April 22, 2025
We often think of spring bringing blooming flowers and a sense of renewal. Yet April brought panic to the markets out of fear of economic uncertainty. A tariff tantum if you will. I’ve been investing since 1987, and it never ceases to amaze me at how many times cycles repeat themselves and how many investors seemingly focus on everything but the target. As the famous adage goes, “History doesn’t repeat itself, but it often rhymes. The volatility and violent tug-of-war between panic and euphoria in the stock markets which I expected in the first half of this year has been on full display. So many analysts are proclaiming their indicator predicts the future. It happens every time there is a correction in the markets. In my experience it has been folly to try to time moving all-in or all-out of the markets.
“Know what you own and why you own it.”
I continuously echo those words from famed fund manager Peter Lynch. This is one of the pillars upon which our investment approach is built. I believe if you practice this, you can effectively manage any investment in your portfolio regardless of the market. When looking at a company, did the drop in the market prices change the quality of the product/service, did it decrease its position vs. their competitors, did it change their balance sheet, did it change the marketplace for their product/service? A while back I saw a suit in a store that I really wanted, but I thought it was pricey and knew there was a going to be a President’s Day sale, so I was going to come back and see if I could get it cheaper then. While I was awaiting Pres.’s Day this company announced several store closings. My suit got marked down 40% for their store closing sale weeks before Pres.’s Day. I examined the suit; it was my size, no damage to it, exactly as I wanted, only 40% cheaper. The suit didn’t change but the situation around it did, and I took advantage of it. This is how I currently see many opportunities in individual stocks today – I know I want to own them for the long-term, so I look for “sales” to add them. I often say, “Stock market is one place people don’t like sales.” Emotions are to investing like drinking is to driving: a terrible mix.
I have heard and read too many declarations of doom and gloom that are in all reality are only “What If’s”. Guesses being passed off as certainties. I’ve always said, look to actual data and not emotions. Last month I mentioned some historical market datapoints in relation to the spring market plunge. As if in unison, Bloomberg published ‘Corporate Insiders flash bullish stock sign by buying into rout’ April 16th citing “Some 180 corporate insiders purchased their own stock, data compiled by the Washington Service show.” While insiders may have many reasons for selling their stock, generally they buy for one reason. The Bloomberg article goes on to say “The insider buy-sell ratio jumped in August 2015 and late 2018, with he former preceding a market bottom and the latter coinciding with one. In March 2020, corporate insiders’ purchases correctly signaled the bottom of a bear market rout.” I don’t mean to imply that this is call to go all in on stocks right now. Stocks could sell another 10% and still be in line with bullish trend line from the 2020 bottom, which I believe is likely. Rather I want to reinforce the idea to disregard emotions and use short-term panic to buy long-term opportunity. Historically US stock markets languish during the summer months, often bottoming in the fall due to the 2nd quarter earnings often being one of the leanest earnings reporting seasons (2024 was an exception with the AI burst-out moment).
The second doom declaration I hear regards foreign ownership of US Treasury bonds. According to the US Treasury, St Louis Fed data in April, Total foreign ownership (government and corporate) has ranged this year from $7.7 to $7.1 trillion which is 20% of our total US Treasury debt. Japan remains the largest foreign holder of US Treasury debt at 3% of our total. China is 2nd at 2.4% of our total debt. According to USdebtCalculator.com China’s ownership of US Treasuries peaked after the 2008 financial crisis. China has bought and sold US Treasuries and continues to do so. Some speculate that they could dump all the US Treasury debt they hold to impact the US. I don’t give credence to this as they would crush the very price of the asset they are trying to redeem: ‘cutting off one’s nose to spite one’s face’. And China has a severe debt problem that is under reported in the media. Next month I’ll discuss China’s battle with their own debt monster that they seem to be losing.
Since there is no shortage of doom and gloom headlines, here are two interesting historical data points:
- According to Carson Group’s Chief Market Strategist Ryan Detrick’s X post March 16th (@RyanDetrick): Seven times since 1950 the S&P 500 index hit an all-time high and then dropped at least 10% in less than a month (which it just did from mid Feb to mid-March). All six prior times the index was higher 3 months and 6 months 100% of the time and the average gain was 14.7%.
- According to Yardeni Research there have been 40 double-digit percentage declines in the S&P500 since 1950 (including the latest decline this year). That averages out to roughly one every 1.88 years.
I continue to recommend for the next few months that you do NOT get caught-up in daily ups and downs, as I believe the markets will overreact to good and bad news as people attempt to glean any hint at future trends. With attractive rates on cash and volatility potential, I encourage keeping some extra cash available in portfolios to buy long-term potential amidst short-term panics. Use fear to your long-term advantage. So in summary, know what you own and why, reexamine your investments to see if anything fundamentally has changed, and use fear to your advantage. As Jony Diaz sings in his song “Breathe”:
I’m hanging on tight to another wild day
When it starts to fall apart in my heart, I hear you say just
Breathe, just breathe
Come and rest at my feet
And be, just be
Chaos calls, but all you really need
Is to just breathe
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