Last month, I got a number of requests to address the emotional difficulty of owning stocks through periods of extreme stress. I thought it was an important enough topic that I wrote a long piece to address the issue called Everybody Hold On. If you are a DKI premium subscriber, I’m asking you to re-read that piece now.
Recently, I’ve been getting more questions that are feelings-based, and I wanted to address the subject again. I want to emphasize that feeling upset, stressed, or anxious when markets are turbulent and you’re losing money is completely normal. What’s not “normal” is setting those feelings aside and focusing on your investment thesis yet, that’s the best approach. If you see one of your questions being addressed in this piece, please know that I am not being critical of you. All I’m trying to do is use the interactions I have with the DKI community to extrapolate out what most of you are feeling and thinking. I’m always here for you when you have questions.
It’s important to view individual positions and market hedges as part of one portfolio. A while back, I got a lot of questions about the hedge which was losing money at the time, but very few questions about individual positions where we were making money. Recently, I’ve gotten a lot of questions about individual positions that have traded down in the past couple of weeks, but nothing on the hedges which are now making money. It’s normal to focus on what’s not working. I’m just pointing out that it’s helpful to view the whole portfolio risk together.
Markets are swinging wildly and doing so on no news or incorrect news or news that shifts constantly. When President Trump announced the tariffs just a week ago, the market rose because the WSJ reported that the new tariffs were only 10%. The instant markets saw that it was 10% plus huge other tariffs, the NASDAQ lost approximately 6%. Earlier this week, markets swung on reports that the Fed was having an emergency meeting and then again related to a report that President Trump had agreed to a 90 day pause to negotiate tariff levels with other countries. Both reports were false.
Today, the market swung from down big to up big and back again multiple times. When I started writing this piece, the equity indexes were flat(ish). As I was writing, the President announced an increase in tariffs on China (bearish) and a 90-day pause in implementing other tariffs. The market immediately skyrocketed on news of the tariff delays and talks with the 75 countries who want to negotiate lower levels. And as I wrote this paragraph, those same indexes declined a few percentage points from the day’s highs.
We’re seeing massive volatility on news that’s often false, changes instantly, and can be reversed by a social media post by President Trump, Secretary Bessent, Elon Musk, or a few other primary characters in this trade drama. This is why I wrote a piece for subscribers over the weekend explaining why I wasn’t changing my portfolio exposure. It’s impossible to know what’s coming next. In that piece titled “Tariffs and Portfolio Exposure”, I wrote that the Administration was indicating they’d put the tariffs in place this week. I also noted the possibility that with 50 countries (now 75) contacting the White House to negotiate lower tariff rates, it was possible that the Trump tariff threats would lead to lower tariff rates all-around instead of the higher level feared by the stock market. Finally, I mentioned the possibility of a 90-day delay to negotiate, something the market would view as bullish. Right now, we’re getting a combination of options 2 and 3 which sent the market from down big to up huge on the day.
As described to premium subscribers, I’ve been dealing with this volatility by slowly and cautiously buying more shares of stocks in the portfolio that have been hammered to low levels in recent weeks. I’ve also been buying put options on the market when the $VIX is low and then trading out of them when the insurance gets expensive. When I do that, I realize cash profits and then buy another smaller position in new options at lower strike prices. This allows me to recognize profits on volatile trades while also keeping my overall portfolio exposure low. I disclose these trades to DKI subscribers in real time.
Some of the stocks in the portfolio are moving 10% or more intra-day. The difference between the high and low is that extreme. People often ask me the reason a stock is up/down. Sometimes, there’s a reason and the questions subscribers send are typically smart and thought out carefully. Other times, it’s just intra-day volatility. With some of the small-cap stocks, it can be a simple as one institution or hedge fund deciding to take a position or exit one.
At the risk of being repetitive, I’m in no way being critical of anyone who’s asked questions or who’s feeling unsettled by recent market movements. My goal here is to show how capricious many of these stock moves can be and to counsel calm. The intrinsic value of these companies doesn’t move 10% or 20% in a day or week. The stock market tends to over-react in both directions (particularly down). The best approach is to own stocks you like long-term and to control your exposures (using position sizing or hedges) for risk-control.
For subscribers: I’ll have updates out on 1-2 portfolio names in the next day.
For everyone: Alex Macris and I will be discussing tariffs tomorrow (Thursday) at 2pm Eastern Time. Subscribers can check the blog for Zoom details. For everyone else, we’ll be livestreaming to X and YouTube. Check it out and I promise you’ll see a different thoughtful side to the discussion than anything you’re seeing in the media.
As always, I encourage you to reach out at IR@DeepKnowledgeInvesting.com if you have questions.
Information contained in this report is believed by Deep Knowledge Investing (“DKI”) to be accurate and/or derived from sources which it believes to be reliable; however, such information is presented without warranty of any kind, whether express or implied and DKI makes no representation as to the completeness, timeliness or accuracy of the information contained therein or with regard to the results to be obtained from its use. The provision of the information contained in the Services shall not be deemed to obligate DKI to provide updated or similar information in the future except to the extent it may be required to do so.
The information we provide is publicly available; our reports are neither an offer nor a solicitation to buy or sell securities. All expressions of opinion are precisely that and are subject to change. DKI, affiliates of DKI or its principal or others associated with DKI may have, take or sell positions in securities of companies about which we write.
Our opinions are not advice that investment in a company’s securities is suitable for any particular investor. Each investor should consult with and rely on his or its own investigation, due diligence and the recommendations of investment professionals whom the investor has engaged for that purpose.
In no event shall DKI be liable for any costs, liabilities, losses, expenses (including, but not limited to, attorneys’ fees), damages of any kind, including direct, indirect, punitive, incidental, special or consequential damages, or for any trading losses arising from or attributable to the use of this report.
