Humility with Tariffs and Trade Wars
It’s impossible, actually, to talk about almost any topic today and not get political. So, I chose two brief videos from two media sources, one more Democrat-leaning and one more Republican-leaning. I thought they both were interesting—but dramatic—so don’t read or listen unless you are relaxed!
Instead of clicking either of these links, consider thinking about the tariffs in a different light. Consider, in fact, what you would do if you knew for certain what would happen. You could think about re-investing your portfolio. You could—but you won’t because that is what our investment managers do—but it’s worth a minute to give it consideration because the lesson is important.
What investment would do better in a Trade War?
What does it mean to increase tariffs on XYZ companies and which companies will do better?
Forget about the fact that none of us know—and none of us should pretend to know—what will happen. Instead, pretend that you know for certain that we are going to have a Trade War. What would you do?
One idea, if you are sure we are entering a trade war, is to invest in small US companies who don’t sell overseas. They might do OK (or better) when we’re taxing exporters. After all, their sales are not hurt by other countries’ tariffs, but their competitors’ sales may be hurt. Your small US company may sell more and the investment might do better—that’s your thesis.
Not so, says the small company manager in the first of the stories below. His sales were hurt (dramatically) and his company is suffering in the short-term. He buys all his stuff from US companies and sells all his stuff to US customers, but the results didn’t fit our thesis.
If his company were publicly traded, I wonder how his stock price would have performed? Unknowable—of course—this is my humility and experience speaking—but my imagination tells me their share price may have declined.
Similarly, what do these tariffs mean for average Americans? The second commentator says he knows what might happen—and why they are happening—higher prices. Lower wages (or layoffs). But how much work do you have to do on the internet to find stories that espouse the exact opposite of this belief? Not much, but it’s not worth the effort.
A dose of humility goes a long way towards reigning in our desires to act on the unknowable and uncontrollable and, over the long haul, unimportant news of the day. The prognosticators will either be right or wrong over the short-term. We don’t know. But we do know how to behave. We know what to do. Just ask your wealth manager.
Here’s a hint: diversification.
Consider a diverse set of investments that have historically done well and have the potential to do well over a long future. Investments that may move differently when unpredictable things happen; investments linked to long-term rates of return that may deliver what you need to meet your own personal financial planning goals; investments insome of the world’s most robust companies in the USA and the world is the answer to this chaos.
Here’s a purposeful misquote from our friend, Nick Murray. Diversification is humility in the face of our great unknown future. Because our future is great, because it is unknowable, we invest in some of this, and that, and that too. Humility is quite brilliant.
News from both sides: NPR and Fox News.
Radio interview and transcript from NPR:Missouri Nail Factory Manager On Steel Tariffs
Four-minute story from Fox News:How tariffs may affect American families