Trump trades are chump trades

In the grand theatre of American politics, Trump's return promises a compelling second act. Love or loathe him; he can certainly grab headlines.

Following in the tradition of his first term, the iconoclast leader is back to his social media theatrics. And the media is reacting in the usual way…

But that doesn’t mean you have to. 

Here are some ideas for surviving another Trump term with your portfolio and sanity intact.

First lesson: A reactive investor is a slave to market emotions rather than a master of opportunities

This past week has been a good example of oversensitive markets.

Posting on his own social media site last week, Trump fired an unexpected salvo at Canada and Mexico, saying:

‘On January 20th, as one of my many first Executive Orders, I will sign all necessary documents to charge Mexico and Canada a 25% Tariff on ALL products coming into the United States, and its ridiculous Open Borders. This Tariff will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!’

As a response, Canadian and Mexican currencies whipsawed, while junior miners and energy stocks on the Toronto exchange saw shareholders rip funds in a panic.

Canada's Trudeau called an emergency cabinet meeting and swiftly called Trump to begin negotiations.

Then, this weekend, he made a surprise visit to Trump’s Mar-a-Lago to kiss the ring and stabilise the Canadian dollar.

Mexico's President, Claudia Sheinbaum, was less fawning, threatening 'prompt retaliatory tariffs' if any came to light. 

During Trump’s first term, Mexico demonstrated its precision in calibrating trade responses. Their 2018 response wasn't just economic — it was political acupuncture.

Mexico targeted bourbon from Kentucky (home of Mitch McConnell), cheese from Wisconsin (a crucial swing state), and pork from Iowa (essential for both electoral politics and agricultural policy). 

But these same jabs will carry far less sting in a final Trump term. So, like Trudeau, the Mexican President eventually picked up the phone.

What is the likely result of all this? Very little. 

Investors exited positions that were better held, and Trump dragged countries to the negotiating table. One thing we can guarantee about Trump — he loves to look like a dealmaker.

Meanwhile, investors sold junior miners on the cusp of what could be a huge expansionary period. Exploration, financing, and prices are all looking extremely bullish in Canada.

The lesson here is to have a strategy and not get rattled out of your positions by a tweet.

For international investors who find themselves lurching between headlines, these stories amount to a distraction.

Something that can tug at their emotions and cause hasty entries or exits from positions that would otherwise be better left alone. So what should you do?

Lesson Two: Tune out the Headlines

While the media circus fixates on social media storms and rally soundbites, the real story unfolds in the quiet corridors of power.

That's where policy takes shape. But like a dog and a stick, the media can't help but chase whatever Trump throws.

The market isn’t immune. Tesla’s [NASDAQ:TSLA] market value breached US$1 trillion with Musk's close ties to Trump, while dental stocks rose as investors expected RFK Junior to remove fluoridation.

This isn’t how to invest — Don’t chase the stick.

You don’t have to take it from me. Legendary investor Howard Marks (whose memos should be required reading) commented recently on the idea of piling into Tesla:

‘This is just one more thing which is so unpredictable and indeterminate that I don’t think it's worth most investors doing anything about it… the reasoning through which Trump’s relationship with Musk and Musk’s role in government produces and improved outlook for Tesla is very attenuated — I wouldn’t go there.’

This hasn’t stopped the pundits. Claims of likely expedited approval of Tesla’s autonomous driving technology on US highways or insider deals are rife.

But what about EV subsidies that would also likely be cut?

California Governor Gavin Newsom proposed restoring the EV tax credit but notably excluded Tesla. This is a huge deal, considering the size of California’s EV market.

Do you think pundits are digging into the details? Investing based on a headline or a single article will leave you following the crowd into a poor trade.

The point here is that things aren’t that simple. The future could go any number of ways.

Don’t try and front-run policy.

Instead, take a leaf from Howard Marks and ask yourself: Is this a time to be aggressive or defensive?

What’s the advantage of such a simple question?

Lesson Three: Simplify your decision-making to avoid emotions

The macro landscape is incredibly complex, and signals are coming from everywhere.

