I’ve decided to allocate the rest of my cash position. I don’t have access to after-hours trading on my brokerage account, so I cannot place these transactions until tomorrow morning. Still, I wanted to send this tonight, considering the heightened market volatility today. The chunk represents roughly 2.5% of total holdings and will be placed into the following names tomorrow morning:

Those will be the only three changes compared to the last portfolio update.

The tariff news yesterday was, I think, worse than most expected. Notable items include a 20% tariff placed on the EU and a 54% aggregate tariff placed on China (34% in addition to existing 20% tariff). Canada and Mexico were interestingly not part of the reciprocal tariff announcements, which is a small positive.

Despite the negative surprise, nothing about my macro view sent last month has changed. This was always going to be an environment of rapidly changing news and a need to inch into holdings slowly. That’s what I’ve done.

Yes, the import taxes announced today can slow down earnings growth for some companies if they remain. Yes, that weakness could spread to the consumer and overall economy if these policies persist for long enough. And yes, that would impact near-term earnings growth. Still, there are plenty more headlines coming as the situation remains highly fluid. There’s a reason why countries have 7 days to respond rather than these taking effect in real-time. And now, I now think any future surprise from those headlines will be positive from here.

I just see too many reasons for a more favorable resolution to come before this trade war leads the world into a deep global recession. The strong incentives for all nations involved still point to lower tariffs and higher stock markets. I do not want to be hoarding cash during a time when things can change for the better in 5 seconds when everyone is assuming the worst is now perpetual. I also do not want to sharply change because I think the next few months may be rocky. I invest with the goal of owning companies for several years, not several weeks. Just like the index-level declines have been rapid, the snapback will be too. When will that come? Not sure, and I will not try to perfectly time it. I am simply confident that reducing the artificial headwinds in place can have a profoundly positive impact on markets.

And finally, it’s worth noting that the current administration loudly talks about being overly aggressive in negotiations to win concessions. To me, this is that. India has already announced willingness to reduce tariffs while Vietnam has already begun to reduce theirs too. Israel eliminated all of their tariffs.

Do I like or dislike the administration’s approach? That doesn’t matter. I just think financial markets are panicking now and deciding to ask questions later. And I think this chaotic period is still to be slowly, methodically, dispassionately taken advantage of.

While it is fully possible that there’s more downside ahead before skies clear, I think it is time for me to be greedy.

I want to buy companies when everyone assumes tariffs are permanent, inflation will soar because of them (despite what the Fed says and despite what happened last time in 2018) and economic growth will plummet too. I want to buy healthy companies at increasingly compelling multiples, with sizable margins for safety and with forward estimates that I think are either safe or mostly safe amid new headwinds. I want to buy when others are fearful.

Am I having fun right now? No… No I’m not. I am human. Despite wanting to opportunistically take advantage of better deals for thriving companies, doing so doesn’t feel amazing in real-time. It’s not comfortable… but “being greedy when others are fearful” never is. I am confident markets will see new highs. And while that timing is entirely uncertain, what is certain is that I’ll own much larger stakes in healthy companies… and I’ll look back at days like today with a “wow that sucked” and a “glad I did that.”

With all of this said, there is currently no excess cash in the portfolio. If markets continue selling off, I want the flexibility to add to my favorite names. There is a good chance that I consolidate my 20 stock portfolio into my highest conviction holdings (like I did with last week’s Disney exit). Here’s how I group current holdings to give an idea of where things stand:

Consolidate Into List:

Don’t Add or Trim:

Source of Cash:

Lululemon would be the next equity source of cash. It makes nearly 50% of its products in Vietnam and that tariff rate is a whopping 46%. For context, worries surrounding today’s press conference were based on a 25% blanket tariff on everything. That was seen as the bad outcome. 46% is a lot worse for Lulu specifically. Even if I’m cautiously optimistic that tariffs will come down in the coming weeks, if I’m wrong, this gets hit harder than any other holding. Through no fault of leadership or the company, this policy makes the relative risk/reward slightly better for everything else I have vs. this company.

For Nike, Crox, On Running, and pretty much every shoe and apparel vendor, the same is true to some extent. These companies rapidly worked to shift supply chains out of China and into places like Vietnam. This will clearly weigh on that sector’s margins heavily and it’s very unclear how much weakness each of them baked into their forecasts. For other sectors that I don’t focus on, like automotive, where there’s a 25% tariff, the same is true. It’s probably best to focus on things like software, fintech and areas not reliant on large import/export operations. These sectors are delivering significant multiple contraction, just like sectors that will actually have to pay the tariffs. They should fare relatively better for as long as this lasts. They should also have similar levels of upside if it doesn’t last. Better risk/reward in my opinion.

Aside from Lulu, I’ll never rule out other stock sales, but that’s not currently on my radar. I am determined to earmark disposable income for the brokerage account. That’s because I believe in the (often stressful) U.S. stock market as the best wealth compounding machine on the planet. I am determined to fixate on fundamental quality at a fair price (even with a bit of room for profit estimate declines due to tariffs). I am determined to stay the course.

Performance Update:

The performance chart below doesn’t reflect about 1% of outperformance in today’s session. It also doesn’t include what will likely be a day of material underperformance tomorrow. Based on current prices, the compounded annual lead vs. the S&P 500 will probably fall from 10% to between 9%-10% after tomorrow’s session.