Events of the past several days can make following Rudyard Kipling’s advice incredibly challenging.

Global financial markets have reeled since President Donald Trump’s tariff announcements with most risk assets seeing dramatic losses.

The S&P 500 is down 11%, Germany’s DAX is down 11%, Japan’s Nikkei is down 13%, Hong Kong’s Hang Seng is down 15%, WTI crude oil is down 13%, Bitcoin is down 4%, and even gold is down 5%.

Most risk assets are nearing “bear market” territory, which is defined as down 20% from recent highs.

Reactions to tariffs were swift and powerful with market losses totaling almost $6 trillion over just the past three trading days.

About the only good news is that U.S. Treasury bonds are UP with the 10-year up 4% as investors seek safe haven.

Two important caveats as I write this column on the afternoon of April 7:

• Events are incredibly fluid, so things could look different by the time you read this.
• My comments are intended to be financial, not political.  

Despite the old joke about all economists having two hands (so they can cover both bases by predicting one thing while noting the alternative “on the other hand”), it seems that many economists argue that tariffs should be viewed as a last resort in trade negotiations.

Perhaps that’s where the Trump administration feels the United States is — with plenty of evidence that many of our trading partners have been unfair, and some outright aggressive in dealing with America.

It is generally viewed that tariffs, when used as negotiating tools and used for short time periods, can produce favorable results. But history would argue that there are no winners with long-term trade tariffs.

Warren Buffett described tariffs as “an act of war” and “over time, a tax on goods.” He suggested that consumers will face higher prices as a result of tariffs, joking “I mean, the tooth fairy doesn’t pay them.”

History is littered with bad outcomes from tariff wars. Arguably, the worst example was the Smoot-Hawley Tariff Act of 1930, which many economists believe deepened the Great Depression as trade partners retaliated with tariffs of their own.

It appears governments, businesses, investors and even the Federal Reserve are taking a wait-and-see approach to all of this.

Schwab’s chief investment strategist, Liz Ann Sonders, noted that the economy and markets are “in a time out” as consumers, businesses and governments wait and see what will actually happen with tariffs.

But fears about both rising inflation and recession are already increasing.

The CNBC CFO Council Survey last weekend found that two-thirds of company leaders see recession coming this year or next.

JP Morgan more than doubled its recession expectation to 60%.

Morgan Stanley noted concerns about “stagflation” — the potential combination of inflation and recession, bringing back memories of the 1970s that saw an era of high prices, high interest rates and high unemployment.

Mohamed El-Erian, president of Queen’s College, University of Cambridge and a highly regarded economist, opined on CNBC about two potential outcomes of Trump’s tariffs:

• That other countries will acquiesce when faced with big U.S. tariffs and reduce unfair tariffs against the United States.
• We will enter a period of a tit-for-tat global tariff war.

El-Erian suggested he saw a 50/50 chance for each possibility.

That seems to be a reasonable summary of what may occur—and what the financial markets are trying to figure out.

We’ve actually seen a little of both — with China immediately responding with its own new tariffs, but negotiations with other countries already in play.

In a perfect world, countries would all negotiate for true free trade — and the trade war would end. But I’m not too sure that’s what will happen, so will we all need to wait and see — and hope.

But as investors, hope is not a plan. The incredible pace of market declines is downright scary, and the lack of clarity about tariff plans and their economic impact make the future tough to predict.

The fact is that accurately predicting markets is generally a fool’s errand, and that trying to “time markets” can result in very expensive lessons.

I’m reminded of the quote from the late Charlie Munger (a Montecito resident and Buffett’s longtime business partner), “Waiting helps you as an investor — and a lot of people just can’t stand to wait.”

Or as Vanguard founder Jack Bogle said, “The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly 50 years in this business, I don’t know anybody who has done it successfully and consistently. I don’t even know anybody who knows anybody who has.”

So, perhaps taking a wait-and-see approach like the Federal Reserve is doing makes sense. 

And while the cause of global stock selloffs can be different, the fact is that market corrections are just part of investing.