Rather than asking about the impact of Trump’s next Treasury Secretary or tariffs, focus on what you can know, and what you can control.

Look at your own risk tolerance and invest accordingly. Are there concerns in the market? Always.

Let’s look at US stocks as an example:

Yes, US stocks are historically expensive right now, but that’s largely due to their success compared to other economies.

The ‘Buffet Indicator’, which shows a market's total capitalisation as a proportion to national income, would indicate a period of risk.

As Buffet told Fortune magazine in 2001:

‘For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200% — as it did in 1999 and a part of 2000 — you are playing with fire.’

This explains why Buffet once again trimmed his Apple stake; his favoured gauge is up, so he’s selling down.

He’s now holding a US$325 billion cash pile, so should you cash up?

Not necessarily.

The Australian share market remains subdued, thanks to China. Beijing’s debt crisis needs time to unwind before proper fiscal support flows. Meanwhile, Europe remains in a political and economic deadlock.

Excluding some larger crises, things continue to look positive for US investments.

But I would join Buffet in freely admitting that we cannot predict the market. He doesn’t know when the next correction is coming.

Instead, he has simplified his decision-making down to returns. He estimates how much stocks will likely pay over the long term and invests with that in mind.

By simplifying the noise down to something workable, his emotions won’t cloud his decisions.

Putting it all together

Reading the outlooks from major equity investors for 2025 things remain bullish.

Many invoked the ‘Roaring 1990s,’ in their outlooks. An era defined by the technology-driven optimism that Vanguard, Fraklin Templeton, and others have adopted.

Interestingly, this has replaced prior calls, which said we were closer to the ‘Roaring 20s’. Either way, these decades finished with a crash and a preceding lost decade.

Looking around the major investment banks, estimates for next year’s US stock market range from -5% to +20%. Most have somewhere in the middle at around 10%.

Trader expectations are even more bullish, with broad expectations of deregulation and tax cuts to propel things forward.

Trying to pre-empt a market crash here could leave you fighting the tape and missing many months of gains.

Similarly, trying to pick the subtleties of which policy will do what and where will distract you from finding quality companies that are expanding shareholder value.

As the pioneer of day trading, Jesse Livermore was quoted in the 1923 book Reminiscences of a Stock Operator in 1923:

‘In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks.’

The wisdom from Livermore remains as relevant today as it was a century ago.

While Trump's return to the political stage promises plenty of drama, the underlying market signals deserve our attention far more than any single tweet or rally cry.

Consider this: During Trump's first term, the market weathered trade wars, midnight tweets, and constant headlines — yet the S&P 500 still delivered solid returns.

Why? Because underneath the noise, American companies continued to innovate, grow, and generate profits.

The key takeaways for investors should be:

• Focus on Fundamentals: Rather than trying to predict policy outcomes, concentrate on companies with strong balance sheets, growing markets, and competitive advantages. These qualities tend to prevail regardless of who occupies the White House.
• Think Long-Term: The market has historically rewarded patient investors who can look past short-term volatility.
• Stay Diversified: While US markets remain attractive, maintaining some international exposure provides a hedge against domestic policy risks. China and Japan are historically cheap, and patience will be rewarded.
• Watch the Data, Not the Drama: Economic indicators, earnings reports, and productivity numbers tell us far more about market direction than political rhetoric.

As we head into what promises to be a volatile year, remember that markets have historically performed well under both Democratic and Republican administrations.

The key is not to predict who will win or what policies they'll enact, but to maintain discipline in your investment approach.

Don't let the political circus distract you from your long-term investment strategy. The real money isn't made by trading Trump's tweets — it's made by identifying quality companies positioned to benefit from enduring economic trends.

As we move forward, keep your focus on what matters: earnings growth, productivity gains, and the fundamental strength of the businesses you own.

The political theatre may provide entertainment, but it's the quiet work of companies that ultimately drives returns.

If you'd like to know what signals we're looking at, then click here to read our free daily insights into the market. 

Fat Tail Investment Advisory's free newsletter covers macro, tech, mining, and more. Unfiltered investment advice that will keep you ahead of the curve.