Is Trump a Stock Market Genius?
In a September 2016 interview Trump made a nearly undecipherable comment regarding the stock market. I’ll paraphrase but will leave the unedited quote below. As part of his rant about low interest rates Trump made an interesting statement regarding his investments in the market. He said he doesn’t invest in the stock market, implying he has sold off all of his public equities stakes, which he claims to have done very well on, but wanted to lock in a profit and avoid any potential conflict of interest.
“I DON’T INVEST IN THE STOCK MARKET AND I THINK YOU SAW THE STOCKS I BOUGHT, AND I BOUGHT A LOT OF STOCK AND I AM NOT A STOCK MARKET GUY, AND I BOUGHT IT BECAUSE I DID NOT USE BORROWED MONEY WHEN I INVESTED BUT ITS LIKE FREE MONEY, AND THE STOCKS WENT WAY UP AND THEN I SOLD THEM BECAUSE WHEN I DID THIS, WHEN I DECIDED TO DO THIS I FIGURED MAYBE THERE’S A CONFLICT OF INTEREST, WHO KNOWS, AND WITH THEM THEY ACCUSE YOU WITH ANYTHING SO I FIGURED I WOULD SALE, AND ANYBODY COULD HAVE MADE MONEY. BUT LET’S SEE WHAT HAPPENS WHEN INTEREST RATES GO UP. I THINK THEY ARE KEEPING THEM DOWN AND THEY WILL KEEP THEM DOWN LONGER AND ANY INCREASE AT ALL WILL BE A VERY, VERY SMALL INCREASE” Donald Trump Interview – Transcript from CNBC
The May 2016 FEC disclosure compared to the disclosure from 2015 does indeed indicate Trump is selling down his public equity investments. In fact, from our estimates he had under $10M of public equities investments in May, and that number could very well be zero today. It’s worth noting that for our analysis we excluded all hedge fund and mutual fund holdings, as well as all the fixed income, which is a much larger portion of his holdings than the public equities. We also excluded holdings sub $15,000, due to immateriality. The result was 65 companies that met our criteria for inclusion in the following analysis.
When taking a look at what Trump owns, we found the results surprising. The ostentatious Republican has a very conservative portfolio. Seven of the 65 holdings are dividend aristocrats; these are historically reliable companies that have increased dividends for at least 25 consecutive years. The overall portfolio yields a healthy 2%, comparable to the S&P 500 index yielding a similar 2.1% yield. Trump’s portfolio has handily beaten the S&P 500 in terms of total return over the past year…
…and over the past five years it has absolutely smashed it. We acknowledge that this out-performance could be explained by survivorship bias, if Trump sold under-performing assets prior to disclosing. We don’t know what Trump owned prior to the 2015 disclosure so there is no way to tell if he dumped his losers or bought high performing stocks in order to appear as a better investor. We’ve given him the benefit of the doubt for this analysis.
The big winners in the Donald Trump stock portfolio are Rite Aid, NXP Semi, and Broadcom, each returning more than 400% over a 5-year period. This of course assumes Trump held each name for five years.
Investing like Trump over the past five years would have brought a windfall of returns, and these returns would not have come at the expense of an overly risky portfolio. Most of the stocks are very solid value plays, and even the tech basket that he owns are quite conservative. Looking at the largest baker’s dozen holdings we see highly recognizable names such as Apple (NYSE:AAPL), Microsoft (NYSE:MSFT), Pepsico (NYSE:PEP), and General Electric (NYSE:GE) among others. These are stocks with long histories and large moats, the type of stocks that can be held for decades while sleeping well at night, all the while the dividends continue to compound.
Rules to Investing Like Trump:
- Buy U.S. stocks. Shire was the only international stock that made our list there were a couple other small international holdings we passed over. Overall, international stocks comprised less than 1% of Trump’s holdings.
- Buy large cap stocks. On a weighted average basis the company’s in the portfolio had a market cap of $197M; the weighting was to larger positions in larger stocks. We don’t agree with Trump on this one and it’s generally counter-intuitive to what a solid amount of research has shown, that small outperforms large when it comes to market caps. There is a lot of research to support this statement, but we like Tweedy Browne’s well written and easy to read document.
- Buy dividend stocks. The weighted average dividend for the portfolio is 2%, similar to the S&P Of the 65 stocks in the portfolio, 53 paid dividends (or 82%). Dividend stocks have a history of outperformance against non-dividend paying stocks, and this is increased when reinvesting the dividends due to the nature of compounding. It also helps to weight the portfolio towards some of the higher dividend paying stocks, to make up for the dozen or so names (including Alphabet and Amazon) that do not pay dividends.
Cross Ownership between Trump and Buffett:
These criteria remind us of Warren Buffett who also favors large U.S. dividend stocks. In fact, there is a significant amount of overlap with Berkshire’s portfolio, we counted 10 holdings in common, these were; (1) Apple, (2) Costco, (3) General Electric, (4) Johnson & Johnson, (5) Phillips 66, (6) Procter & Gamble, (7) Kraft Heinz, (8) Twenty First Century Fox, (9) Wells Fargo, and (10) Visa.
Invest like Trump with the full list of Trump’s stock investments below: