Richard Stroud
COPIERS AND FOLLOWERS UPDATE Hi everyone, time to keep you updated on the extraordinary economic events over the past few days. On my previous post last Wednesday, I said we should expect to see volatility and we certainly saw plenty of that and here's why: Trump's long awaited "liberation day" saw a 10% tariff across the board on all nations that trade with the United States, plus some additional "reciprocal tariffs" based on how unbalanced a trade deal Trump perceived each country to have. China was one of the hardest countries hit with an additional 34% tariff on top other existing historical tariffs, along with Japan (24%), Taiwan (32%) and India (26%). Some other smaller trading nations have suffered even bigger tariffs, with Vietnam being slapped with a 46% levy and Cambodia faring worse, with a 49% tariff. The United Kingdom fared the best, with no additional tariffs above the 10% base tariff, but Europe wasn't so lucky, having a 20% tariff on all goods to the U.S. A separate 25% tariff has come into affect for all cars being sold to the U.S. As a result, stock markets worldwide have been in meltdown, with the S&P 500 nearing bear market territory after a 10% two-day decline last Thursday and Friday, plus some more losses today. Europe has been a sea of red too, with the Stoxx 600 falling over 11% in 5 days and is now firmly in the negative for the year. The portfolio, whilst not suffering as steep declines as the major indices, has nevertheless certainly not been immune to the selling. Encouragingly, we are still fairing better than the S&P 500, which has dropped all but 14% compared to the portfolio's 6.4 %. However, I can appreciate that seeing stock markets seemingly in free fall can be disconcerting, so I hope by the end of this post I will have helped reassure you that events like these are not uncommon and is all part of investing in the stock market. Should the major indices enter a bear market, which is defined as a drop of over 20% from recent highs, this will be the third time this has happed in the last 5 years. The first one was, of course, the panic from the covid outbreak, followed 2 years later when interest rates were hiked due to rampant inflation. Each time a bear market, or indeed any correction happens, stock markets have always recovered. As a long term investor we have to accept this as part of the norm and instead treat it as an opportunity to buy good companies at much more attractive prices. Some of you will have seen a couple of trades that have happened during the last few days, which I will take you through quickly. As I mentioned in my last post, I took the opportunity to buy more treasury positions, as I suspected the fallout from the tariff announcements would mean that there would be a flight to safe haven assets. This proved to be the case, as these extra positions rose in value and helped balance the portfolio a little. However, I took the decision to remove all treasury positions on Friday, after the Federal Reserve's Jay Powell stated that he was in no hurry to lower tariffs, as inflation continues to take precedence over economic worries. This turned out to be a good decision as treasuries have now fallen back and yields have risen once again. Essentially, what this market crisis has done is accelerate what I intended to do with the portfolio at some point anyway, which is to veer away from government bonds and reallocate capital to some good stock opportunities. I have already opened a small short position with the VXX, which tracks market volatility, which stands to gain when volatility starts to subside. For the moment, I will be keeping our treasury funds as cash, but expect these to be allocated to new and existing positions very soon. Of course no one can time the market precisely, so we may well see more volatility in the short term as the narrative from these tariffs rolls on, but I see this as a great opportunity to become more positively invested. Of course, when there are any changes made to the portfolio I will always keep you informed. For the moment the best thing to do is to sit back and ride out the stock market rollercoaster that these tariffs are creating, and I will be in touch again soon with more updates. Best wishes, Richard.
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