Chief Investment Strategist Leon Wilfan of Lahardan Financial discusses how Trump’s recent tariffs should affect investment strategies.
In part, he recommends avoiding “typical cyclical companies, such as automotive and basic materials stocks,” and instead investing in companies “with recurring revenue streams generating a lot of cash flow,” because “they are less vulnerable to tariff wars and the global economic cycle.”
Seth Klarman’s Collective Wisdom: Risk Analysis Is The Key To Investment Success
Please note this article is based on publicly available information, however ValueWalk just received Baupost's 2018 letter moments ago and will have exclusive coverage shortly. Seth Klarman is widely regarded as one of the best value investors the world has ever seen. Over the past few decades, his hedge fund, the Boston-based Baupost, has achieved Read More
He recommends investing in certain 'trade-war-proof' sectors, including:
- Technology: Investors should favor IT service providers over hardware manufacturers. They are growing more quickly, have stronger balance sheets and more stable gross margins. Stocks like Microsoft, Alphabet, and Netflix.
- Health Care: Companies like CVS Health, LTC Properties, and Pfizer.
- Electric Utility: Companies like American Electric Power, FirstEnergy Corp, and PPL.
Q&A with Leon Wilfan on 2019 Recession Probabilities
By Kathleen Peddicord, Founding Publisher, Cashflow For Retirement
In May, the S&P 500 declined by almost 7%. That is remarkable, considering it had one of the best starts of the year in decades. I can’t help but wonder if this is a buy-the-dip opportunity. However, with the ongoing trade war and rumors of recession, it’s not a clear-cut choice.
Fortunately, I can talk these things over with an expert I trust. Leon Wilfan is not your usual Wall Street character. He’s a self-made, self-proven investor who has seen many bull and bear markets over his prosperous investing career.
Here’s what he said about today’s situation:
Kathleen: Leon, I saw the markets decline in May and was wondering if this is the right time to invest or the start of a new recession?
Leon: Your question reminds me of Warren Buffett’s famous quote, “Be fearful when others are greedy, and greedy when others are fearful.” Of course, you should be patient as well and always wait for the market to turn. “Don’t try to catch a falling knife,” is another famous investment quote to keep in mind.
That said, I do feel like the market is turning positive again and that the recession fears are overblown.
Kathleen: I remember you saying that a trade deal between China and the United States will happen. Do you still believe that is the case?
Leon: Yes, I believe both sides need a deal.
The Chinese economy has been weak, and Xi recognizes that sanctions are not helping the situation. Right now, Trump still has some negotiation leverage and can play hardball, but, as the U.S. economy weakens a bit, there’s going to be pressure on him as well to get some deal done. I think this could happen by the end of the summer.
Kathleen: This president is different from others. He sticks to his word, and he’s saying that tariffs are great for the economy.
Leon: Politicians say what their supporters need to hear, and Trump is no different.
Tariffs are never great for the economy. If you look at the past century, anytime any country imposed tariffs on another, both economies suffered. Presidents Hoover, Reagan, and Bush learned that lesson the hard way, and now Trump is doing the same.
Besides, anyone who thinks that current tariffs are great should talk to Midwest farmers and ask them how they feel about the situation.
These farmers are among those who voted Trump into office. If he wants them to support him in the 2020 election, he needs to appease them with more than just encouraging words… and soon.
Kathleen: Why then did Trump resort to tariffs in the first place?
Leon: If you’re the president of the United States, you can’t pass legislation by yourself, you can’t go to war by yourself, so what can you do to enforce your will on other countries? You can impose tariffs.
It’s a tool the president has found that he can use unilaterally to create leverage for his policies. I expect he’ll continue using it as a threat throughout his presidency and that the stock market will continue to react to each new tariff situation violently.
Kathleen: How should I invest given the stock market volatility?
Leon: During Trump’s presidency, the stock market has split into “haves” and “have nots.” The haves are companies with recurring revenue streams generating a lot of cash flow. The have-nots are your typical cyclical companies, such as automotive and basic materials stocks.
You want to be buying the haves, because they are less vulnerable to tariff wars and the global economic cycle. As you know, I recommend this type of stock in the latest issue of my True Retirement Wealth, and it shot up by over 10% in only four days.
Kathleen: Great advice as usual, Leon.
Leon: My pleasure.