Stock markets around the world are swooning as investors digest the full impact of Trump’s punishing tariffs.
With it comes the realisation that a new era is emerging – one where protectionism trumps (pun not intended) free trade.
The NASDAQ Composite Index entered its third bear market in five years while the Dow Jones Industrial Average suffered a correction, falling by nearly 15% from its all-time high.
Singapore was not spared the carnage.
The Straits Times Index (SGX: ^STI) fell 7.5% at the close on 7 April, one of the most brutal days since the Global Financial Crisis back in 2008.
With bad news swirling amid waves of uncertainty, should investors buy, sell, or hold their shares?
Tariff havoc
The imposed tariffs have an immediate impact of raising costs for businesses all across the globe.
Higher taxes result in higher costs across the supply chain which businesses can either absorb or pass on to their customers.
If businesses choose to absorb the higher costs, they will report weaker profits and lower cash flows.
Passing the costs to customers also has negative consequences.
Higher prices will deter customers from purchasing, thus adversely impacting sales volume and revenue.
Lower revenue will, in turn, also result in lower profits for the business.
Hence, there is no escape for the majority of businesses that are exposed to these tariffs.
The tariffs could also tip the global economy into a punishing recession as economies slow and people spend less.
Don’t sell in panic
Despite the alarming headlines and the sea of red, the last thing you should do is to sell all your stocks in a panic.
It’s understandable to feel fear and be worried about your portfolio when such events occur.
Do remember that volatility is an inherent part of investing and there have been instances of severe volatility during the COVID-19 pandemic and Global Financial Crisis.
Yet, the world managed to get past these crises and the best companies emerged from them.
Businesses with a robust business model and a strong market position are in a good position to raise prices without adversely affecting sales volume.
Instead of selling all your stocks, you should examine which are impacted by the tariffs and whether they can adjust and adapt to this new world order.
If your original investment thesis has not changed, this could be a great time to hold or even buy more shares.
Reign in the greed
On the flip side, some investors may smell a bargain and decide to go all in, believing that this is a “once-in-a-lifetime” opportunity.
Instead of fear, these investors could be overly greedy as they seek to snap up perceived bargains amid the bombed-out landscape.
This scenario may also be risky as you could be understating the risks of these tariffs and over-committing before understanding the situation.
There is also the risk of running out of cash should the market continue falling, thus depriving you of the opportunity to invest at even more attractive valuations.
Keep calm and assess the situation
Selling in panic and buying like there’s no tomorrow are both unwise.
What investors should do is to calmly assess the situation before pulling the trigger.
The idea is to be aware of the risks associated with your stocks and be in a better position to understand the tariffs’ implications before you either buy or sell.
By doing so, you will have made an informed decision, rather than an emotional one.
Get Smart: An opportunity of a decade
Admittedly, such market crashes do not happen often and represent an opportunity of a decade.
However, reacting emotionally never did help any investor.
Instead, look at businesses that have strong business models and are paying consistent dividends.
These include blue-chip stocks that have a long track record of weathering different economic cycles and events.
Assess the situation and analyse the stocks you own and plan to own.
Once you have done so, you are in a better position to make a wise investment decision.
Our FREE report, ‘7 Singapore Blue-Chip Stocks That Can Pay You for Life,’ reveals stable, dividend-paying stocks with a history of strong returns—even in uncertain markets. Get insights on Singapore’s most dependable blue-chips and see how they can offer you steady income. Download it today to start building your portfolio with confidence.
Follow us on Facebook and Telegram for the latest investing news and analyses!
Disclosure: Royston Yang does not own shares in any of the companies mentioned.
