. They gave Trump a 1-percent chance of winning, and then when he won they predicted the market would tank.
Indeed futures trading was off 1,000 points overnight. But then the day after the election, the market rose 257 points. The market has added $3.1 trillion in value since then.
“Things are moving at a much faster pace these days,” he said. “You don’t want to react on a short term basis.”
This continues the second longest bull market in history dating back to the recovery following the housing bust in 2007.
Pogemiller said that even taking into account that bust and the earlier dotcom crash, if an investor had put money into the market in 2000 and just let it stay there, they would have earned back 9 percent.
But many people weren’t that patient.
“It’s time in the market, not timing the market,” he said echoing a truism used by J.D. Pugh, regional director for Modern Woodmen, earlier in the morning.
“We don’t know for sure what Trump will do,” Pogemiller said. But many are anticipating a reduction in tax rates, especially for corporations, increased spending on infrastructure, and lessening of regulations.
While the new president and the Republican-controlled Congress agree on a lot, including tightened controls on immigration, there are differences. Trump favors tariffs while congressional Republicans tend to be free traders. And they will like to focus more on fiscal restraint.
Pogemiller said the test of the markets will come when we see how many of his campaign promises Trump is able to fulfill.
One promise he made, a return to 4 percent growth in Gross National Product, is unlikely to come to pass, Pogemiller said.
GDP is constrained by a lack of growth in the workforce as the population ages and people retire. The workforce is now growng by 1 percent. (Pogemiller did not address how immigration restrictions would affect the growth in the workforce.) Productivity is also trending downward. And even a return to the levels of productivity seen after World War II would not be enough to boost GDP by 4 percent.
Pugh asked about other factors. He noted that the recovery, though long, had been tepid.Blue chip companies, he said, have been sitting on money, and corporations with money overseas won’t bring it back to the United States because they would face penalties.
He wondered if these issues were addressed would that boost the market..
Pogemiller said that he’s seen estimates that addressing those would increase corporate profits by 5 percent. It’s a question how far that would really push the markets.
The economy, he said, is cyclical, and the question is whether it is in the middle or late in the growth cycle.
Pogemiller also cautioned against holding too much gold or other commodities in one’s portfolio. He said anything more than 5 percent is questionable. Of those who bought gold in the last downturn, he knows four or five who broke even or lost money for every person who made money.
Global stocks, he said, tend to be undervalued, but given Trump’s protectionist attitude the future there is uncertain. The results of any actions will likely be focused on specific countries, and there will always be strong foreign companies.
Pogemiller showed a “checkerboard” chart that tracked the performance of different categories of equities over time. He noted that almost all had period of a year or two or three when they were hot, matched by periods when their performance lagged.
“Generally if you try to buy the winners, it is not a good thing,” he said “Once you’re reading about it or seeing it on TV, it’s too late. You missed your opportunity.”
He stuck to conservative advice, a portfolio balance with 60 percent stock, and 40 percent bonds. While that won’t yield the top returns, “it levels out the highs and lows.”
