Professor Chicken
“Adam, why would we invest in anything other than US companies?!”
This is a question I’ve answered many times over the years — and you’re wise to ask. I’ve expanded on this in past writings (like this one and even just a couple weeks ago with this one), but feel free to skip over reading those two old posts and instead just focus on this one sentence:
If you’re worried about chaos in Rome, maybe don’t only invest in Roman stuff.
Define ‘Rome’ however you’d like and adjust accordingly. However, for many investors, the United States is the Roman empire and their portfolios have grown to reflect that (with a significant home bias, or larger than normal allocation).
…
When considering current risks to any modern empire, Tariffs are front-of-mind for most investors. Understandable.
If you’d like our internal research on tariffs, along with some context for how history relates to today’s environment, click here and we’ll provide it.
But for now, I’d like to introduce my friend, Professor Chicken, who has a warning for investors and economies alike.
If Professor Chicken could talk, he’d tell you about the Chicken Tax, which was a 25% tariff the U.S. placed on imported light trucks in retaliation for European tariffs on American chicken. While intended as a short-term trade retaliation, it had long-lasting effects on the U.S. auto market, it:
Protected U.S. Automakers by effectively shielding American manufacturers (like Ford and GM) from foreign competition in the truck segment.
Stifled Foreign Competition as global automakers avoided importing light trucks, which gave U.S. companies dominance in the segment.
Shaped the Consumer Market as automakers leaned heavily into trucks and SUVs, leading to a uniquely American auto culture built around pickups.
Created Workarounds and Innovation as foreign automakers, like Toyota, had to build trucks in the U.S. or use creative methods (like Nissan importing trucks in parts for assembly stateside) to avoid the tax.
In short, the Americans had industrialized their farm systems more quickly than the Europeans — so they decided to tax American chicken to help their farmers, not understanding the second and third order consequences of those taxes.
You don’t have to be a tenured genius professor like Professor Chicken to see the similarities between that period and this one. Only this time, the US may not be on the receiving end of the better-half of the deal. It’s too early to say.
Yet, my main point is this:
You don’t know how things are going to shake out, but capital flows like water downhill: towards the path of least resistance.
Is the US still the dominant equities market? Of course.
Is there a chance for foreign companies to take market share from US stocks? Yes.
… But when you don’t know how things are to shake out you must have the humility to diversify between possible outcomes. In this case, we generally believe global stock market diversification is a responsible playbook.
You can want American companies to do well while also acknowledging that the most important thing driving your investment decisions should be your desired outcomes. Things like:
Never run out of money.
Pay for my kids and grandchildren’s education.
Easily afford assisted living and enhanced care.
Check everything off the bucket list.
etc.
We may need to own foreign assets to help ensure those important things aren’t too heavily reliant on continued American exceptionalism.
(For the record, this post is not political could have been written a year or 5 or 20 years ago and I’d stand by it.)
—Adam Harding.
www.hardingwealth.com
*for informational purposes only.
PS… I’m going to start doing this thing where I add some simple tips to the end of each blog. Here are four I think are worth remembering:
Embrace Global Diversification: Avoid the temptation to concentrate solely on domestic equities. A globally diversified portfolio can mitigate country-specific risks and capture growth opportunities worldwide.
Stay the Course: Resist the urge to make tactical shifts based on short-term market movements. Consistent, long-term investment strategies often yield better outcomes than frequent reallocations.
Be Aware of Home Bias: Recognize the natural inclination to favor domestic investments and strive to balance your portfolio to reflect global market opportunities.
Consider Currency Exposure: International investments can provide a hedge against potential declines in the U.S. dollar, offering an additional layer of diversification.
