Predicting a War Is a Mistake – Focus on This One Thing in Your Portfolio Instead

"There's no telling what President Donald Trump will do next... And there's no telling how the market will react to it... "

I've heard that sentiment a lot recently.

But we've never known those things. Investors are only remarking on it now because they don't like what the market is doing.

There are no true experts in the field of predicting the outcome of Trump's trade war... the missiles flying in the Middle East... or any other war, for that matter. Our only choice is to accept today's investing backdrop. Accept the uncertainty... and follow your own investing convictions.

That will determine how your portfolio fares over the coming weeks and months.

When folks ask how to "play" these wars, the only real answer is... don't. If you try it, you're just gambling.

Why Trade or Real Wars Shouldn't Change Your Long-Term Strategy

U.S. stocks are still in bubble territory...

The cyclically adjusted price-to-earnings ("CAPE") ratio is at around 36 today. That's within spitting distance of its third-highest peak of 37.9, reached in November 2024.

I suspect that this mega-bubble will eventually end like all the previous ones – with a huge rout in the stock market.

That means I'm skeptical about the S&P 500 Index delivering decent returns over the next decade...

But I still recommend sticking with your own long-term investing strategy, like we do at The Ferris Report. We recommend buying great businesses for the long term. The latest news about tariffs, trade wars, and bombs in Iran hasn't changed that.

Imagine you owned a farm instead of a stock portfolio...

Market fluctuations would mean less to you. Thinking about what your farm is worth every minute of the day would be pointless.

Economist John Maynard Keynes underscored this point by imagining a farmer behaving like a skittish stock investor in Chapter 12 of his must-read 1936 classic The General Theory of Employment, Interest, and Money:

In the absence of security markets, there is no object in frequently attempting to revalue an investment to which we are committed. But the Stock Exchange revalues many investments every day and the revaluations give a frequent opportunity to the individual... to revise his commitments. It is as though a farmer, having tapped his barometer after breakfast, could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week. But the daily revaluations of the Stock Exchange... inevitably exert a decisive influence on the rate of current investment.

That's the mistake many folks make.

I suspect recent uncertainty has led many investors to reevaluate their long-term holdings... Some have likely even sold their positions, based on the belief that the latest "current thing" will last indefinitely, or otherwise permanently impair the value of the businesses they own. In reality, they sold based on fear and uncertainty, not knowledge of the future of global events.

Be honest with yourself. When you're watching your stock portfolio lose 5% or so in a day or two, do you know where your emotions end and your rational thoughts begin?

So don't obsess about stock prices... You'll never have the conviction to invest through tough times by studying price action.

How to Protect Yourself From Stock Market Volatility

If you want to obsess about something...

Focus on understanding the businesses you own. Understand their revenues, earnings, cash flows, margins, balance sheets, investment policies, and returns on capital.

That will help you get to know yourself as an investor.

Even if you've been in the market for decades, you're still only human. Everyone with capital at risk in stocks will feel an undeniable pull on their emotions as the market rises and falls.

But as long as you're pursuing an effective long-term strategy – like holding great businesses for long-term compounding – there's no need to take any new actions just because the prices are moving around.

For example, one of my subscribers' biggest winners was beverage company Constellation Brands (STZ). The stock rose more than 600% over a period of about five and a half years. But we wouldn't have seen that gain if we hadn't held on to shares after they fell around 25% within the first two months of our initial June 2011 recommendation.

This holds true whether you're trading or investing long term. The best traders get their conviction from using consistent strategies and risk controls (like stop losses and position sizes). That's very similar to what the best long-term investors do.

So learn where you get your sense of conviction... and lean on it as this uncertainty plays out. That'll prevent you from making the all-too-common mistakes others make in hard times.

Good investing,

Dan Ferris

Editor, The Ferris Report