Unfortunately— and I sincerely wish that this was not the case— I was correct when I said this would go badly. Thousands and thousands of government layoffs. Thousands more deported. Funding frozen, military aid frozen, intelligence-sharing with allies frozen. International relations in tatters. The stock market in free fall. Wall Street types are furious, including a number of billionaires who supported President Trump in the election (though Elon musk seems to be enjoying himself) and who gave to both his campaign and his inauguration fund. Congress is racked with fear and won’t speak out— the potential consequences of ‘disloyalty’ to Trump are simply too high. Even some Republican voters are beginning to have doubts about the crazy they’ve wrought.
The latest, as reported by Bloomberg, March 6
On Thursday, Donald Trump signed a few more executive orders. Among the scores he’s churned out since taking office, these were unique, since they partially reversed orders from just two days ago.
It was the latest backpedal by the White House in the face of furious fallout both at home and abroad to his 25% sanctions against Canada and Mexico. With markets plummeting, automakers yowling and Canada pounding its chest, Trump announced he would exempt some goods from both countries, but only for a month. If that sounds familiar, it’s because this is the second month-long delay Trump granted on his own tariffs.
Today’s announcement came after Trump spoke with Mexican President Claudia Sheinbaum, who has sought to negotiate with the 78-year-old president while Canada Prime Minister Justin Trudeau struck a more strident tone. The Trump administration did take pains to say its other threatened tariffs would move forward as planned in the coming weeks and months, but after weeks of threats, little follow through and now reversals, Wall Street has apparently decided the only safe thing to do is sell. [Highlight mine] The S&P 500 fell to a four-month low.
If you’re in the market, you’re somewhere between nervous and full-on panicking. I myself have lost around 15% from my portfolio peak on February 18. That’s a big drop, a huge bite out of my retirement.
But I’m not selling. Haven’t unloaded a single share. My stomach is in knots, I’m sleeping poorly, I’m fearful about my kids’ graduate school plans and my home-buying intentions are in question and some future vacations are hanging by a thread. But I’m not selling.
Why you ask? Because I own some outstanding businesses and there’s nothing wrong with them. What’s happening today, what we can’t stop seeing all around us, is about global trade, is about prices, is about supply/demand and government firings and deportations and interest rates and maybe even the return of inflation or the possibility of a recession.
But the stocks I own are shares of businesses which are not causing the problem. They might have to adjust prices, they might sell less stuff, might have to layoff employees to maintain margins or cancel product launches or even shutter a division. But they’re responding to market conditions, as they must, and there is simply no reason for me to not own them anymore. They remain good at what they do.
If I sell now, into a sliding market, after all the gains I’ve made in the last few years, I’ll still have to pay capital gains taxes on those gains— so that’s 20-35% tax on top of the 15% losses of the last few weeks.
Then I’ll have a (smaller) pile of cash that earns me nothing. Sure it won’t keep falling, evaporating value. But what do I do with that cash? I can’t spend it— that’s my retirement fund. I can’t stash it in my mattress because inflation will eat it up over time.
I would want to buy back into the markets ‘when they reach the bottom’ of this selloff. Which is … when? How will I know when we’re at the bottom? When will I feel it’s safe to get back in? Likelihood is I won’t trust that if I start buying, it won’t all drop again tomorrow. I’d be late in my selling, and I’d almost surely be late buying it all back. Combined, those will crush my long term returns.
Plus I have learned to be disciplined about selling. There are only four good reasons to sell. As scary and disheartening as all this is, the mess we’re in triggers none of those reasons.
So all I can do, really, is guzzle some Pepto Bismol and leave it in play. Gut it out. Remember, if you’re fairly diversified (or if you primarily own broad ETFs like the entire S&P 500, etc) then things will improve again. Everything we’re watching in the markets is short term awfulness.
You’re a long term investor. You own stocks because over years and decades, they appreciate faster than any other asset class. But quite literally, the price for that appreciation is volatility; it’s called the ‘risk premium’— you get paid more for taking that extra risk. That’s where we are right now: the Volatility.
Stop watching your portfolio fall. Look away. And wait it out.
Reach out with your thoughts, I’d love to hear: robin@zagaco.com