Avoid the TACO Trade: Why a Watch List Strategy is a Wiser Investment Approach

In the realm of retail investing, a new strategy has emerged: the "TACO trade," or "Trump Always Chickens Out" trade. This approach is based on the assumption that President Donald Trump will backtrack from tough policy positions after announcing them, allowing investors to profit by buying stocks at the "right" time as the market reacts to his changes in stance. However, while this strategy may seem appealing, it is flawed and comes with serious risks. The TACO trade is a speculative bet on government policy, which can be unpredictable and risky. Just as cannabis investors once believed that marijuana legalization was inevitable, the reality was far different. Government policy is complex and subject to many red tape and unforeseen developments, making it difficult to predict with any certainty. Furthermore, the mere mention of the TACO trade could embolden the president to take a tougher stance, making the strategy even more uncertain. The S&P 500 has risen by around 6% since the announcement of global and reciprocal tariffs back in April 2023. While buying during that uncertainty and fear may have been a good move, trying to profit from smaller moves in the market can be risky. The broad index is now close to its all-time high again, making it difficult to return to those lows today. Trying to profit from short-term trends and patterns can lead to significant losses if those expectations don't match up to reality. Instead of trying to time the market, investors should create a watch list of stocks they might consider buying if their price drops. Set your own price targets that you think would be cheap for those stocks, and add current prices for stocks to see how far away they are from your targets. When the market tumbles based on bad news, you can load up on any stocks on your watch list that have reached your desired price targets. This strategy requires patience but can yield much stronger results in the long run than trying to bet on short-term trends and patterns. By setting up your own watch list and buying when the price for one of your stocks is too cheap to pass up, you can set yourself up for significant gains that will likely eclipse anything you'll earn in the short run from a speculative TACO trade. The world's smartest investors caution against trying to time the market, and a watch list strategy is a much safer and more effective way to invest.