2025 Q1 Client Letter: Tariffs & Staying the Course
To the Clients of Resilient Asset Management:
Greetings from World HQ in Memphis.
As I recall from my school-aged days, storms were typically used in theater as a harbinger of impending doom in the play. Well, here in Memphis, today we have already had rain on a diagonal trajectory with some hail (pardon the pun) baked in along with some thunder and lightning to boot.
Concomitantly, the impending doom about which some of you are perhaps concerned is the pivot the current administration has made toward tariffs.
Before going any further, a quick review of a lesson I learned in Flight School where during Primary Training we simulated Emergency after Emergency after Emergency. A wise Flight Instructor once told me: "If you have an Emergency, you can panic and definitely die. Or, you can stay calm and you might live." I've certainly encroached on violating this lesson numerous times, though I have never forgotten it...I recommend this lesson to you.
As I type this, Stock Futures are down quite a bit and perhaps overnight they will continue down - who knows...I certainly don't. What I do know is that capitalism is a crafty beast. Sooner or later, efficiencies previously not considered materialize and the march ever upward continues.
Just since 1900 we have endured a different bout with tariffs, WW1, WW2, numerous nuclear detonations, the Korean War, the Vietnam War, Watergate, Stagflation, 9/11, two Gulf Wars, the Great Recession, and COVID....if none of those events ruined our economy or the world, how in the blue hell are the tariffs put in place earlier today going to?
What you are seeing in the stock market activity, in my view, is much less a reflection of economic reality than it is of uncertainty about the future. Uncertainty and fear are the prime causes of panic selling. As Warren Buffett famously said, "We don't enjoy feeling uncertain, but we do like the prices it brings." Indeed, when people get fearful, truly monumental buying opportunities can arise.
Let me give you a pretty concrete example - Nike. Full Disclosure: I own stock in Nike and have placed it in a few Client portfolios. While there are MANY shoe brands, there is only one Nike. Recently, the company has taken its lumps as all companies eventually do. Even so, would anyone care to argue that Nike is still the BMOC amongst sports apparel companies?
As I type this, Nike is down about 7% in after-market trading and the market cap is about to drop below $90 billion, about 1/3 of its peak value during 2021. I have a question for you: If I gave you $100 Billion and told you to put Nike out of business, do you think you could do it? I don't know about you, but I'm not marketing against Air Jordan - would you want to? This is how whacky things can get when one-time events like tariffs spawn panic in the markets.
OK, so what is an investor to do? Well, just as I suggested to you during the last crisis - think COVID - stay the course. As markets react and portfolios fall out of balance, we will rebalance toward your asset allocation and get on with our lives. My overarching suggestion to investors of all stripes is to stay true to your fundamental advantage - focusing on the long-term.
Never forget, capital markets are complex adaptive systems and no one input - even tariffs - is going to have a completely predictable effect. The influence of unknown factors usually outweighs the certainty of what's known. Sooner or later, the initial shock will pass and the adaptations I referenced before will start to materialize.
As always, we monitor markets every single day they are open. The offer is always open to call whenever you like. If you just can't take it anymore, let me know and we can set something up.
Thank you for the time and continued trust in Resilient Asset Management.
Chris
