The market is rallying today as President Trump reversed his decision to restrict Chinese investments.
I look at this as a perfect rally to continue repositioning any securities positions that I have questions or doubts about. The volatility caused by this “tariff tantrum” is a great spot to make these changes.
Mr. Market may be able to “spin on the dime” and go from depressed to ecstatic, but businesses cannot change their business model so quickly. Changing manufacturing facilities, offices and many other aspects of a business doesn’t happen in an hour, a day, a week, or a month. It is a long term event.
While Trump’s volatile negotiation style may get him the agreements he wants, businesses generally don’t appreciate the constantly “shifting sands”. Smart business leadership continually looks to improve their competitive position and balance the risks associated with their business model. And, this takes time.
Whether a business leader supports or doesn’t support Trump, doesn’t matter. Business leaders are likely to start the long-term ball rolling on mitigating whatever risks they perceive. This likely will have long-term repercussions on the fundamental economic climate. In turn, the economy will feel the changes and I believe it will be negative.
The market has struggled since January and has shown resistance to new highs. At the same time, the economy is “firing on all cylinders”. Looking at the econometrics, what more positive changes can occur to boost the economy even higher?
I am a long-term equity guy, so I will always have equity exposure. While the market is still holding up, I am looking very closely at my holdings and reducing certain exposures with market rallies. If you feel you might have paid too high for certain securities, NOW is the time to take a make those tough decisions. Bull markets don’t last forever and this one is almost the longest on record.
You don’t want to kick yourself later because you failed to make those tough decisions now. Buffett and Munger call this putting off of decisions as “thumb sucking”.
Gentle tactical shifts in portfolio construction is just smart investment management.
