| NEW YORK
NEW YORK Calm down. That is investment advice from Barry Ritholtz and Josh Brown, the duo atop Ritholtz Wealth Management, in the face of a pickup in volatility following last week’s surprise victory by Donald Trump in the U.S. presidential election.
Unlike other money managers and traders who have reallocated money based on which economic sectors they expect to benefit most from a Trump presidency, Ritholtz and Brown said their investment path has not changed at all.
"To try and allocate capital based on anyone's expectation of what Trump will or won't do and what Congress will or won't approve... we see that as a fool's errand," Ritholtz, the chief investment officer, said on Thursday at the Reuters Global Investment Outlook Summit.
Longer term, "we are still in what can be described as a secular bull market,” he added. The approach by Ritholtz, who wore jeans and sneakers to the Summit, appears almost old school: Plan for the long term and stick to that plan.
"What does this mean for corporate cash flow and earnings? That's how we value markets, based on future earnings."
Ritholtz toyed with the idea of having the president-elect's ear, even if he admitted Trump did not strike him as a man who would take advice from a stranger:
"I think the single biggest lesson (Trump) either learned or should have learned since the election is when he gave a very calm and rational victory speech," said Ritholtz.
"Markets were down 5 percent overnight, the Dow was down 800 points - the futures - and suddenly, that reversed. That lesson was, 'Hey, if I'm not a lunatic and I act like a responsible adult, I could get through this'."
The election-night market turnaround has continued and traders have driven up U.S. stock prices, particularly banks and some industrials, while selling bonds.
The yield on the benchmark U.S. Treasury note hit on Thursday the highest level since late December, on the expectation that Trump’s ascendance heralds greater spending, higher deficits, and more inflation.Some analysts said it heralds a "great rotation" out of bonds, ending a three-decade bull market, and into stocks.
"People are writing research notes about how to invest under a Trump presidency… you have no idea what he's capable of, what's in his mind, what's going to be in his mind next week," said Brown, the chief executive officer of Ritholtz Wealth Management.“We just don’t play that game," he added. But even if stocks are in a bull market, Brown said his asset allocation does not bet on that remaining true.
"We describe the current condition and we build portfolios that are durable enough to allow for that to change," he said, with rules "that dictate how you will act, and when -as opposed to feelings."
Some traders with less patience probably feel pretty good, having driven the S&P 500 bank index .SPXBK up 14 percent in the seven trading days since the election.That increase is based on bets that many regulations slapped on the banking sector after it brought the global economy to its knees in 2008 will be removed. This could permit banks to take on more risk, and be better rewarded for it.
Ritholtz, alluding to a Trump campaign slogan, joked about that trade: "Make systemic risk great again."
Follow Reuters Summits on Twitter @Reuters_Summits
(For more summit stories, see here)
(Reporting by Rodrigo Campos; additional reporting by Jonathan Stempel and Lauren Young; Editing by Jennifer Ablan and Lisa Shumaker)