Trump 2.0 Investing: Is the "Playbook" Really Worth the Risk?

Financial Market Reflections: May 25, 2025

This video reflects on the financial markets amidst ongoing volatility, particularly concerning the impact of the "Trump tariff" situation. The aim is to consolidate thoughts and offer some takeaways for viewers regarding investment strategies and market behavior during uncertain times.

Market Overview and Recent Events

S&P 500 Performance

The S&P 500 reached a peak of approximately 6,100 points before falling to a trough around 4,800, a roughly 21% decrease. While this was a significant drop, the market didn't officially enter a bear market as 4,800 was an intraday low. Currently, the S&P 500 sits around 5,800 points, similar to levels in mid-October 2024 and early 2025.

Key Events Causing Volatility

Several high-intensity moments contributed to market volatility:

1. Liberation Day Announcement: This announcement triggered a significant market downturn, wiping out $6.6 trillion in market capitalization within two days.
2. Escalating Tariff War with China: Tariffs rose to as high as 145%.
3. Negative Q1 GDP in the US: This was primarily due to gold imports and frontloading of other imports to avoid tariffs.
4. Reassessment of Risk Models: Market participants scrambled to redefine risk assumptions and market models to adjust to the changing environment.
5. Bond Market Instability: Fluctuations in bond yields, combined with government efficiency concerns, added to the uncertainty.

Tiger Brokers Promotion

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Details of the Promotion

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Thoughts on Investing During the "Trump Tariff" Era

Two Conflicting Investor Ideologies

• The "Intelligent" Analysts: This group focuses on complex analysis, facts, and figures to predict the impact on GDP, unemployment, and other economic factors. They often recommend specific positions or portfolio adjustments to "weather the storm."

• The "Ostriches": This group ignores the market noise and refuses to alter their existing positions, regardless of the potential consequences.

  • Example: Tesla fanatics who continued to buy the stock even as it declined, disregarding recession warnings and concerns about China tariffs.

Personal Investment Philosophy

It is difficult to accurately predict short-term market movements. Market prediction within a 12-month timeframe is largely speculative.

Different Investor Personas Observed

• The Bearish: Investors who sold off their equities and are holding significant cash positions.

• The Whip-Saw Players: Those who attempted to capitalize on market volatility by selling high and buying low, although their actual profitability is uncertain.

• The Holders: Investors who maintained their positions throughout the turbulence.

• The Aggressive Buyers: Those who not only held their positions but also bought more stocks during the downturn.

Important Reminder for Bulls

Don't be overconfident and believe that you can predict the market. If you start to think you know how the market is going to move in the near term, then revisit your assumptions. Prepare for the worst-case scenario.

Sophisticated Investor Strategies and the "Trump Playbook"

Scenario Analysis and Action Plans

Sophisticated investors often conduct their own research and develop scenario analyses with assigned probabilities and action plans.

Key Factors in the "Trump Playbook"

1. Strong Balance Sheets: Focus on companies that can withstand economic uncertainty.
2. Pricing Power: Invest in companies that can offset cost increases and pass them on to consumers.
3. Defensive Sectors: Overweight companies in essential services like transportation, utilities, and healthcare.

Questioning the Value of These Strategies

These factors should ideally already be part of an investor's process. The playbook may add confusion and not much value.

The Illusion of "Insulated" Companies

Looking at companies supposedly insulated from global trade (e.g., Tencent, Lockheed Martin).

• While these companies may be good investments, buying them solely because they are insulated is not the best approach.

• It is better to buy them because they are great businesses that compound shareholder wealth.

• Being insulated also means these companies are cut off from the benefits of scaling and profiting from other markets, hindering their growth potential.

The Trade-off of Pricing Power

Companies with pricing power, like Hermes and Ferrari, can raise prices, but they may also face limitations on growth due to the nature of their prestige and limited supply. There is always a trade-off. These things take time to understand and appreciate. The worst time to be doing this sort of thinking exercise is when your emotions are running all over the place.

Importance of Pre-Existing Investment Strategy

Focusing on companies on your watch list should be done prior to any volatility. Do not scramble to find the next best alternative to react to a specific macro event.

Concluding Thoughts

The Markets Climb on a Wall of Worry

Bad news is a constant feature of financial markets. Businesses are often more innovative and adaptable than one might expect.

Be Aware of Market Efficiency

The market prices in information quickly. By the time retail investors react, they may be too late.

Differentiate Between Fact and Opinion

Consume opinions that contradict your beliefs.

Control What You Can Control

Focus on portfolio allocation, sizing, capital injection, and entry price.

Understand Incentives

Consider the motivations behind the opinions and advice you receive.

Mindset and Relationship with Risk

Many investment decisions are driven by fear of loss or greed for profit. Strive for a balanced perspective on risk.