Know Thyself…

In theory, investing is pretty straightforward – Buy Low, Sell High! Buy things when they are down. Sell things when they go up.

In practice, investing is pretty difficult. Let’s take the first part of the equation – buying low.

When stocks go down, we should buy them, right? But when stocks fall 10% there is so much fear around, that it becomes difficult to make the buying decision. And then if they fall 20%? It becomes even harder to buy at that level.

And what if stocks get cut by a third? It takes real courage to buy stocks then.

Right now, some of the best stocks of all time are down more than 30%. For example, Nvidia – the darling of the stock market for the last few years – has dropped by more than 30%.

Trade war

The reason for these massive declines is pretty clear. Trump has started a trade war with the whole world. And the whole world is retaliating.

US tariffs on China, Canada, Mexico, EU, etc. (and their retaliatory tariffs on US) have thrown uncertainty into global supply chains, making companies and investors nervous. Markets don’t like uncertainty.

Now, this is a personal finance blog, so there is no point getting into politics here. People can argue about tariffs – are they good policy or not. One thing that cannot be argued, though, is that tariffs are bad for the markets.

Looking at the future

So what happens next? If the trade war escalates, then there will be a global recession. Markets will fall much further.

If the trade war winds down, markets will stabilize. If for some reason, Trump decides to abandon the trade war, markets may go up.

It is difficult to predict which of these outcomes will come to pass, because Trump is famously unpredictable. But, in each of these cases, US markets may take some time before they hit all time highs again.

Know thyself

Market downturns like these provide a good opportunity for me to learn about myself. Am I okay with such losses? Does this make me nervous? Do I lose sleep over this? Market downturns like these are common. They will happen again. And many more times in my lifetime. So it is important to know my risk tolerance.

Regular readers of this blog have been with me on this journey before. In 2022 when the markets had a horrendous downturn, I had written extensively about them here. Back then, I did nothing different… I kept investing part of every paycheck in VOO.

Having been through a few such downturns now, I have been hardened by them. That does not mean I feel great when my portfolio is down. It just means that I understand that markets can go down a lot and can also stay down for a while. And I am okay with that.

Eventually, this too shall pass. I don’t know exactly when, but in the future, markets will go higher. It may take a few months or a few years.

Until then, painful as it may seem, I will keep investing….