May 2025
IN THIS ISSUE
Learn from Dorsey?
My son likes Trump’s tariffs
President Trump’s tariffs dominated markets again this month. And as expected, economic realities are redirecting the President’s fickle tariff policies.
In last month’s segment Trump’s political rhetoric meets reality, I predicted that political pressures in response to Trump’s fundamental misunderstandings of economic realities will lead to trade agreements with few substantive impacts on the key metrics of domestic manufacturing, employment, or GDP.
This seems to be the case with the Trump Administration’s first “breakthrough” trade agreement with the United Kingdom announced earlier this month. The substantive details have yet to be worked out though, and analysts are skeptical (US-UK trade deal: How good is Trump's deal for America?):
Here is Stan Veuger, senior fellow in economic policy studies at the American Enterprise Institute:
"The actual substantive items that they negotiated are pretty narrow," … "In some sense you could say they basically took the status quo, made marginal changes and called it a deal."
Mr Veuger noted that Trump in his first term was similarly willing to declare victory on deals with China, Mexico and Canada that experts likewise said would have narrow impact.
"I think for Trump the goal really is to have a deal and it doesn't really matter what it looks like in the substance, " he said. "It tells me it's not that hard to get to a deal but it also tells me there's not that much room to make changes."
And here is Lewis Lukens, former acting US Ambassador to the UK and deputy chief of mission to the US embassy in London during part of Trump’s first term:
"This is a good deal for American farmers ... but it is at the end of the day a fairly narrowly-focused framework," … "It gives Trump a political victory with not too much really to show behind it."
Of course President Trump has not yet come to grips with the economic realities of his tariffs. But Rob Armstrong from the Financial Times has, coining the acronym TACO for “Trump Always Chickens Out” to capture his policy approach of rescinding tariffs when the economic damage becomes too close to reality. Of course Trump says he's not 'chickening out' on trade: 'It's called negotiation'. No, political and business leaders negotiate all the time without employing Trump’s on-again-off-again policy changes.
But aside from the implications for investment managers trying to navigate through this turbulence, Trump’s tariffs created a really important learning opportunity for my son.
My son is in 6th grade, and through many years of birthday money and chores commissions he has saved a few hundred dollars to invest. Because nobody should ever invest in products they do not understand, he completed a series of lessons on How the Market Works and learned about the advantages of passive indexing (advantages which, as a reader of Likelyhoods, you all know well).
So, we opened a UTMA account and he made his first investment… in Fidelity’s S&P 500 Index Fund (FXAIX)... on April 7th… just one day before Trump paused his reciprocal tariffs on April 8th… on which the S&P 500 rose 9.5% in that one day… and my son’s first investment is now up 17.0% in two months.
Source: TradingView.com
What is the lesson to my son???
Well, as I must disclaim, PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
Also, as I wrote in the segment GameSkill in January 2021:
The worst possible outcome for a new investor is to get lucky on their first trade.
Four years later, that worst outcome is my son’s first trade. Why is this outcome bad? Because many investors have fallen victim to the fundamental attribution error, crediting their “skill” for their winning trades but “bad luck” for their losing trades. When investors falsely believe they are skilled (a Type I Error), they are more Likely to increase their investments in subsequent trades, and their “luck runs out” in positions in which they have more money at risk.
That’s why I have spent the past month calling his trade lucky. Showing my son what would have happened if he made the same investment before COVID, the Financial Crisis, the Dotcom Bubble, or Black Monday. And preventing him from checking his account balance more than twice per month (Why You Shouldn’t Check Your 401(k) Balance Too Often).
Fortunately, my son’s trade is not as profitable as Jaydyn Carr’s, the 5th grader whose mom bought him 10 shares of GameStop at $6/share in 2019, then the meme stock mania of 2021 netted him a tidy $3,000 profit. GAMESTOP’S PAST PERFORMANCE IS DEFINITELY NOT, IN ANY WAY SHAPE OR FORM, INDICATIVE OF FUTURE RESULTS!
Investing is a long game - just like raising a child. The lessons my son learns now about investing, such as distinguishing luck vs skill, will be MUCH more valuable than the 17% gain on a few hundred dollars from a lucky Trump tariff reversal.
ONE MORE THING…
Learn from Dorsey? Now Robert Kiyosaki is predicting hyperinflation in America. I wonder if he asked Jack Dorsey first? ‘May God have mercy’: Robert Kiyosaki warns of hyperinflation in America — says ‘millions, young and old’ will be ‘wiped out financially'.
The information and opinions contained in this newsletter are for background and informational/educational purposes only. The information herein is not personalized investment advice nor an investment recommendation on the part of Likely Capital Management, LLC (“Likely Capital”). No portion of the commentary included herein is to be construed as an offer or a solicitation to effect any transaction in securities. No representation, warranty, or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained herein, and no liability is accepted as to the accuracy or completeness of any such information or opinions.
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