Whatever is produced in haste goes hastily to waste

“Whatever is produced in haste goes hastily to waste”

–Saadi Shirazi

Regardless of political affiliation, clients are watching the activity surrounding President Trump’s new administration and asking our opinion on a broad array of topics. In this update we’ll focus our comments on the actions most likely to have an impact on economic activity and the financial markets over the intermediate term. 

We believe the policy change with the greatest potential impact on the economy and inflation is tariffs. Over the last two months the saber rattling around tariffs has grown steadily louder and business capital spending has paused as management teams await the details. The ISM Manufacturing data for March, which was released this morning, indicates manufacturing activity is contracting. ISM new orders are lower as well. While we are hopeful that the President’s tariff announcement on Wednesday will remove some of the uncertainty, it will remain challenging for businesses to reorient their supply chains without incurring higher costs.  

In our yearend letter we cited tariffs, high stock valuations, and lingering inflationary pressures as our main concerns entering 2025. Stock valuations have contracted modestly, but we think there could be further multiple revision ahead. The companies owned in client accounts have lower multiples than the broader market. Additionally, businesses we favor generate excess cashflow so they should be well positioned to navigate any economic slowdown. During the quarter we trimmed our holdings in Apple, AIG and Arthur J Gallagher, and we added a starting position in Nvidia. The purchase of a small position in Nvidia is an example of how we are trying to take advantage of market uncertainty to buy an excellent company at a more reasonable valuation. It is currently trading at 22x earnings, down from an average of 36x earnings and we believe its chip technology is a durable competitive advantage. 

Finally, we want to remind clients that investing is a long-term exercise, and we strive to be responsible stewards of your money. During the first quarter our disciplined approach paid off handsomely as equity returns in client accounts gained on average 1% while the S&P 500 was down 4.3%. We are carrying larger cash balances than is typical, but we want to have funds available as opportunities arise. Thank you for entrusting us with your money and we look forward to speaking with you during the coming quarter. 

Sincerely,

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