“What should we do about tariffs?” It’s a question I’ve heard a lot lately, often with a note of fear in the voice of whoever is asking it. In this message, I want to answer that question. I also want to talk a little about fear, how we handle it…and how we can benefit from it.
If you’ve been following the financial news at all, you know that a feeling of anxiety has dominated the markets for the past month or so. But in the last few days, that anxiety has turned into fear. On March 4, a 25% tariff on Canadian and Mexican imports went into effect.1 This requires U.S. companies that purchase goods from these countries to pay a 25% tax. At the same time, President Trump also imposed an additional 10% tariff on Chinese goods on top of the original 10% duty that began last month.1 As expected, all three countries have retaliated with their tariffs on U.S. goods. That means the U.S. is now officially in a trade war.
The markets have not reacted well to this news. On March 4 alone, the Dow plunged over 600 points.2 The NASDAQ has been creeping closer to correction territory since late February.
When fear strikes, investors often start asking themselves the following questions:
Are the markets going into a correction?
Will the economy go into a recession?
Should I change my allocation?
Is it time to get out and move everything to cash?
You can probably hear them around the water cooler at work. You can see them online. They’re questions I frequently get from acquaintances of mine. But they are not the questions investors should be asking.
To be clear, tariffs—especially at these levels—are not small things. While they can generate revenue or bring countries to the negotiating table, they can also increase business expenses and cut into corporate profits. When this happens, many companies will pass on these costs to regular people like you and me through higher prices.
In other words, tariffs can be inflationary, at a time when we are still dealing with higher-than-normal inflation.
Investors know all this. Investors don’t know how long these tariffs will last, how high they will go, or how big of an economic impact they will have. We don’t know whether they will trigger a major market downturn. We can make reasonable assumptions and educated guesses, but we don’t know for sure. And that uncertainty, more than anything else, is why the markets have been so volatile lately. As the author H.P. Lovecraft once put it, “The oldest and strongest kind of fear is always the fear of the unknown.”
When fear grips the markets, many investors feel an intense urge to do something. After all, it seems so natural: Pack an umbrella when you know it might rain. When you know you’ll have to drive in rush hour, you give yourself more time to reach your destination. As human beings, we always want to avoid the possibility of future pain. And since volatility can be painful, many investors ask themselves: Should I change what I’m doing? Should I get out of the markets? If they can somehow avoid market turmoil, they can return when things are calm, like skipping the freeway and taking service streets until you’re past the traffic jam.
But there’s a significant problem with applying these metaphors to investing: They are short-term solutions for short-term problems. On the other hand, investing is for the long-term…and one of the biggest mistakes in investing is making a short-term decision with long-term consequences. This is true in life as well. It’s why we pack an umbrella when it looks like rain, but we don’t move to another state. It’s why we may try to avoid driving when there’s heavy traffic, but we don’t sell our car.
That’s why a better metaphor for investing is planting a garden. With a garden, we don’t decide to uproot all our tomato plants and switch to squash after a month. We don’t put everything into pots because we hear distant thunder and know it might hail. We don’t overwater our plants just because we need to do something to help them grow constantly. Instead, we choose the best possible soil. We plant with care. We water only when necessary. We harvest when things are ripe. And while we know the zucchinis might sometimes do better than the peppers, or the rosemary plant might fail, we always patiently give the seeds still in the ground all the time they need to sprout.
When volatility strikes and fear and uncertainty dominate, we must always treat our investments like a garden. Volatility, whatever the cause, is a short-term problem. Just as we want our garden to bear fruit for years, not months, it’s crucial that we make no short-term move that could harm our long-term plan.
Here’s how Peter Lynch, one of the most successful investors of all time, explains it:
“A market calamity is different from a meteorological calamity. Since we’ve learned to take action to protect ourselves from snowstorms and hurricanes, it’s only natural that we would try to prepare ourselves for corrections. [But] far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves. Fearing the correction is imminent, Skittish investors sell…their stocks and stock mutual funds. Or they put off buying stocks in companies they like and sit on their cash, waiting for the crash. However, once the market reaches bottom, the cash sitters will likely continue to sit on their cash. They’re waiting for further declines that never come and miss the rebound. They may still call themselves long-term investors, but they’re not. They’ve turned themselves into market timers, and unless their timing is perfect, the market will run away from them.”3
For these reasons, here are the questions investors should be asking themselves:
1. If I get out of the market now, how will I know when it’s time to get back in?
2. Would I rather miss a correction that could last a few months, or a rebound that could last for years?
3. If I own investments I like, would I want to sell them and risk repurchasing them at a higher price later?
To be clear, tariffs are an important story that will quite possibly be with us for a long time. And market volatility is painful, make no mistake about that. We don’t welcome volatility, we don’t fear it, either. That’s because we know it’s an opportunity. An opportunity to be even more patient, disciplined, and consistent than before. And it’s those qualities — patience, discipline, consistency — make the most difference in the long run.
Blaise Pascal, the great mathematician and philosopher, once said, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” I think there’s a lot of wisdom in that! So, while we will continue keeping a close eye on the markets — and while we will certainly send you more information on tariffs and their effects — what matters most is this: We cannot do anything about tariffs, or how the markets react to them.
But we can do something about ourselves.
We can be gardeners.
So, as spring rolls in, as the flowers bloom and the trees begin to blossom, take this opportunity to focus on whatever garden you may grow at home. And know that as you do, my team and I are constantly tending the one you’ve entrusted us with. It’s a garden we intend to last a lifetime.
