Market Meltdown and Trump Tariffs: How to Invest

Markets are definitely in the news today, so you will probably hear from me multiple times this week.

I want to share some perspectives that are easy to read, and not state of the nation, because there is a huge amount of complexity and uncertainty. For example, I don’t know if the Trump Tariffs are long term protectionism, or a start of negotiations towards free trade. Hopefully it is the latter but time will tell.

There is a famous saying from Warren Buffett

You don’t need me to tell you that the markets are currently experiencing “extreme fear”

Nobody wanted to sell a year ago when others were greedy, but many people will want to sell now when there is an overriding feeling of fear.

And if you feel that this time is different to other crashes, it is always different this time.

It is very hard to buy into a crash, or even hold when headlines are so pessimistic. I have experienced the feeling before during a crash of “why don’t I sell now, and buy back in when the coast is clear” The answer is that by the time the coast is clear, the market has already sprung back like a rubber band, before you know it, prices are higher than when you sold, and then what are you going to do? It’s psychologically very hard to buy back what you sold for a higher price. The most important factor in successful investing is to not let fear shake you out of your investments.

At the start of COVID I had 2 clients who sold everything because they could only see the 30% falls they experienced,  heading to 60% drops or more. Around the day they sold, there was government intervention. Interest rate falls, and money printing, and markets rebounded well before we found anything close to certainty with COVID. They got shaken out of good investments.

Conversely, I had a client invest approx. $400k, 1 month before COVID hit the markets, and after working with me for about a month his good investments were worth less $300k. He didn’t buy more, but he held his investments. Checking his account today after recent market turmoil, his account balance is $669k. It really didn’t matter that he had a paper loss of more than $100k but in the moment it felt very uncomfortable.

My own first experience of buying sensibly into a crash was during the Global Financial Crisis in 2008. I bought because I understood that I should buy when others are fearful. I didn’t feel like buying but I did it anyway. As I recall after 1 week, I lost close to 20% so it felt like I made a very dumb investment. I could have spent that 20% on having a good time, and I felt unfairly punished for doing the grown up thing, but the investment eventually became profitable, and then quadrupled in value. Nobody rings a bell when it is the bottom of the market, and by the way, the newsflow in 2008 was much worse than today.

This table below is a good visual to help you understand that after big drops in the market, you tend to get fast snapbacks, and in my experience the snapback happens while there is still a lot of uncertainty. If you react to market falls you are unlikely to profit from your activity on this one occasion, and if you adopt a reactive approach over the next 20 years, it is almost impossible to be successful. If you can hold your investments throughout all situations in the next 20 years, it will be almost impossible to be unsuccessful.