The dramatic presidential election result unsurprisingly shocked the world and global financial markets. The initial reaction led to large declines in Asian markets, the Mexican peso and U.S. stock market futures as a Trump victory appeared increasingly likely. However, as we wrote this letter on Wednesday, a broad selloff did not materialize with European and U.S. stocks actually closing much higher. The possibility of a Trump presidency and the uncertainty it brings is an outcome that concerned many investors leading up to the closing of the polls, and one we’ve talked through with a number of clients over the last few weeks.

Given many investors’ high levels of anxiety, it’s important to reiterate that elections by themselves do not decide policy outcomes, nor do they generally direct the long-term health of the economy and the businesses that operate within it. Without knowing which policy proposals will eventually be enacted, and when or how they might unfold, making preemptive, emotionally charged investment decisions is more likely to hurt than help.

We do believe the election raises new questions and thus increases uncertainty for the global economy and markets in coming years. Uncertainty and sharp reversals are an inevitable and unpleasant aspect of investing. Having the discipline to stay focused on the long-term drivers of investment performance is key to successful long-term investing.

As is always the case, our current investment posture already factors in uncertainty and a range of risk scenarios into our portfolio construction. For example, though our current U.S. holdings remain significantly less expensive than the broader market due to our value-based approach, we are materially underweight U.S. stocks because we believe the U.S. market is overvalued. Further, we are overweight foreign stocks because we believe they are undervalued and have significantly higher return potential over our five-year decision horizon.

It is not surprising that foreign markets and futures markets in the United States initially reacted in a knee-jerk fashion, which is often the case when events surprise them. We won’t react in that way, but we will be re-assessing our scenarios and assumptions (as we always do) as we gain more information. We have already been thinking about the possibility of a Trump victory and have not been compelled to adjust our portfolios based on a lack of clarity regarding what policies might actually be put in place or what their impact could be.

We also can’t emphasize enough the importance of having a healthy level of respect for the highly unpredictable nature of the markets over the short term. We’ve learned this lesson over the nearly 20 years we’ve been managing money for our clients. This awareness underscores the discipline we apply to the management of our investment portfolios as we work with clients to grow their assets over time.

We remain available to answer any questions that you might have regarding our investment outlook and strategy or the current market situation and appreciate your continued trust.

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