The big market drop -- Why I'm not selling
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I've been ultra-focused on keeping track of Trump’s latest “L-Day” tariffs. Trump says he’s been kind with tariff hikes. But the market disagreed:
Quick update so far: China would get +34% tariffs, on top of the 20% previously announced. There’s a blanket wide 10% tariff on all US imports – even from countries like Australia, which has a trade surplus. Why is Trump so aggressive on tariff hikes? The reason is simple. Years of trade policies with other partner countries have caused enormous US trade deficit. Especially when partner countries impose their own tariffs on the US (see red box below). Now, Trump wants to level the playing field. And want US companies to pay to the US government on the stuff they import. In other words, Trump wants to reduce the US fiscal deficits, by raising more revenues. I get that, the whole idea of tariffs is to make “America wealthy again”. What struck me as ridiculous is how Trump calculates its tariff hikes (some say tariff formulas are fake and insane). But what struck me as even more ridiculous is how markets is reacting to the latest tariff onslaught -- throwing babies out of the bathwater! In 2018, the stock market went into a free fall, falling 13% from tariff shocks. We all know how markets performed after that. I’ve said to my Diligence members in my Diligence Research Report in Feb 2025: “It’s a foregone conclusion the US will let China off the hook. I expect geopolitical tensions to shorten market cycles, more bouncy movements, which requires resilient businesses to be defensive against portfolio volatility.
How I’d approach this going forward... Pick durable businesses (this matters a lot more now) with an economic moat:
-Predictable, growing revenues and profits
-Positive free cash flow
-Strong ROE (look at >10%)
-I buy shares that are within my Right Price Limit"
We’ve to ask ourselves if market’s reactions are valid. Because investing is ultimately buying a part-ownership of a business -- not a piece of stock certificate. My take is recent market performance is a healthy correction if you want to compound wealth for the long-term, in a much larger bull market. This is a big market drop. And I'm not selling. Instead, This is what I'm buying Sometimes, investing can be simple. Willie Keng, CFA Founder, dividendtitan.com P.S. Like this issue? Click HERE to join 5k+ investors reading my DT Compound Letter. I send my letters to your inbox every Sunday. |
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