Sea Changes

Looking at markets since Trump announced Liberation Day with the imposition of tariffs on all countries, has seen increased volatility. 

Markets initial reaction was shock and so we had a week of very large moves upward of 10% and when Trump adjusted his stance markets breathed a sigh of relief and bounced back. 

This week Trump announced tariffs on Europe which saw markets react negatively and then adjust his stance once again which markets duly bounced. 

This has led me to a number of observations. 

Firstly, we think market participants are way too confident that Trump will fold and tariffs will become a moment in history. There is even a TACO trade - TACO standing for Trump Aaways Chickens Out. We believe they will be again surprised when trump insists on tariffs be applied. Trump’s position is not personal. By that we mean the United States has decided to withdraw from its global role and this is upending trade and geopolitics. Tariffs or no tariffs, the world is not going back to the “good old days”.   

Secondly, many are underestimating the impact tariffs will have on individual countries, sectors and individual companies. This week Trump announced prohibitions on technology exports to China. Three companies were impacted. This is a small example of how one announcement can seriously impact an individual company and therefore the investment potential. No idea is fighting a read guard action to try and get chip exports to China. Apple is fighting to avoid spending billions to relocate manufacturing to the US. Many company valuations still reflect the good old days. 

Thirdly, the main question for investors is why at to do. We have spoken about the New Normal and we believe we have a systematic approach that allows us to outperform over the long term because we can see the changes coming whereas many younger finance players can not. They don’t have an understanding of market cycles or history to be able to grasp trust how serious these changes are. 

In 80 years of investing Warren Buffett has basically stayed true to his own principles of value investing with a focus on rule number 1 - Don’t lose money. Through serious changes, Buffett has simply been ahead of the game because he is a student of history and cycles and so maintains his principles and simply adjusts them to events. 

Like Buffett, we think our 8 principles and our 3 Wells approach will stand the test of time and allow us to take advantage of whatever volatility and markets throw up over the next decade or two.