Profiting Off Of the Trump Upset and Market Drop

 

The markets can be extremely finicky. As we have seen several times over the last several months that uncertainty, even in areas that do not directly encompass the world, can lead to rapid short term drop in the market. We saw this as global markets dropped in August in response to the Brexit vote. More recently the market dropped last night as President-Elect Donald Trump won a huge upset victory over Hillary Clinton in the American federal election. As a savvy investor, we can take advantage of this market drop if we pay attention and stick to our fundamental principles.

Screening During a Market Drop

As always, the goal of the value investor is to buy great companies at bargain prices. What value investors want to avoid is buying into a company whose price is dropping because the company itself is in trouble. To avoid this, we have to make sure the company checks out on our screening process regardless of what the market is currently doing.

Price vs. Quality During a Market Drop

However, during times of uncertainty such as elections, the market can drop quickly because of the uncertainty. For most of the companies experiencing the drop, the quality of the company itself is unchanged even as the price drops. This means that attractive but overvalued companies can become affordable in the days following these market drops.

How Do I Know When to Buy?

The important questions to ask before making a purchase after a market dip caused by some outside factor are these:

  1. Will the outcome of the outside event affect the company?
  2. Is something else inside the company causing this price drop?

If you answer no to both of these questions, then there is a good chance that you can purchase that company at a discount.

Conclusion

When there is turmoil in other facets of the world financial markets reflect this with a price drop. These are temporary and recover quickly, but they create an opportunity for smart value investors to capitalize on the fluctuation. It is important to be certain the company is financially sound. By buying while the market is down, you can get great companies at low prices.

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