In a March 2024 column, I talked about navigating scary markets.

Here’s what I wrote then: “Over the years, I witnessed the power of fear first-hand. The worst time was during the Great Recession marked by the failure of Lehman Brothers. The S&P 500 lost more than 50% of its value from Oct. 9, 2007, to March 9, 2009.

“I had grown men in my conference room literally in tears as the news each day got worse, and their account balances kept falling.

“Some wanted me to ‘sell everything before they lost it all.’ My advice to ‘stay the course and ride out the storms’ was incredibly difficult to give — and tough medicine for clients to take.

“But history has shown time and time again the merits of this advice as markets eventually rebound after times of trouble.

“On March 9, 2009, the markets did in fact begin to rebound despite continued bad headline news. By mid-May, the S&P was up more than 30% — and had risen more than 60% by year-end 2009.

“Can you imagine the financial nightmare that investors faced if they sold during the meltdown and missed a strong recovery?”

It is worth noting that despite the recent market declines, stock prices are still elevated above long-term averages.

Billionaire Leon Cooperman, who built up Goldman Sachs’ asset management division, noted on CNBC that “the market bottom is not in yet with concerns that Trump has decided a recession is the best way to lower rates.”

In a December column, I talked about stocks being expensive with the S&P 500 selling at more than 27 times earnings compared to an average of 18 times earnings, and the NASDAQ selling at 48 times earnings versus an average of 20 times.

At Monday’s close, these P/E ratios have fallen to about 19 for the S&P 500 and 20 for the NASDAQ as the “P” (price) dropped significantly.

But add concerns about the potential impact of slower economic growth (and even recession) on corporate earnings (the “E), and stocks become more expensive again.

Bottom line: There may be more pain ahead before things eventually turn around. But my crystal ball isn’t any clearer than yours. 

In my experience, there aren’t very many investors with all-stock portfolios. Many, including yours truly, hold a mix of stocks, bonds and cash that is designed to reduce (not eliminate) risk.

Right now, that diversification is paying off. Keeping enough money in cash to meet short-term needs (typically viewed as enough to cover spending for 3-6 months) has always made sense, and is pretty nice with money market funds paying about 4%.

Maintaining a prudent allocation to high-quality bonds can provide protection against a turbulent stock market, as we’ve seen the past few days. And after a long period of near-zero rates, yields above 4% look pretty nice, especially given their safety.

This can be a good time to be sure your asset allocation is truly consistent with your financial goals, time horizon and tolerance for risk.

And while the stock market may have farther to fall, staying invested has long proven to be a prudent strategy for long-term investors.

Diversification can help, but not eliminate, volatility. Just like the challenges of trying to time markets, successfully choosing winning asset classes has always proven tough.

The chart at the top of this column is one of my absolute favorites, courtesy of Russell Investments, which highlights the value of diversification with figures representing index benchmarks for each asset class.

Note how asset class winners/losers change frequently, and usually without warning.

If you don’t believe me, try covering up the left part of the chart and then guess what will work best the next year or two based on the past.

For example, would you guess that commodities would produce strong double-digit returns in 2021 and 2022 after bottom-tier results the previous two years? Or that U.S. small cap equity would go from -11% in 2018 to +25.5% the next year?

I’m betting you’ll find pretty low success in trying to predict future winners and losers.

Now, try to guess what the rest of 2025 will bring. Will U.S. large cap stocks do a “three-peat” — or will tariffs take a toll on returns (no pun intended)?

Without a crystal ball, it can be sensible to spread your bets across multiple asset classes, knowing you won’t get the highest return but also not the lowest.

So, it seems wise to take Kipling’s advice and try to “keep your head when all others about you are losing theirs.”

During the Great Recession in 2007-2009, I advised clients to “turn off the TV and take a walk or spend time with family and friends.”

For those of us lucky enough to live in Santa Barbara and with forecasts of sunny days in the 70s, that seems like pretty good advice in these tumultuous days.