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What a week+. Before I get to the newsletter, some announcements:
For those of you in Vermont and New Hampshire, I will be on VPR Vermont Edition radio this coming Tuesday from noon to 1 PM, along with Moshe Lander, an economist at Concordia University in Montreal. We will be discussing the current situation, he from the macroeconomics side, and me from the investing side.
If you live anywhere near Montpelier, Vermont or Middlebury, Vermont, we now have new offices open in each town. The signs are under construction and are going up shortly. Montpelier's One Day In July office is above Capitol Grounds, and Middlebury's is right next to the main bridge.
Background
So you know the relative context, Bloomberg published this:
There are some bright spots. For one, United States citizens in the past 10 days may have gotten their biggest economics lesson in history. Next up is a good article if you want to understand tariffs. CATO is a free-market think tank in Washington DC that has for decades fought against tariffs, in part under the mantra of "people who trade goods don't trade bombs."
https://www.cato.org/publications/separating-tariff-facts-tariff-fictions
If you are interested in the legal proceedings, Simplified Stationers will likely be the case to follow. There is an army of legal support lining up behind this Pensacola business owner, initially from conservative groups but expectations are that this is going to be a bipartisan effort. More info here and here.
Generation X, of which I am a member, has lived its adult life bouncing from one crisis to the next. I have now invested through the dot-com crash, 9/11, the global financial crisis, Covid, and tariffs. A substantial amount of learning from the prior four crises is already embedded in client portfolios, as well as the structure and behavior of the firm. Each crisis adds new angles, which we are studying.
I am going to give you a few ways to look at this that are hopefully different from what you are reading online.
1. The first thing you have to do to be a great investor is box out your emotions. For example, it's hard to believe, but if you look at the 1-year total returns of the S&P 500, it is actually mid-single digit positive. In Vermont, when it's 40 degrees in late October, it feels much colder than 40 degrees in April. The direction from which you approach the point you are at matters to your outlook.
2. Related to #1, I am surprised how many investment advisory firms are already out reconfiguring portfolios and altering strategies. This is a terrible mistake and a sign of an inexperienced investor. If you don't have the plan designed correctly prior to these periods, and the confidence to stick with it, that's a problem. The news should not be driving your plan. This doesn't mean we don't tweak portfolios sometimes in these periods when clients come to us with specific concerns or anxieties.
3. The business situation is likely worse than the tariff chart above implies. This is due to the fact that it's not just the rapid price changes, but the fact that no one in the business world has any ability to plan at this point. So the reaction is to batten down the hatches, and this then spreads to consumers. The wild swings you see in the market reflect this uncertainty. (Remember that in theory market prices are just current values of future expected corporate profits. In reality: plus a lot of emotion thrown in.)
. On the bright side, people working in and running businesses are creative, and they have to survive. The U.S. economy is probably the most dynamic in the world and quickly everyone is trying to work around this self-imposed shock. So you have a large number of people working together to mitigate the situation. This includes a long list of powerful people, from different political parties, who are now unified on the same team. I have to say, that feels good.
5. A positive takeaway educationally from this will be that people realize that good markets are made up of transactions between consenting parties, with both parties willing to the arrangement. When a third party interferes, as in the case of a central-planning tariff, things go sub-optimal fast. You can apply this thinking to a lot of scenarios in economics, business, government, and life.
6. 22 years ago Warren Buffett proposed the idea of a market-based internal credit system that would smoothly reduce the trade deficit, likely without conflict. https://fortune.com/2016/04/29/warren-buffett-foreign-trade/
Finally, I could have included graphs here showing all of the crises over the past century in the stock market, and how well everything worked out, but I'm not sure that's helpful when you are in the moment. More helpful is trying to reduce news consumption. You will feel a lot better putting hard limits in place; we have a group of clients who have worked at this and been successful. Just try to redirect your thoughts and energies to local projects, your garden, helping someone, playing golf actually on the fairway, getting better at your job. Things you can control.
For my son's confirmation, his sponsor (who happens to be a client here), gave him a plaque that says "You are what you think about." We keep that plaque next to our kitchen table. Keep that in mind when you feel tempted to read more news.
Dan Cunningham
1. S&P 500 total return source: Stockcharts 4/10/24 - 4/10/25: 3.5%
2. Graph source: Bloomberg: 4/10/25
To get right to the crux of the matter, let's go over some ways to process financial news and anxiety when every illuminated surface now seems to have a stock ticker.
The first thing to remember is that as an investor, you are not buying a super-charged CD. Markets do not go up in straight lines and also have returns better than something like a savings account. There is no financial system in history that has offered that (though lots of salespeople have!), as the return would be high and the risk low. Historically you have gotten better results over years and decades by accepting volatility. (If you want the equivalent of a CD but not super-charged, we can do that, but your after-tax result will approximate inflation. So you're not really making any money.)
Today the S&P 500 is back to where it was in September. And this is a critical point: Assuming equivalent corporate earnings, as equity markets decline, they get safer. They do not get riskier as they go down, they get riskier as they go up. Because equity markets rise when the news is good, you are paying more money per unit of corporate earnings, and while this feels good, it is quietly riskier.
The problem is that human beings are not wired for this. Emotion drives decisions. For example, only in a few periods since 1987 has economic bearishness polled as high as it is today:
Source: The American Association of Individual Investors Sentiment Survey as of 3/6/2025.
