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Gain a retirement advantage™

Okay, I wrote this before the 90-day pause, so some stuff might seem dated. But the lessons in here are timeless. Please read on.

We’re in this weird place right now. The stock market is crashing, and yet the full impact of the tariffs have yet to be felt. All of the hard data from last month looked okay.

So, what type of maniac would be buying stocks now, when we are virtually guaranteed a slower economy and lower earnings? Who buys stocks when a recession is clearly on the horizon? Me. Who do you think you are I am!

Stocks are a discounting mechanism. They don’t trade on what happened yesterday, they move on what they think will happen in the future. And right now, the future looks black as night.

Take Apple, for example. They are in the eye of the storm. The company is highly reliant on manufacturing out of China. There are reports out there saying they flew five trains worth of iPhones back hear to avoid tariffs. If the 104% currently levied on China sticks, it’s hard to overstate how devastating it would be for the company. And so this is why the stock nose-dived 23% over the last four trading sessions, the worst such decline since the dot-com bubble burst. Worse even than during the Great Financial Crisis.

I bought the stock, admittedly a risky gamble here, given how exposed they are to the administration’s policies. The bet I am making is that negotiations happen sooner than later. This is not investment advice, I am comfortable with whatever losses I might incur. Panics create wonderful buying opportunities for investors with a strong stomach and a long-term horizon. I have both.

Zooming out, I want to talk about how markets bottom. The biggest mistake I’ve seen investors make over the course of my career is selling into panic and thinking they’re going to get in at lower prices once the dust settles. I’m here to tell you, that’s not how this game works. Either you’ll buy in much higher, or not at all.

There are two paths stocks will follow once you’ve sold. Either they go lower, and your greatest fears were confirmed. “Ah, I knew it! I’m just going to wait until they fall a little bit more.” They keep falling, but the lower they go, the less likely you are to buy. Or, they go higher, and you won’t understand why, and you’ll get angry at the stock market.

Everybody knows tariffs are a negative-sum game. Everybody knows earnings and GDP will get hit. And that’s why stocks are reacting so violently. We saw a similar shock to the system 2020. The S&P 500 fell 34% in just 23 sessions, immediately discounting what we all instantly knew; a recession was coming.

It took just three months for GDP to bottom, thanks to an injection of fiscal stimulus like we’d never seen before. The odds of a similar policy response to the current situation are one in a million. No, I’m not telling you there’s a chance.

In 2020, the stock market bottomed a full year and a month before earnings did. I repeat, the stock market bottomed a full year and a month before earnings did. I remember the market rallying on bad data and people, myself included, had a hard time believing the rally was real. And I remember individual stocks rallying on earnings reports that looked fake.

In October 2020, Carnival Cruise reported that revenue dropped from $6.53 billion during Q3 2019 to $31 million in Q3 2020, a crash of more than 99.5%. The stock fell 2% that day. That’s it. Why? Because the stock had already plunged 89% from its high! The market doesn’t wait for bad news to bottom

In summation/a few conflicting thoughts/ideas.

When there’s panic, I buy. That’s my rule. BUT, I don’t want to give you the impression I am confident this is the bottom. Crashes happen from oversold conditions. Not to scare you, but it’s true.

We’re in the storm, there is no denying it. It could accelerate, but it could also die down. Your portfolio and your mental health have to be able to withstand a wide range of outcomes. Whatever you have to do, stay in the game. Your future self is counting on you.