The Trump Trade
11/7/24 Prospero.Ai Investing (167th) Edition (Midweek)
The election is over, and we want to take a minute to evaluate the advice Prospero gave our community about how to play the market through the volatility of election day. As the election drew near, DJT (Trump's Media Company) was skyrocketing. People were asking us whether or not we thought we should buy it. Our answer was no. That was not a political statement, but a financial one. Our advice on DJT stock was exactly the same as we advise on any momentum or “meme” stock. There are always better risk adjusted ways to get exposure to even the exact same strategies or events, than blowing past traditional measures of value. Our point, DJT was acting like a meme stock and there were better ways to get exposure to the election. In our newsletter on 10/27/24 that pointed out Enterprise Value / Sales rationos for 3 stocks that in our estimation would perform well if Trump won:
DJT: 1,600
TSLA: 8
COIN: 7
Since that letter the returns are:
Link to live “Trump Trade Tracker”
Why TSLA and COIN? Beside much better value based EV/Sales ratios, they both had strong Net Options Sentiment and Upside numbers in our screeners. Keep in mind, this isn’t rocket science. Did we know for a fact DJT would go down? No. But the fundamentals showed that those other Trump exposed stocks had more defensible valuation floors and therefore were better ways to expose yourself to a Trump victory. That proved prophetic. "But Trump won, why did DJT go down so much?" you might ask? We experienced what's called a "Sell the News" event. Which means that a stock will often run up as an event approaches, but once the event comes to fruition, the stock will sell off. Thanks to some good old fashion value stock principles, combined with Prospero's signals, we were able to make a pretty good return through this volatile season. Maybe things we smooth out now. Right? Or maybe DJT beats both of these stocks during the Trump presidency? That is certainly possible, but that doesn’t change the fact that it is riskier. And that is what we mean when we talk about process over results, even if DJT outperforms these stocks picking either of them is the better risk adjusted move due to downside outcomes related to valuation we might never see.
A WORD FROM OUR CEO
We have time for one more lesson today. We've made 817 investments this year, almost 8 times more than last year. We're proud of that number because our processes and automation have improved so much that it's enabled that level of engagement. We wrote a letter on Parellel Universes to explain probabilistic theories around errors because we misread a ticker VST as VRT and it cost us about a 30% return. Well we made another dumb error leading into the election. We were looking for a Small Cap Tech long to diversify heading into the election. We found RUN, which Trading View labeled as a “Semiconductor” stock. Which was great to balance out our portfolio because QQQ was higher than SPY Net Options Sentiment. Well it turns out it wasn’t just a Semiconductor company, it was a Solar stock which would almost completely negate our pro Trump COIN bet. Here's the lesson to be learned here. Prospero is almost done with a huge investment round and then add on top of that the stress of the election. Turns out, oversights happen 2/817 times when 1 person is responsible and has many other responsibilities. It was annoying to me no doubt, but I didn’t let it keep me from moving forward. After the mistake, I considered selling all of my stocks (TTWO, APP, MCK) heading into earnings. But at the same time, I didn't want to miss out completely on a Trump Bull Run if he were to win. I decided to pick the two I had most confidence in. It turned out to be the right call. You WILL make mistakes, do not let them cascade into each other and miss out on great opportunities. Because we made some other great calls heading into the election we are currently beating S&P 500 by 67% annualized, with a win rate of 60% against SPY benchmarks and this number will look even better at open due to these great earnings results!
To help newer readers get up to speed linking our short intro + learning videos.
Don’t have our app yet? Use it to track your investments with Prospero’s proprietary AI tech.
