This Time Is Different (But Every Time Is Different)

Well.

That was interesting, wasn’t it?

We are in the midst of one of the most tumultuous, frightening, and exciting market periods in my career. I feel the need to point out two things right away: note that I said “in the midst” and not “at the culmination.” I am confident there will be new twists and turns as the headlines drive the markets in the coming days. Secondly, as I’ve pointed out in the past, my career in investing began only a few weeks before the crash of 1987. I’ve helped my clients through the bursting of the dot com bubble, the Great Financial Crisis, and the Pandemic, along with the myriad bubbles, flash crashes, and corrections that investors should normally expect over any 40+ year period in the markets.

Point being, I’ve been there, done that, and yes, this is a week to remember.

As I have spoken with colleagues, economists, clients, and others, I am struck by the number of people who have said something to the effect of “this time is different,” which is, of course, completely true. But EVERY time is different. Is this time different in meaningful ways? Well, yes and no.

We don’t have a playbook for imposition of a 19th century tariff regime on a post-industrial, world economy. But we didn’t have a playbook for a global pandemic, or the complete vapor-lock of the financial system we saw in late 2008. Yet, we endured, negotiated our way through, and ultimately as a country, as an economy, and I hope all of you as investors, thrived.

What remains the same in all of these crises (and I suppose time will tell if our current turmoil is a crisis or the birth of a new economic order) is that those who eschew emotional reactions and remain dispassionately disciplined inevitably endure and outperform in the turmoil’s aftermath.

I looked back across some of my notes on social media and messages to friends over the past week:

“This is rough, but disciplined investors are looking to buy. Dollar cost averaging is worth considering. Peace, Michael” – April 3

“As the tariff storm rages, stay disciplined. Don’t panic. If you have money to invest and your price targets are reached, you begin to invest. Stocks are on sale. Yes, they could and will likely go lower, but you never know when the next tweet reverses everything.” – April 4

“This sell-off is running out of panic. While these pauses can gather additional momentum, we could be seeing a bit of a bottom. Temporary or not? Time will tell.” – April 7

I am not prescient, and I don’t know when the next tweet reverses everything, but we saw on Wednesday that a social media post from the President a little after 1:00 pm caused  stock prices to rise roughly 7% in nine minutes. We closed up almost 10%. That’s close to $4 trillion (yes, trillion with a T) of value generated in a period of three hours.

As we enjoy a sense of relief and perhaps pat ourselves on the back for not shorting the market, or selling everything, I again remind everyone – and most certainly remind myself – that emotion is the foe of the long-term investor. Emotion is not just fear, but ebullience as well. The process is not over. President Trump announced a 90-day pause on the most draconian of tariffs while also maintaining an across-the-board 10% tariff on all imported goods and a 125% tariff on goods from our third-largest trading partner, China.

Discipline is still the word of the day. As it has been for all of the 38 years I have been in this industry.

President Trump believes that unpredictability and keeping everyone off balance is a virtue in geo-political negotiations. I am not going to argue the merits or perils of that negotiation strategy today. What I can say with near certainty is that markets dislike uncertainty and volatility makes investors nervous.

We experienced remarkable upside volatility on Wednesday, with the S&P500 up 9.5%. As I write this, the futures are showing an implied opening down 2%, which would “normally” be quite the downdraft. By the time you read this, I expect the situation will be quite different. Very rarely do the markets give investors a second chance to correct a mistake. If you have been undisciplined during this turmoil and kept too much risk in your portfolio when you perhaps should have rebalanced at higher levels, a brief window may be open to follow your discipline and adjust your risk profile. But let me be clear that I do not advocate selling for selling sake – fear can lead to very bad outcomes. Indeed, a strategy driven by fear and/or ebullience will almost inevitably lead to a “Buy High and Sell Low” strategy –a strategy that is extraordinarily effective at destroying wealth. Yes, this time is different, but again, every time is different. The disciplined, dispassionate investor endures the differences and remains focused on their long-term goals. Hang in there, and remember at Farr, Miller & Washington, we are here to help.