Good Evening Readers,
First things first, we’ll rip off the band-aid: Markets are down. A lot. -10.5% Thursday and Friday, futures are showing another -5% for Monday’s open.
Why? Tariffs. A Bristol board presentation was also involved - we’re not ready to rule that out.
The good news – we’re not the deer in the headlights.
Our bet wasn’t to only own 8 concentrated stocks with bitcoin sprinkled on top.
We did boring – like Monopoly board utility companies and hotels on the brown properties. I think Mr. Monopoly also had gold.
A few newsletters ago, we discussed adding to companies that would sidestep tariffs. We singled out Canadian utility companies as they produce and distribute power within our border. They also stood to benefit if our thesis of declining interest rates was correct.
Last month we added UMAX, a Canadian utilities ETF yielding 14%. While the market was down -10.5% the past two days, UMAX declined -2.5%. That 1.1% divy next week is the icing on top.
Here’s the kicker – I didn’t find it.
One of you did.
A client asked me my thoughts on it, and here it is saving this DL seven figures. Who would have thought?
Two thoughts:
- Sometimes when you find a lone nut doing something great, you have to have the guts to join in.
- Luck is a skill - it’s up to you to identify an opportunity and take advantage of it. I’m glad I did this time.
Hopefully they’ll read this. Hopefully they’re not stuck in a snow bank or burrowed up north without power. Drinks on me next time!
Implications from Liberation day
For a quick recap on Tariffs – here’s a piece from RBC economics giving us the rundown.
à Trump’s “Liberation Day”: What comes next - RBC Thought Leadership
First and foremost – I must stress there’s a lot of unknowns, particularly at the company level. Uncertainty is what’s pushing markets down. A new Bristol board could change everything, but my gut feeling is this is a market to sell the rip. Here’s what we’re watching now.
- Tariffs affect prices, and therefore inflation.
- We’ll be watching for inflationary pressures building, not only within the USA as a tax on consumers, but across the globe.
- My two cents – go to Costco and stock up on those household goods. Prices will go up and retailers will blame tariffs, even if its 100% made in Canada.
- Unemployment
- There will be a lot of friction with long term tariffs. Typically, it’s not layoffs and firing that drive unemployment numbers up, it’s the lack of hiring – the inability to find a new job. With so much uncertainty, many companies will wait to see what happens. “Hiring” doesn’t compliment “waiting”.
- Taxing the untaxable
- The nature of America’s tariff’s are asymmetrical. The US import physical goods, a tangible product primed to be tariffed. However, the US “exports” much more in the form of services, consulting, banking, etc. – services which are beyond the traditional scope of tariffs. If Global governments were to target internet companies and these services, markets would be bound to for another leg down.
- Trump’s tariffs: how might Europe respond to unleashing of trade war? | Trump tariffs | The Guardian
The probability of an orange recession are high. Cut your expenses, evaluate your job stability, and deploy cash as everyone is fearful and in a panic. Your future self will be just fine, and thank you for keeping your cool.
Portfolio’s will be down – pension plan’s, your neighbors, everybody’s.
But we planned for this, and relatively speaking, our portfolios will outperform considerably. Any client taking income has 5 years’ worth of cash. Any funds with a long term time horizon are going to rebound.
Market volatility is no reason to deviate from the plan - Take what the market gives you.
Markets are down -15% and were down -5%? Rebalance.
It’s a harsh reality, but some will sell at considerable losses – and we will be the one’s gradually buying their good companies at great prices.
Our Balanced model outperformed considerably in March, declining -0.7% compared to our benchmark XBAL which declined -1.97%.
The paper portfolio is intended to be a helpful guide. Publishing changes after this past weeks sell off is not helpful.
Our balanced model will have no changes for April, with all positions being rebalanced to target weights from the start of February.
Even while keeping our positions untouched - With an overweight to fixed income and utilities, the portfolio is likely to outperform again this month.
As always, If you have any questions or comments – let me know!
Much love to you and yours,
Lucas
About the Paper Portfolio – Balanced Model
The Paper Portfolio is a model and NOT a real investment account. For any readers interested in a full list of positions and/or Monthly Performance, they are available upon request. No individual should act on this as investment advice, please consult a professional. The Paper Portfolio does not take into consideration taxes, or income requirements.