On April 3 and 4, the U.S. stock market declined by close to 10 percent. According to former Secretary of the Treasury Larry Summers, this is the fourth largest two-day decline since World War II. As I write on Sunday night, stock market futures suggest the market could decline an additional 4 percent at the opening tomorrow morning.

All four such declines have occurred during my 42-year career as a professional investor. The prior three times were: the stock market crash of 1987; the financial crisis of 2007-9; and the early stages of the Covid-19 pandemic in March, 2020. In these three earlier cases, the stock market recovered at least partially in a relatively short time.

While each instance is different and stock market investing never comes with a guarantee, most of the time it pays to be patient and not try to out guess the millions of investors around the world. Each time the market declines so fast, it is bound to be scary; it seems like this particular instance is different. While in previous times, the market recovered, this time, we think, it’s down for the count.

The proximate cause of this latest decline was the announcement on Wednesday, April 2, after the stock market close, that the U.S. was about to impose the highest tariffs in generations. While the market knew that tariffs were coming, most investors did not expect the tariffs to be nearly this high.

These tariffs are so high that the whole system of international trade, largely in place since World War II, will be abruptly and decisively disrupted with big effects on every economy around the world. To make matters worse, this was the latest development in a hyper active second Trump Administration, little more than two months old, that has made so many major changes so fast that it is impossible to keep up.

Since taking office Jan. 20, the administration has dramatically overhauled the Federal government, radically changed international aid, redefined ally and foe, and is setting in motion one of the biggest tax cuts in history. Add in the largest tariff change in almost a century and it’s a lot for investors and foreign governments to digest.

Through mid-February, the stock market was at record levels after two strong years and one could make a case that a pause was in order. The market, by some measures, was not healthy because so much of the gains were concentrated in seven large technology companies led by Apple, Microsoft and Nvidia. With valuations stretched, it didn’t take as much to get markets to tumble. And investors were already concerned by the blizzard of changes.

To make things even worse, the U.S. economy by many measures was doing just fine. Unemployment was low, inflation had come down from too high levels and wages were increasing. Of course, problems always exist: housing was unaffordable for much of the population, gains were not evenly distributed and much of the country was in economic doldrums. Then too, having recently suffered through a once in a century global pandemic and earlier, a dramatic financial crisis, many people were worried and upset. It didn’t take much to induce full scale panic.

Where will this all lead and what to do about it? As one television guest said during the financial crisis, “If you think you understand what is happening, you’re not paying attention.” The future is always murky but sometimes it’s murkier than others and this is one of those times. No one can be confident that they know where the global economy and markets are heading.

But if we look to prior examples – and this is certainly not a guarantee – in modern times, markets have recovered, generally in a matter of months or a few years. The one exception is during the Great Depression of the 1930s. In that case, depending on how you counted, investors who remained solvent recovered in a half dozen to 15 years.

The Great Depression was compounded by serious policy mistakes and some new and untested institutions. Since that time, we’ve added institutions to regulate securities and banking and the Federal Reserve Board is much more experienced and sophisticated.  Certainly, similar mistakes could happen again but the odds are against it. In general, investors who think they can divine future events and outsmart markets frequently suffer serious financial harm. Those who have diversified portfolios and are patient often achieve better outcomes.

While we are not oblivious to the financial carnage, we still believe the likeliest and best course to recover is to be patient and leave the frenetic trading to others. Years ago, we read a book about the stock market crash of 1987. The book, A Zebra in Lion Country, by legendary small cap investor Ralph Wanger, talks about Wanger’s heroic trading during the week of the 1987 crash. At the end of the week, he looked back on all the trading and concluded that the many trades had accomplished nothing. And although it doesn’t feel satisfying, usually doing nothing is the best policy.

April 6, 2025