What is the actual plan?
There has been so much thunder and lightning from President Trump that it can be difficult to discern any plan in the barrage of tweets and Executive Orders (EO).
The question that matters most to investors is how to survive and thrive.
This will require some agility of thinking because markets are now getting ugly.
One point I always make when discussing investment strategy is the importance of knowing where you are going. It pays to have the destination in mind.
Cash is one possible destination, but we view that as a temporary measure. The prime concern of cash holdings is liquidity, and agility. You can go in and out of cash very easily and it is the right choice if you have ongoing liquidity requirements.
In our household, the past six months has seen a deluge of medical expenses, surprise land taxes on investment property, and the relentless hiking of data service charges.
Nobody likes having to sell stocks to pay bills.
However, sometimes the bills just pile up and you have to have a plan.
In my case, the household did a budget and raised sufficient cash to cover all of the anticipated large expenses over the next three months through tax year end.
Doing this leaves you feeling more comfortable and with a clear head.
There is no fear of needing to sell in a blind panic.
The discipline I use in selling is simple to relate, but difficult to do.
The main activity is to protect profit and harvest tax losses.
There are always some concept stocks or speculative positions that have not worked out and are showing short-term or long-term unrealized losses. These are useful for offsetting tax gains in larger positions that have worked, but you wish to reduce.
What I look for is a stock that I still like, usually one that I bought recently, whose sale would yield a decent amount of cash, and where the percentage gain is not too great. Nobody likes to have to pay the tax man a big wad, but if you have a large amount of cash tied up in a good stock, and the profit is marginal, you can come back later.
Lining such positions up with the smaller fry that are in loss, you can design a strategy to derisk the portfolio, raise some cash, and avoid a large tax bill.
Doing this is harder than it sounds, but take time to weigh the pros and cons.
Sometimes the stocks that are in loss are so deep in loss that there is real value, and you rate certain of them as major turnaround prospects. If that is the case, then you can consider holding them through the End of Financial Year (EOFY) sell season.
Cyclical stocks can rebound strongly coming out of a bear market. It may be wiser to simply hold some of those than to dump them in weak markets. The decision is very hard in some cases. Ask yourself if the money at current value is money that you are willing to lose. This will firm up whether you fear permanent loss of capital.
Do not expect to get every such sell or hold decision right.
However, it is good to weigh things at a quiet time, out of market hours, when you are not facing a screen of red. Consider also that most selloffs burn themselves out after about three to five days and there is some kind of relief rally. Look out a week.
When you look at a stock price chart take in the detail and the big picture.
When I was young, my mother, who was an artist, would say this:
Learning how to draw is about learning how to see. Just look in front of you.
It is the same with reading the mood of markets. You need to switch off the rational mind and simply take in what is happening. Sometimes it can be helpful to print the chart of price action and look at it upside down. Would you buy or sell that? Since your chart is now upside down, you know to do the opposite of that decision.
Looking at a price chart upside down sounds ridiculous until you try it.
The rational mind can attempt to take over your seeing for you. What you see is not what is in front of you. The rational mind can trick you to see stuff that is not there.
Financial decision making is always stressful.
Here is my short list of tips:
Budget your needs over three months and meet those as your first concern
Now that you need not sell in a panic, plan what sells to match together
Do those trades, when you can, to raise cash tax effectively
Distract yourself from current panic by researching what to buy
Have a view to what kind of portfolio you want to own coming out
None of this is easy, and the advice may seem homespun, or obvious.
That is because it is just applied commonsense.
Making that plan work is uncommonly difficult but have faith and keep at it.
The Trump factor
I say all of the above because President Donald J. Trump clearly has a plan.
I am not going to dwell on the events of April 2nd in the Whitehouse Rose Garden.
Trump has his plan, and the goal seems clear.
America is going to become great again by making foreigners pay.
This is clearly a plan, but we are not sure that it makes a lot of sense.
There are some Penguins on Heard Island that now face a 10% reciprocal tariff.
The Penguins do not care because they like fish and have no interest to trade them.
I cannot tell you where this ends, but I do make one promise to my readers.
If you hatch your plan, according to my basic tips above, you will have some cash.
Using that cash there will be some things you can buy.
For my part, I will offer some thinking about good destinations for that cash. These are good places to go visit, or maybe stay, until we come out the other side.
It will be a bear market, and so I will offer some advice on critical support levels. These are the sentiment levels in the market which will influence investor sentiment.
I will also provide some geopolitical commentary on the world as I see it.
This is not the moment to share that, as we all need to get our portfolios prepared for the bear market to come. It looks like it will be deep and a bit savage.
The most important thing is to stay mentally and physically healthy.
I am making my effort there, and I know my readers are also.
I will be back soon with my reading of the geopolitics.
I will also provide some views on currencies and bonds.
Good luck and stay healthy!