If one man had followed basic portfolio management principles in 2008, there might be a different American president today.
Steve Bannon, Donald Trump’s right-hand man and one of the most influential (and controversial) members of the new U.S. government, points to a single defining moment that he says lit the fuse of his burning economic nationalism.
It was the day his father capitulated, in the depths of the global economic crisis in 2008, and sold his entire stake in telecommunications company AT&T.
When Marty sold
According to the Wall Street Journal, Steve’s father Marty had his entire nest egg in AT&T stock. He spent a 50-year career with the company, and over decades he accumulated a life’s worth of savings in the stock.
As financial markets collapsed in the midst of the crisis, he watched the value of his retirement fund plummet.
And right then, at the worst possible moment… he sold.
His son, White House strategist Steve Bannon said, “The only net worth my father had beside his tiny little house was that AT&T stock. And nobody is held accountable?”
There are many reasons why Steve Bannon is where he is today. But his firebrand rejection of globalisation and the institutions that operate within it stems from that one moment… when his father gave up and sold.
In Steve Bannon’s own words… “Everything since then has come from there. All of it.”
When I read about Steve Bannon’s father, I didn’t think “politics”… I thought “portfolio”.
The mistakes he made
Marty Bannon made two typical – and damaging – investor mistakes.
First, he wasn’t diversified.
He invested everything he had into a single stock. Everything. He put all his “eggs” into that one AT&T basket.
This is the exact opposite of diversification.
A man nearing retirement age shouldn’t have his entire net worth just in equity… let alone a single stock!
Even the simplest diversification into bonds would have been enough to help weather the economic storm. U.S. treasuries rallied strongly during the global economic crisis as investors flooded to safety and the Fed dropped interest rates. (In late 2008 for example, the iShares 7-10 Year Treasury Bond ETF rallied by 15 percent.)
Secondly, Marty Bannon didn’t use a stop loss.
From peak to trough, AT&T stock fell by 50 percent during the crisis. He could have saved a lot of money and stress by using a standard 25 percent stop loss.
It’s a simple fail-safe technique to stop bad losses turning into terrible ones. And it removes all the stress from your decision making.
Plenty of investors don’t use a stop loss. They hold the stock, come rain or shine, bull or bear market.
That’s also fine!…
… if you can stomach sitting on a 50 percent beating when the world is falling down around you. If you can resist every natural instinct that tells you to panic and sell. If you have the courage of your convictions to watch everything you’ve spent a lifetime working for fade away because you know deep down that it’ll eventually come good… then great!
But most people can’t.
Instead, most investors do what Marty Bannon did. They sell at the worst possible time. They give in to that awful fear and they suffer huge losses.
And the worst part? If he’d just held on, he would have been fine.
AT&T’s share price today is exactly where it peaked at in late 2007.
One result of Marty Bannon’s poorly timed sale…
Steve Bannon is Trump’s chief strategist and ideologue.
He ran Trump’s successful presidential campaign.
I think it’s fair to say that without Steve Bannon, Donald Trump wouldn’t be sitting in the White House today.
Steve Bannon stated that his father’s AT&T stock whitewash is what sparked, in his own words, “everything”…
So ask yourself… If Marty Bannon had owned a diversified portfolio with stop losses, would Donald Trump be the president of the United States today?
P.S. We’ve written about how to prevent your emotions from getting the better of you when it comes to making investment decisions…you can download your free copy here.)