Note that bearish spike points historically have coincided with some solid buying opportunities: early '90s, the '08-'09 financial crisis, December 2018, Covid, and 2022.
On the contrary, in mid-2021, which was a banner investing year, a poll came out that people expected 17.3% returns above inflation, a near-mathematical impossibility! But the human brain maps recent events forward in time. What happened next? 2022, which was one of the worst investing years in four decades.
The takeaway point: media-driven emotion has no predictive ability and will not help you as an investor.
Our clients generally own indexes, and in the stock indexes, those are real businesses under the hood. While the price of those businesses varies, it almost never matches the real value. The price can be too high, and it can be too low. The beauty of the market is that it just takes the average point of hundreds of millions of daily investor opinions on this question. Over time the price will be close to the value, but not exact.
Modern markets are intensely democratic machines (1). No one can control them; they are pure voting systems. Unlike many other areas, you don't have to be in a position of power or brand to make a lot of money swimming against the tide. If you think you are right and everyone else is wrong and you are in fact right, you will make a lot of money. And the numerical earnings of businesses will be the judge, so you will get a fair grader.
As a firm, One Day In July is structured from the bottom up to mitigate emotional impact of news on the investor. This would be a difficult structure for competitors to copy, as it has taken a long time to implement, and it is designed deeply into the firm. But we see the news media and the emotions it creates as one of the biggest risks for the investor, and we are paid to remove risk that doesn't add return.
Though I can't do this for work due to my job, on a personal level I have started to look for ways to hedge off news risk. I found this engineer, building a dot-matrix printer that prints out the headlines once a day, like an old AP news terminal.
"But you must watch something!" you say. All right, all right, I'll give you a little peek.
1. First, rail car loadings. These are looking healthy.
2. S&P 500 dividends have been rising.
3. U.S. Treasury bond issuances. On Wednesday the U.S. government sold $39.7 billion in a standard auction. The bid-to-cover ratio was 2.69, which means there were 2.69 offers for each bond sold. This is above 2024's average of 2.53. There is still strong demand for U.S. debt in the immediate term.
Dan Cunningham
1. I say "modern markets" because early markets weren't so fair. Andrew Carnegie and Cornelius Vanderbilt, among others, made arguably the majority of their money through what today would be illegal insider trades.
Look at this beauty I found.
The abstract:
CIOs [Chief Investment Officers] and consultant-advisors oversee about $10 trillion of institutional assets in the US. They have underperformed passive management by one to two percentage points a year since the Global Financial Crisis of 2008 (GFC). They rely heavily on expensive alternative investments; and the more they have in alternatives, the worse they do. Large institutions use scores of managers, making them high-cost closet indexers. Inefficiency abounds.
The red color above is mine. Long-time readers of this newsletter know I don't use highlighter much, but I couldn't help myself.
So institutional firms that have large budgets for investment advice as a group did not outperform passive management. The key takeaway is that more money does not lead to a performance edge.
Also, good luck when someday they have to close out those alternative positions and mark them to market in the process. Some of our clients have discovered, as those positions get closed out, that the bids come in lower than recorded on the statements.
In credit to the institutional managers, their arguments are etymological showcases. Words like "alternatives," "color," "tail risk," and everyone's favorite: "synergy."1
What is going on here? All this high-powered talent and they can't outperform? All those years studying through school, getting the B- on the organic chemistry final and pulling the panic ripcord, switching to a finance track from pre-med but ending up at Chase instead of Goldman, eventually realizing that's ok but brushing up on the vocabulary (see above, I'm working on it) to get an in-house institutional position because it's going to be less pressure and also easier on kindergarten drop-off days? But then you become an institutional manager, and you can't beat the plain-vanilla index? What?
The problem they are trying to solve is exceedingly difficult. At its core, you can be correct in your investment thesis, but perhaps not correct enough. There are so many variables swimming around that you have to weigh them all accurately, an impossible task. The human mind likes stories and theses, and it attaches to storylines in securities analyses that sound reasonable. But it is all of the other storylines that you may not have weighed correctly that can overwhelm the choice you made.
There is another difficulty I have noticed over the years. A lot of securities analysts have been doing that job their whole lives. Many of them haven't been in operating businesses. And that's a disadvantage. For example, in high school I worked at CVS as a floor stocker. I would have to go through hundreds of little tubes of lipstick and repack the ones that didn't sell by a certain date. This was eye-opening to me one because I didn't know you could theoretically come up with that many variants of red, and two because I couldn't believe how many problems resulted just from this repack operation.
I could see the cost related to that complexity. When something like Trader Joe's shows up, with their simplified model versus Kroger, I intuitively know all the steps on the floor that no one has to do. In theory you can see this on paper, but sometimes doing the job itself, or experience in an industry, gives you insights that you believe more strongly.
Before signing off, I'll note that I'm not sure that an analyst with industry experience would matter anyway. The markets are so efficient that the benefit in today's world might be instantly competed away, and the passive indexes would still outperform you.
Dan Cunningham
1. I love the term "synergy." In 2001 Smucker's bought Jif Peanut Butter from Proctor & Gamble. The investment bankers were crowing about "the synergy between the peanut butter and the jelly." I thought "this is a job I can always do as a backup if needed."
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