An investment strategy can tell you a lot about someone’s personality. The two candidates running for President are very different people. The media hasn’t spent as much time covering how the candidates invest their personal money, so I’m going to take a look into their portfolios and explain how the choices reflect their personality.
As the Republican choice, Mr. Trump is considered a conservative businessman. Mrs. Clinton, on the other hand, is branded as the progressive liberal. If you were to judge them based on investments alone, you’d conclude the opposite. The choice of how these two candidates invest is going to give you some insight that the media spin has overlooked.
There is another reason to look into their strategies. If your goal is to plan for the future, there is a right way and a wrong way to invest. Of course, both candidates are extremely wealthy. This has an impact on how they’re investing. Neither will have to worry about maintaining a comfortable lifestyle. This allows them both to take more risk in search higher returns. Since we don’t have that luxury, I’m going to explain which of the two has the better investments and why.
Mr. Trump’s Investment Strategy
Mr. Trump has a well-diversified portfolio outside of the typical investment strategies. Obviously, he favors real estate. He also has invested in casinos, airlines, steaks, water, wine and so on. Spreading his money out into as many different ventures as possible is a wise strategy. Every investment is a risk. Mr. Trump knows that he is reducing his risk when he puts money into products and companies that don’t follow the same business cycles.
Trump’s biggest individual stock investments are focused on value investing. Value investing is owning shares of large, well established dividend paying companies. Companies like General Electric or PepsiCo are good examples of this. These companies are slow and steady. This is a conservative strategy that I often recommend to risk adverse clients.
Unlike risk adverse investors, Mr. Trump places the majority of his investments into high risk hedge funds. The largest position he holds is $27.6 million in Blackrock Capital’s Obsidian fund. He also holds multi-million dollar positions in three of Paulson & Company’s hedge funds. Outside of the hedge funds, his portfolio is rounded out by several smaller mutual fund positions invested at Baron Capital Management.
Mrs. Clinton’s Investment Strategy
The strategy used by Mrs. Clinton is a far simpler one. This both reflects her personality as well as a net worth that is far less than Mr. Trumps. The Clinton family’s primary investment is between $5 and $25 million with the Vanguard S&P 500 index fund. The family also holds cash and U.S. Treasuries, as well as five life insurance plans. The insurance policies are worth roughly $2.6 million. From the information available, the asset allocation the Clinton’s use is moderate to moderately aggressive.
The Difference Between These Investments
Over the last ten years, Mr. Trump’s investment in BlackRock’s Obsidian Fund has done better than the Mrs. Clinton’s choice. The Trump strategy is about going big or going home. Hedge funds have been touted as elite investment products for some time, yet the reality is often far from it. It has been common knowledge for years that hedge funds have excessive fees on top of poor performance. Mr. Trump’s Obsidian fund charges 1% annually and retains 20% of all profits.
This is part of the reason why investors have pulled billions out of hedge funds. For someone like Mr. Trump, this type of investment can pay out big in the right circumstances. A hedge fund is more of a gamble than an investment. Hedge fund managers style themselves as the masters of finance with promises of massive profit.
These managers have no legal obligation to disclose investment performance, which makes it impossible to verify the truth. Given Mr. Trump’s aversion towards disclosing his own financial records, the use of a hedge funds fits well with his personality. He could be out millions and no one could prove it. If an investment does well, it gives him something to gloat about in the locker room.
Mrs. Clinton’s investments, on the other hand, are far more conservative. The Vanguard S&P 500 index is a simple fund accessible to everyone. It’s a passive index fund that invests into the largest 500 U.S. based companies. Its low cost is driven by the fact that there is no team of managers getting paid to make changes within the fund.
As the markets have improved, the Clinton’s investments have outperformed the Obsidian fund. In the longer run, hedge funds typically underperform the simplistic S&P 500 index. Hedge funds are high risk and high reward, meaning there is a higher probability for failure. Risk aside, it’s the higher expenses and trading costs that hold back hedge fund returns.
