SIMON BROWN: Be nimble during the Trump tariff tango

February started with a market sell-off on the news that President Donald Trump would be imposing 25% tariffs on Mexico and Canada and 10% tariffs on China.

Trump then backed down on the tariffs against Mexico and Canada, pausing them for 30 days. He did, however, leave the 10% tariff on China in place. This helped markets recover and, as I write, the US markets are back at the levels they were before the tariff announcement.

Ignoring the politics, what we’re seeing is increased volatility and that is likely to remain a key theme during Trump’s second term. He’ll throw around ideas and threats, following through with some and abandoning others just as quickly.

As investors we need a plan to navigate the next four years.

We must remember we’re long-term investors. Our timeline is measured in decades and ultimately a four-year second term will be a small part of our entire investment journey. So resist the urge to panic and sell on the first piece of news.

Sure, if the Canada and Mexico tariffs had been implemented, and they may still be, it would have had real-world impact such as a rise in US inflation, perhaps on US rates and potentially also US unemployment. This all sounds scary, but we’ve been there before. We saw all of the above in 2022 and it hurt parts of our portfolios but overall we survived, as did our portfolios.

I would also argue that having some cash sitting ready may be worth your while. The increased volatility may well create some opportunities in stocks as they collapse after a Trump announcement. Now, sure, the collapse may not recover as quickly as we saw after the tariff walk-back. But quality stocks at a great price are worth the wait even if it takes time to fully recover to their former glory.

For traders, caution is needed as you’re focusing on shorter-term moves. Here the advice is to stay close to the door. In other words, know your exit plan and if it’s hit, exit immediately. Don’t wait in hope, protect your capital at all costs.

I would also suggest that smaller trade sizes may be prudent. I am looking to reduce my trade size by up to half the normal size and risk. It’ll mean potentially smaller profits but, more importantly, smaller losses.

Traders often think volatility is great, and it is if you’re a successful swing trader. But for most, volatility just sees stops being hit only for the price to then move in our preferred direction.

Smaller trade sizes mean I can widen the stop-loss levels if needed and I’ll consider that on a trade-by-trade basis.

But the bigger picture is that what I have written above could have been written at any point as the ideas are more about prudent investing and trading rather than worrying about the president of the US.