Missed the exit? Good

"What, you didn’t get out?" A client reacted indignantly to our Gutmann UpToDate financial market update from April 7. He was unhappy with our decision to stay calm and remain invested. In retrospect, our timing proved sound: the very next day, equity markets found their footing. Admittedly, that bottom may only have been temporary - deeper corrections can never be ruled out.

Feedback like this made it clear to us that nerves were fraying at the time. Not across the board - many of our clients are seasoned veterans of market crises. And anyone who has been reading the Gutmann Viewpoint over the years would have been more than surprised had we actually exited the market.

There was - and still is - plenty of reason for concern. Every time U.S. President Donald J. Trump begins a new day, one must be prepared for anything - and hope he got out of bed on the right side.

Political markets have short legs

The economic consequences of political developments are real - no doubt about that. But how severely are individual business models actually affected? It’s difficult to assess. Often, the impact is overestimated. Exports to the U.S. - whether from the EU or Japan - account for only a few percentage points of overall economic output. Which brings us back to an old stock market adage: political markets have short legs.

More concerning are the psychological effects: What happens if CEOs and management of major companies suddenly become more cautious? A nervous global economy would indeed hurt corporate earnings and market valuations.

But almost always, things are not eaten as hot as they are cooked. Occasionally, even seasoned market chefs burned their tongues during the 2008/2009 financial crisis. Yet anyone who invokes a full-blown crisis every time markets decline will never achieve respectable returns. On the contrary: those who sell in panic and later re-enter at higher levels will find it hard to build sustainable wealth over time.

Once again, recent events proved the point: as soon as Donald J. Trump softened his tariff threats, markets surged. Perfect timing? Impossible. That’s why we remain true to our principles: we invest for the long term - in solid companies.