These past few weeks have been a whirlwind to most investors. The tariff war initiated by the US has caused extreme volatility in the financial markets across all fronts – equities, bonds, rates, currencies, etc. The recent downturn, however, is nothing we have not witnessed before. In a not-so-distant past of just about 5 years ago, when COVID started spreading all over the world around Mar-20, asset prices have crashed in pretty much the same manner. And remember what happened next?
Many great investors, such as Pershing Square’s Bill Ackman, have said that market volatility is the enemy of short-term speculators, but the friend of long-term investor. When you invest as a long-term business owner, you would realise that different businesses certainly have distinct characteristics and each could thrive in quite different circumstances – trade war or not. Also, if you have a superior business, economic downturns can work in your favor, as all the smaller and weaker competitors would get wiped out. It is very rare for the intrinsic value of all things to collapse at the same time. As such, when market prices behave in such a manner that clearly exhibits extreme panic and a complete absence of logical thinking, it is an opportunity for the long-term investors to buy in at a bargain price. There was one thing I regret about COVID, and that is not to buy more.
Macro in Investing
Some might have thought my view is rather overly optimistic and completely disregards the role of macro in investing. Well, yes and no.
First of all, I am optimistic but not blindly. In the last 20-30 years, the world has seen so many extreme events unfolded – financial crises, conflicts, wars, natural disasters, COVID, you name it. Every time something happened, the market reacted. But after all that, the S&P500 still delivered 9-10% return on an annual basis. One company’s crisis becomes another one’s opportunity. The demise of a business allows capital and other resources to be reallocated to a better one. That is how capitalism works. That is why in the long term, market will still go up as long as the human race continues to progress. So when in doubt, zoom out!
Macro is always a complicated matter when things like GDP, rates, FX, government actions, politics, and so on are all intertwined. It is impossible to predict the movement of any factor at any particular time. I am always skeptical about those “economists” who like to put out projections that are never correct, but that has never stopped them from doing so. Because there is always a demand from their “clients” to be in the know, to foresee what will happen next. How many reports / posts / webinars have been published in the last couple of weeks offering views and projections about the potential impacts of US tariffs? I’d like to call these “macro therapy”, whereby, market participants look to an “economist” to talk about the things they can’t predict nor control, just for the ease of mind. I never wasted time on any of these. As the lyrics of one famous song: one more fff**ng tariff (post), I’ll be sick.
What about emerging markets such as Vietnam? Shouldn’t one worry about financial and currency risks in these markets? In my view, it depends on your investment strategy. For my investment program, which entails buying great businesses that can compound for the long term at a reasonable price, things such as inflation or currency become less important. Super-investor Monish Pabrai invested in a business in Turkey when the country’s inflation was 70-80% – a company that provides warehousing services. The asset was so uniquely strategic that not only were it able to completely pass through all the cost inflation to its clients, the company also charged its clients in USD instead of the then-depreciating Turkish lira. So you see, proper long-term investing is bottom-up, not top-down.
Coming back to Vietnam, one should only form a view on its long-term trajectory. For me, I am optimistic because of the country’s strong fundamentals – young and growing population that offers a long runway for growth, and an improving government with a consistent mandate. Trying to predict where, say, FX goes next is a fool’s errand, and I make no efforts in doing so.
Vietnam’s Equity Market
The Vietnamese market is probably among the most unique in the world. On one hand, most Vietnamese still keep the majority of their wealth in real estate / property, and generally do not consider equities as an asset class for long-term creation and preservation of wealth. On the other hand, 90% of equity trading volume is driven by retail investors. The disconnection is because most participants in the market are short-term speculators, who do not invest for the long run. This results in market volatility with wide magnitude and frequency. We all have seen this in the few days when US tariffs were first announced. The market came limit down one day just so it could come limit up the day after.
As such, I have always been of a view that the Vietnam’s equity market is almost everything a disciplined long-term investors could wish for. Bargains show up more often than not. An investment program that focuses on investing in wonderful businesses with a strong balance sheet that can withstand downturns (recession and whatnot), whilst being able to grow without heavily depending on the capital market to raise capital in such inopportune times, will deliver extraordinary results over time. So perhaps, one should focus on finding those great businesses, instead of making efforts in trying to speculate what Trump might do next (I’m not sure even he knows that).
After all, no one buys a farm based on what they think the weather is going to be like next year..
The Espresso Investor 
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