How to Make Money Off Of Donald Trump’s Tweets

Donald Trump was inaugurated as the 45th president of the United States on January 20, 2017. No matter how you feel about his political views, his policy decisions and words will have a large impact on the economy and global markets. It is a dangerous game to try to predict what his policy decisions will be, as well as how those policy decisions will affect the markets.

For example, it was widely held that a Donald Trump presidency would lead to declines in the stock market because of the uncertainty his presidency would entail. In the two trading days prior to the election results, the S&P 500 rose 2.6% on the anticipation that Hillary Clinton would win the presidency. As it became clear on the evening of November 8th that Donald Trump would become the next president of the United States, stock market futures plunged dramatically. However, after his acceptance speech that evening, the stock market completely reversed those losses and traded higher on the day after the election. In the subsequent 2.5 months, the U.S. stock market has rallied, with small-cap stocks, which are more tightly linked with the fortunes of the U.S. economy than multinational large-cap stocks, gaining the most.

We have also seen that Donald Trump moves markets with his Twitter feed. His tweets made news during the presidential campaign, and has continued to do so following his election. On several occasions, his tweets have sent stocks falling.

Donald Trump’s Tweets Move Markets

Example 1: Boeing

Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!

— Donald J. Trump (@realDonaldTrump) December 6, 2016

According to NBC-2 Florida, Boeing’s stock fell 1.6% within 10 seconds of Donald Trump’s tweet.

Example 2: Lockheed Martin

Based on the tremendous cost and cost overruns of the Lockheed Martin F-35, I have asked Boeing to price-out a comparable F-18 Super Hornet!

— Donald J. Trump (@realDonaldTrump) December 22, 2016

According to Politico, Lockheed Martin’s stock fell and Boeing’s stock rose shortly after the tweet.

Example 3: Toyota

Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.

— Donald J. Trump (@realDonaldTrump) January 5, 2017

Toyota’s stock dropped sharply after this tweet.

So how can we make money off of Trump’s tweets? Unfortunately, it is unlikely that we will be able to as physician investors. We are too busy doing our day jobs caring for patients to be able to react to his tweets quickly enough to make money. However, here is how I believe some enterprising hedge funds will make money off of Trump’s tweets:

How to Make Money off Donald Trump’s Tweets

Step 1: Follow @realDonaldTrump on Twitter.

This is obvious, but now there’s even an app that will alert you when Donald Trump tweets about your stock.

Step 2: Write a computer algorithm

The next step would be to write a computer algorithm that would read Donald Trump’s tweets. I assure you, the investment banks will not make a poor intern spend his days reading Donald Trump’s Twitter feed and buy or sell stocks accordingly. In my experience, while we do have CNBC on in the background, we do not watch it non-stop waiting for breaking news. In fact, we are more likely to be talking on the phone with clients, chatting on our Bloomberg terminals with fellow traders, or waiting for our chicken and rice to be prepared at the street food cart. What the hedge funds will do instead is have their computer programmers design code to read and interpret Donald Trump’s tweets, and automatically buy or sell stocks according to its content.

Step 3: Improve your algorithm

We won’t be the only ones doing this, so we would have to constantly improve and fine-tune our algorithm to make sure that our code can more accurately and quickly interpret tweets compared to the competition.

This method of trading is not new to Donald Trump’s tweets. For example, when new economic data is released, markets move faster than any human could trade. When the U.S. jobs report is released on the first Friday of every month at 8:30 AM, the trading floor will quiet to a hush in the seconds right before its release, with everyone looking on their Bloomberg terminals, waiting for the jobs number to appear on the screen. It is eerie to have these few moments of silence on an otherwise loud and busy trading floor.

However, many of these market-moving events, such as the jobs report and earnings announcements, are released outside of regular stock market hours. In addition, bond and currency markets will typically widen their bid-ask spread in anticipation of the news. The reason why Donald Trump’s tweets are such a powerful money-making opportunity is that his tweets occur at random hours without warning. Market makers will not be able to prepare for the news by widening their bid-ask spreads in advance. The fastest hedge funds that can (correctly) trade on Donald Trump’s tweets will be able to make money before the market makers can react.

Conclusions

Ultimately, physician investors cannot make money off of Donald Trump’s tweets. We cannot predict what he will tweet, and we are too slow to react when he does tweet. Even if we downloaded the app that will send notifications to our iPhones when Trump tweets about our stock, the market will have moved by the time we can login to our Fidelity or Vanguard accounts and trade.

I’ve said in the past that if you want to trade, you need an edge. A sophisticated computer algorithm to accurately read and interpret Donald Trump’s tweets is an example of an edge.  Without a trading edge, I recommend that you stick with index fund investing, where you can match the market, and not have to compete with hedge funds that have sophisticated computer algorithms to take advantage of market-moving events such as Donald Trump’s tweets.

What do you think? Will you trade in anticipation of or in response to Donald Trump’s tweets? How will you invest or trade during the Donald Trump presidency?