Warren Buffett is famously quoted for saying, "Be fearful when others are greedy, and be greedy when others are fearful."
President Trump announced tariffs this week on international trade to include a minimum 10% tariff on all international trade, plus a reciprocal tariff on each country charging a trade tariff on the USA. While we have seen an immediate impact to market data, this isn't the first time markets have reacted to a president's international policy. Market volatility isn't a new concept, and long-term market fundamentals still make sense in this environment. In fact, long-term market fundamentals actually work best in this environment.
I read a (super short) article on market volatility by Dr. Daniel Crosby, a behavioral finance expert, quoting Rudyard Kipling's poem: If. Kipling writes, "If you can keep your head when all about you are losing theirs… yours is the Earth and everything that’s in it.” You can read the article here. The biggest takeaway is the reminder to silence some of the noise that's outside your control. The best investors focus their efforts on the actions they can control and mute those they can't. The efforts we can control as individual investors are:
1: Managing our lifestyle overhead, so our everyday life doesn't interfere with our investment decisions.
2: Giving our finances a cash buffer with an emergency account or a healthy cash balance to allow for unexpected life events or unexpected investment opportunities.
3: Insuring high impact events in our lives, so we don't have to absorb financial losses during moments that would be financially devastating.
4: Making an investment plan and sticking with it.
Funding your investment accounts during turbulent times can lead to some great opportunities. I remember when the Dow Jones Industrial Index dropped from 14,000 points to 8,000 in 2008 during the 2008 Great Recession. It's bizarre to think that the Dow Jones is now hovering around 40,000 points. Think about those who funded AND HELD their investments when the Dow Jones was near its lowest valuation in 2008. Even if a person funded their investments when the Dow Jones was valued at 14,000 in 2008 before the market dropped, their return is still noteworthy if they held it till today.
One of the worst cases of investment mismanagement I personally witnessed in 2008 was the president of a local bank sold his investments after the market dropped. He then proceeded to purchase gold with the proceeds. What happened to gold after the market rebounded from the Great Recession? It dropped in value in 2012. It was after the value of gold dropped that the banker sold his gold and held on to the cash, which was hovering around a modest yield of 2-3%. He started this journey with well over $1,000,000 in assets, and when I first met him, he had dwindled the account balance to just over $300,000 trying escape the pain of loss. The irony is that the loss only occurs when the shares are sold. While I don't anticipate another Great Recession occurring, staying the course during times of uncertainty can lead to some of the simplest opportunities.