What These Investments say About the Candidates
Mr. Trump is investing in the exact opposite manner you would expect a conservative to invest. His uses brash, bold techniques that offer more in the way of reputation building than wealth creation. Mr. Trump has to be aware that there are better ways to invest his money, yet he has stuck with the most aggressive approach available.
This shows that he is willing to place big bets regardless of the outcome. He is willing to trade large, predictable losses for the slim chance of a major payoff. In my estimation, his choice is also driven by the desire to preserve the ‘Trump’ brand. The confidentiality of investing with a hedge fund is there to protect the fund managers, yet it offers Mr. Trump a chance to protect his ego as well.
Mrs. Clinton’s investments are measured, methodical and, frankly, boring. As the progressive candidate, I would have expected a more thoughtful investment plan. There is no focus alternative energy nor any socially responsible investments. In fact, there really isn’t much thought at all in her plan.
The investment choice almost seems to be designed by committee. Vanguard is the kind of company a lot of people will point you to. The fund has been around for a long time, starting back in 1976. Many people own the fund, which makes it a relatable choice. The investment sends a message of thriftiness. It’s not a bad choice, but it’s far from progressive or pioneering. It says that close and comfortable is good enough.
The Clinton’s investments project a very different message the Mr. Trump’s. Each of the candidates is trying to project an image with their investments. Exceptional versus ordinary. High stakes versus compromised gains. Big leaps verse sure steps forward.
The investments portfolios offer a unique look into the mindset of these two. Both seem to contradict their party values when it comes to their own money. Neither have a perfect investment strategy. While I don’t have a complete picture of all their investments, I would only recommend one of their strategies.
Who has the Better Strategy?
Hands down, the Clinton’s strategy is the best option when you’re planning for the future. There are few things that you can control in the stock market. You can’t control the direction the market moves. You can’t control the politics that influence the market. You can’t control what happens to an individual company. Since you have so little control, you have to focus on the few things you can influence.
One of the things that investors have control over is cost. You get to choose how much you want to spend when it comes to selecting an investment. The Clinton strategy uses a low cost mutual fund that costs around .2%, while Trump’s hedge fund charges 1% with 20% of profits going to the fund managers. Let’s look at that.
If both investments had a 10% underlying investment return for the year, the Clinton’s will keep more of their money. They would have a 9.8% return for the year. Trump’s hedge fund took 20% of his profits, leaving him with an 8% return. Add in the 1% annual fee, and he’s left with a 7% return. If you invested $100,000 in Clinton’s investment, you’d have $245,696 in your account after ten years. Trump would only have $196,715.
Obviously, the low cost investment is going to provide a superior return. Can the hedge fund managers make up for those costs by superior investment choices? The answer is almost always no. Chasing returns is a losing game. Instead of chasing returns, focus on what you can control. Diversification.
Diversification is basically accepting that you will never be able to predict the market, so you might as well spread the wealth around. This is what the Clinton’s have done by choosing a S&P 500 fund. Trump’s strategy is one of hubris. He is as confident in his own business acumen as he is in his hedge fund managers. Again, he’s wrong.
Trump would be $10 billion richer today if he had simply invested in an index fund. Losing that kind of money is nothing new to him. For someone like you or I, we can’t afford that kind of mistake. In order to meet your financial goals, you need to be able to rely on a reasonable rate of return.
That means that you have to invest in a diversified portfolio. You need to focus on long term stability instead of get rich quick schemes like hedge funds. Your portfolio should be as low cost as possible. Unlike the candidates, we need to be budget enough of our income towards savings. If we don’t, our goals will be impossible to realize.
Mrs. Clinton’s investments strategy, while vanilla in nature, is the best one for long term savers to use. There are flaws in her plan, but they are easily remedied. Mr. Trump’s diversification strategy is a good idea marred by greedily chasing returns. That's not to say that you should take advantage of opportunity. You need to ensure you have your base is shored up before engaging in any speculative investment.