The US Trade Conflict: What Should You Do?

8 September 2018.

Dear Fellow Investor,

The US Trade Conflict: What Should You Do?

The United States, China, Europe, Canada, Korea and much of the world 

have been at loggerheads for some months now with tit-for-tat tariffs on 

billions of dollars’ worth of goods.

The conflict does not seem to be abating. Just last week, US tariffs on 

US$16 billion worth of Chinese imports took effect, with Beijing fighting 

back with its own levies on goods from the US worth the same amount.

Why worry about things we have no control over trade policies,  US 

politics, monetary policy  or President Trump’s rhetoric ?

We can control our share selection by our focus on quality companies 

which offer value, solid financials, low or no debt, and those businesses 

that have recurring revenue. 

Our recent purchase for our clients of Kellington Group Bhd fits this 

profile.  

Kellington Group designs, fabricates and installs ultra-high purity gas 

and chemicals delivery systems. They supply to hospitals as well as the 

semiconductor industry. Revenues are derived from Singapore, 

Malaysia, Taiwan and the PRC. They are net cash with a PEG ratio of 0.3. 

PEG means price to earnings growth.

A PEG ratio of 0.3 shows Kellington is undervalued. Should earnings 

increase  which is possible based on a strong trend of earnings growth 

and if the PEG increases to 0.5 expect at least a 20 % jump in the share 

based on the current price of 0.955 sen.  Kellington may also benefit 

from the trade tensions between China and the US. China wishes to be 

self sufficient in semiconductor manufacturing  and Kellington 

produces the vital gases for semiconductor production.   Kellington has 

a facility in China.

Motley Fool Singapore posted a valuable comment which applies:

“Investors like you and me cannot control the trade war 

happening between the US and China. But, what we have control over 

are the investments we make, and how we handle our emotions. Instead 

of focusing on the fears, we should focus on the business fundamentals 

of the companies we own. Short-term fears create opportunities for long-term investors.

Billionaire investor Warren Buffett once said:

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks;  and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

Stocks tend to rise over the long run, despite the short-term worries surrounding the world we live in.

There will always be negative news to spook the stock market every now 

and then. However, if we focus on the long-term picture, these short-

term blips will not matter. In fact, such drops allow us to buy great 

companies at lower valuations.

We should also not time the market by dumping our shares, thinking we 

can buy the shares back later when things become clearer. Buffett had 

this to say when it comes to market-timing:

“People that think they can predict the short-term movement of the stock market — or listen to other people who talk about (timing the market) — they are making a big mistake.”

“If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do. … If you’re right about the businesses, you’ll end up doing fine.”

Always remember: Time in the market is more crucial than timing the market.

The US-China trade conflict may or may not get worse. No one can tell 

for sure. However, what we can do is to focus on the things that matter, 

which is on business fundamentals and our emotions. To borrow 

Benjamin Graham’s words, in the short run, the stock market is a voting 

machine, but in the long run it is a weighing machine. Would you rather 

focus your energy on the things that matter or on the things that don’t? 

It’s your call.

Invest well and grow your wealth
Bill

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