Well, there is certainly no shortage of material to write about. In this episode, I will discuss the concept of volatility, what it means, and the opportunities it creates.

Firstly, when we refer to volatility, we are referring to the market’s ups and downs as it reacts to sudden swings in sentiment. The two greatest sentiments are ‘fear’ and ‘greed’, and market sentiment oscillates between the two. As an Investor, you need to welcome volatility as it produces opportunities for us and our model managers to take advantage of what is known as market mispricing. More on that later.

Putting it in context and referring to the ASX 200, we can see that volatility hasn’t been that high over the last four years.

The Trump regime has engaged in a significant economic experiment in which all Western nations are economic players. The experiment works like this – how does the USA massively reduce its public debt, curb immigration, incentivize the animal spirits of American business, lower the $US and allow US companies to export more while trying to avoid unemployment rising in the various constituencies that elected you in the first place? It’s a massive task, and all of it is being attempted in the first two years of this new administration while they control both houses.

Playing out, the Trump administration has embarked upon serious cuts to the Federal Public service, and in the short term, at least embarking on tariffs to create the environment to encourage more production in the USA and essentially to bring business home to the US. The US Treasury Secretary and the President have both admitted with these changes, there will be some short-term pain – read recession while they ‘detox the economy. Unfortunately, the tariff plays, and we have yet to see whether that is a short-term or longer-term play (difficult to tell with Trump 2.0).

What can one expect, and this is only an educated guess? The risk of rising unemployment and rising costs (inflation) in the US is a real possibility. Aggressively implemented, this may also lead to rising interest rates and, with it, a recession. During this period, markets will reset in anticipation.

Where are we positioned?

We already have many of our portfolios positioned defensively from last year. We had a strong expectation that markets were high, too high, and priced for perfection. We took profits in the latter part of last year into January.

At this point, we are poised with cash reserves and defensive positions to take advantage of any technical corrections that may occur. A correction is 10% or greater, and markets have been moving that way. We prefer a 15-20% fall in markets to know that we are getting value.

Watch this space.

Please feel free to reach out if any of the points discussed have raised interest.