Tariff Impact Review, Taking Action and Inaction To Fortify Sleep Well
9 businesses are well-insulated, 1 is a key beneficiary, 1 is up for trimming. A special offer for loyal readers.
If history is a guide, the stock market crashes every few years.
And it always recovers.
The caveat is that it only applies to high-quality businesses. Low-quality ones may never return. For example, a company on the S&P500 index has an average lifespan of just 16 years in 2024.
Market changes will shorten the life of a company on the index. The current tariff war will churn out many of them.
So there are a few things you can do today.
Ensure you own resilient businesses with plenty of buffers and redundancies.
Don’t panic-sell; all businesses will suffer, but unequally, providing opportunities.
Don’t panic add, just because a stock is cheaper! Weak businesses may not recover.
Take the special offer at the end of this section.
We have 19 sleep-well businesses and are invested in 11.
In the last few days, I have reevaluated them and found nine are well insulated from tariff woes, one is a key beneficiary, and one should be cut.
Before we do that, let me remind you that we have experienced many profound crises. The 55% crash in 2008 or the 38% fall in 2020 makes the current 18% decline of the S&P500 small. But since 1870, the market has always recovered and will reward your patience—if you know what you own.
Another caveat is that the current stock market sell-off is likely due to an effort to rebalance the US trade deficits and reindustrialize (reshore manufacturing). It can end quickly or drag on for a long time.
For now, President Trump’s 10% baseline tariff for all imports and 25-90% elevated tariffs on targeted countries—the EU, China (and its backdoor, Vietnam), Japan, and Korea—show that the ‘rationale’ is that the higher the trade deficit against the US, the higher the tariff. The top six nations causing US trade deficits in 2024 were China, the EU, Mexico, Vietnam, Taiwan, and Japan, totaling a $1 trillion deficit. All face heavy tariffs. Meanwhile, the four trade surplus partners were Argentina, Brazil, Australia, and the UK. They will have softer blows.
Industry-wise, EV, manufacturing, electronics, e-retailing, and rare minerals industries are hit the hardest.
I expect more uncertainties, and it may require a few quarters of ‘slower global growth’ for leaders to work out a win-win scenario.
In the meantime, it’s our chance to improve the quality of our portfolio and build mental fortitude to stay the course.
Time in the market > timing the market.
Executive summary:
Nine of our sleep-well businesses have minimal direct impact from the tariff; four don’t have any operations in the US, and their competitors will suffer more in this challenging period.
Eleven niche leaders are incredibly resilient. All have been robust during past crises and agile when needed. Ten have a net cash balance sheet to buffer a prolonged trade war.
I see four worthy of addition, one worthy of trimming, and six not at an attractive price yet.
Let’s go over all of them.
Tariff Impact and Sleep Well Ownership Review
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