Timeless Lessons on Investing and Looking Forward
Sometimes you must look past the constant tumult of the day-to-day, slow down and appreciate the opportunity you had to witness greatness. This past week, soon-to-be 95-year-old Warren Buffett announced he will be retiring as CEO of Berkshire Hathaway, Inc.
The “Oracle of Omaha” was always looking to provide sage business advice in his interviews and his letters to Berkshire shareholders. He famously said, “Our favorite holding period is forever.” I guess over 60 years at the helm of Berkshire Hathaway is essentially forever.
There are a few of his quotes that I always use because they apply so directly to how we invest for our clients.
- “Wall Street makes its money on activity. You make your money on inactivity.”
- “The stock market is designed to transfer money from the Active to the Patient.”
- “The most important quality for an investor is temperament, not intellect.”
What I love about these phrases is that they all revolve around this same notion that being a great investor does not require watching endless hours of CNBC or checking your accounts or making brilliant trades. The goal is not to outsmart Wall Street. The goal is to use your greatest investment tool: Patience. Having your financial plan in place is what allows you to maintain that focused patience even in times like today.
What Happened in April
Getting back to the tumultuous day-to-day world, we survived April (at least for now). The tariff talk intensified with April 2nd‘s “Liberation Day” announcement resulting in back-to-back 5% downturns in the broad U.S. stock market and approaching “bear market” territory (defined as a 20% decline from its prior peak). The following Monday, we got a short-lived (but false) reprieve, based on a single post that was quickly dismissed by the White House, leading to a massive intraday swing and then an actual 90-day reprieve from tariffs a few days later. This news calmed investors, and stocks staged a strong rebound, with the S&P 500 ending April roughly where it started, down just 0.8%. I’m guessing even Warren noticed this wild ride.
As of April 30th year-to-date, the S&P 500 is down 4.9%.
Looking Forward
Going forward, the market is still looking for answers to the ultimate level and impact of these tariffs. We may see more market swings from tariffs and other announcements as the new administration’s policies take shape.
Ultimately, the fate of the market will become less about headlines and social media postings and more about corporate earnings and the direction of the economy. The economy shrank slightly with GDP falling 0.3% in the first quarter, the first decline since Q1 2022. Increased import activity, likely driven by impending tariffs, drove this decline (imports subtract from GDP; exports increase it).
Oil prices fell below $60 per barrel in April, the lowest in four years, as OPEC announced increased supply and worries of a global economic slowdown grew.
In the near term, the direction and impact of tariff policies will cloud economic data and corporate decision-making. This will challenge Chairman Powell and the Fed as they try to balance the impact of tariffs on inflation (potentially higher) and economic growth (likely lower). Persistent inflation implies a need to maintain or even increase interest rates, while a slowing economy and job market suggests lower rates are needed. For now, inflation appears under control, as the Consumer Price Index (CPI) rose 2.4% in March compared to the prior year, slower than expected and the lowest reading since last September.
For the first time since COVID, we see job seekers exceed the number of job openings. Continuation of this trend will likely lead to an acceleration of Fed cuts winning out over rate hikes. Companies may be reticent to hire, and find it prudent to reduce their workforce in the face of uncertain future cost pressures represented by tariffs and the increased cost of global trade.
Businesses that rely on global supply chains are struggling to provide guidance on future earnings and grasping for how to plan for future operations and expenditures in this uncertain new world of trade barriers.
More clarity is needed but one thing seems sure: the globalized trading system which prevailed since the early 2000s is being overhauled. What will take its place remains to be seen.
For now, investors should remain patient, and take advantage of the recent recovery in the markets to remove any unnecessary risk in their portfolios.
Some ways to do this:
- Trim highly-concentrated stock positions.
- Limit industry concentration (including technology).
- Make sure bonds and international stocks are properly represented where appropriate.
- Review your plan if you are uncertain with the level of risk.