Why did we not see this coming?

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The Trump tariffs created a large one-time dip in the market.

However, the fact that Trump was going to introduce tariffs on liberation day was known well in advance. His views on tariffs were also well-known and communicated. So how did most of us get caught off-guard?

I can only conclude that I was too complacent and too lazy. I thought that it is more Trump noise that would be the start of negotiations and back-tracking (and to be fair, it may well end up that way) but I already had a preview of how disruptive the measures against Canada and Mexico were.

Does anyone else feel that they mis-managed this episode?

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I believe there are two reasons

  1. we always try to find reasons to justify our approach. For investors who have seen significant outperformance in US stocks, they wanted to believe that for Trump it’s important that stock market outperformance continues. Hence most ignored the risks. Even today most will find 50 reasons why US will continue to outperform.

  2. the extent of tariffs & the rationale used was beyond the wildest imaginations for most people. Hence the shock reaction

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I always see everything coming.

Unfortunately after the fact.

Fortunately it does not matter for me, as I trade what I see.

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BTW: we still don’t know if this was just a dip or the start of something worse


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Because politics and investing is not my full-time job.

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It’s always a dip - just depends on how long you are willing to wait for recovery

Everything goes up in 20 years :slight_smile:

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What would be your action if you weren’t?
Sell pre-emptively (when?) and then rebuy? (When?)

I didn’t get caught off guard, I just didn’t care as I am not trading the news, and I am happy to buy at lower prices (have another 20 years to run).
And Trump and US of A will ultimately always do what’s best for capitalism. :sweat_smile:

But others that are later in accu / close to decu phase should of course be (have already been) more adjusted to risks like these (before they materialize).

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I think there could have been options such as:

  1. Hedge with puts or short futures
  2. Given the very high valuations, re-balance into assets such as gold, cash or T-bills
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Have you ever considered what if markets go down by 60% and then recover only in 20 years?

Would you still not take any action if you knew this before the crash ?

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A) Nobody can know that in advance.
B) I don’t buy once and hold forever. I keep on buying through all that time while it’s in the hole under the ATH. So the “recovery of the market only after 20 years” happens way earlier for my account.

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Because most don’t care and invest once a month into VT (or comparable) and thats it.

No because my time horizon is so long that this is just a small dent.

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Yes and no. Yes because the tariffs were well telegraphed, well in advance, no because I chickened out due to self-doubts of when to get out, what % to get out, and when to get back in. I think if I could travel back in time I’d in all honesty do the exact same thing, even knowing the future.

Stacking cash and switching ~10% to gold, and rebalancing in the dip massively softened the blow, though.

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Your returns are also softened since you don’t know when to get in again.

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A globally diversified portfolio not recovering after 20 years means there are massive issues going on anyway like extreme food shortages or extremely fast population decline for example.

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You mean from the point of view that stacking cash is bad?

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That is true, it would depend how much the annual contribution is
with 5% contribution per annum, the recovery time is about 15 years even when market itself takes 20 yrs to recover.

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Why does it need to be this extreme? why cant it be simply the case of overshooting on the other side in terms of returns

Last 25 years return on MSCI ACWI is 6%
Last 5 years return on MSCI ACWI is 15%

But i think maybe 60% crash and recovery in 20 years might be too extreme. Hopefully this never happens :slight_smile:

P.S -: if we just revert to 25 year average of 6% , then next 20 years returns need to be about 3.8% CAGR (in USD terms) to compensate for the 15% in last 5 years.

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Thanks for the calculation.

However - if I got it right - this is only “forward looking” i.e. also assumes one has just started investing right before the crash, i.e. historic avg buy price = ATH?
I believe for majority it’s not the case. :slight_smile:

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Yeah i was just starting from current position (whatever it is). So not calculating past returns.. Whatever the current value is . if it drops by 60% , then the portfolio will move as shown in chart.

can be a nightmare for retirees

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Supposedly, the market has already priced in all available information. So how could the entire market with all its brilliant analysts be caught off-guard??

Or should us FIREr‘s have had a unique insight? (Arguably it feels like we should have, but then, we don’t want to be market timers, or do we? Of course, if it makes us loads of money :slightly_smiling_face:).

Looking ahead - is there a case for us to be right now in the same situation again, a last hurrah, the Wile E Coyote moment? See Krugman:

Preliminary data suggest that imports from Asia, after surging as importers tried to front-run tariffs, are now collapsing. See the chart at the top of this post. The CEOs of Target and Walmart reportedly warned Trump that we may be seeing empty shelves within weeks. And foreign trade won’t be revived by hints dropped at closed-door financial conferences. Companies need some certainty about policy, which they won’t get.

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