Now that Trump seems to be settling into his tariff strategy, despite an ongoing selloff across the stock market, investors have every right to be worried, because prospects for inflation’s return and an ensuing recession are back on the table. But that doesn’t mean losing your head.
Markets fall in response to turmoil and get ahead of themselves when a certain sector gains widespread favour. Think COVID for the former and technology during the Dot Com Bubble for the latter. This is how it goes as a stock investor.
The key to coming out ahead of this emotional roller coaster is to fall back on investing fundamentals, which are easy to forget when you’re stressed over your portfolio taking an extended fall or overstimulated when it’s up precipitously with no plan about when to sell.
If you’ve yet to take action based on Trump’s tariffs, here are three steps to run your investments through to optimize them during periods of heightened volatility.
1. Revisit the golden rules of buying stocks
When it comes to investing in stocks, broad market sentiment about a company should be a concern only if you’re a trader. If this is the case, your only recourse is to research your bets thoroughly and size them such that you can remain invested for long enough to make money or learn that your skills are best served elsewhere.
On the other hand, if you’re investing in stocks for the long run, intending to take advantage of compound interest and fund your long-term goals, undervaluation should be your only concern, applied in two ways:
- A stock can be undervalued if it’s been falling, despite the health of its underlying business. If you notice that a portfolio holding or name on your watchlist is making money or growing towards profitability, but the share price has yet to reflect this, the market may be offering you a chance to invest at a bargain.
- A stock can also be undervalued compared to how revenue and profits are projected to grow over a certain period of time. This means that, regardless of short-term volatility, regular purchases as part of a long-term investment plan may still be bargains compared to future expected profits.
We’ll sketch out a process to screen for potential value plays in step three of this article, enabling you to put money to work in any market environment, no matter how pessimistic or irrationally exuberant. But first, let’s talk about what to consider before deciding to part with a stock.
2. Revisit the golden rules of selling stocks
If the question is whether or not to sell a stock, there are only two pathways the reasonable investor will follow:
- The first is to sell when you need the money. Making an investment is usually tied to a goal the money is meant to one day fund, such as becoming a homeowner, retiring or starting a business. Regardless of a stock’s all-time performance since you bought it, or expectations about future gains, if its current dollar value allows you to fulfill your goal, you have no business holding it any longer.
- The second is to sell when your thesis proves false. Perhaps that AI stock you took a starter position in wrote off a new product that was supposed to lead to wider investor awareness. Maybe a junior miner, confident about newly staked claims, failed to deliver prospective drilling results and is now out of money, with Trump’s tariffs souring any chances of raising capital any time soon. Whatever your iteration of this scenario happens to be, it’s best to take your loss and re-invest into a company with a data-driven path forward.
Contrary to human nature, which wants to soothe the fear of a market downturn by moving to cash and trying to re-invest at the bottom, selling stocks is about interpreting volatility through the facts of your financial plan and investment research, knowing full well that the asset class has a long history of bouncing back from humanity’s darkest moments.
3. Identify pockets of undervaluation
With the fallout from Trump’s tariffs and ensuing counter-tariffs approaching bear-market territory, the last step worth running your portfolio through – should it have room for new investments – is to survey the market for quality stocks that have overreacted to the geopolitical turmoil over the past month.
A simple way to source prospects with a higher probability of succeeding under this thesis is to open your favorite stock screener and search for names with positive year-over-year price-to-earnings ratios and share prices sitting at a loss. Setting this screen using The Globe and Mail’s stock screener isolated 386 stocks as of April 8, 2025, dozens of which have been cut in half year-over-year despite reporting positive earnings.
Interested investors should then delve into the balance sheets underlying these stocks in search of evidence for growing long-term profitability, ideally represented through free cash flow or net income – which are as close as cash can get without having it in hand – magnifying the mismatch between share price and potential value creation. Adjusted EBITDA, however, may be acceptable in certain cases involving rapidly growing revenue, so long as management has specified a path to non-adjusted profitability.
If there’s one thing we can be certain of about Trump, it’s that there’s more bluster ahead and investors, broadly speaking, are likely to get spooked by it, fostering downward pressure on share prices. Among this pessimism, there are deals to be capitalized on by the long-term investor adept at building conviction in attractive operations with years to wait for a recovery.
Just remember to set buy and sell criteria before investing new money so you have a plan to stick to when the market inevitably gets out of hand once again.
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(Top image: Adobe Stock)