Your 7-Step Guide to Invest in This Market

The US and China are relentlessly hitting each other with tariffs these days. The two biggest economies in the world are fully engaged in a trade war.

But this 'tit for tat' trade war regime reminds us of the 2013 taper tantrum that began in the US and had a massive impact on vulnerable economies of Brazil, India, Indonesia, Turkey, and South Africa, then called the 'Fragile Five'.

The 'taper tantrum' refers to the market panic triggered in 2013 by the US Fed. The Federal Reserve suddenly hinted at ending the low-interest rate regime.

This led to a surge in US treasury yields and global market volatility. The taper tantrum caused a global market reaction, with emerging markets particularly affected by capital outflows, currency depreciation, and rising borrowing costs.

The taper tantrum had a significant impact on India, with capital outflows and currency depreciation (the rupee fell by over 15% between late May and late August 2013). The steep borrowing costs forced the RBI to raise interest rates.

The US-led trade war in 2025 also seems to be getting murkier by the day. The fact that the two largest economies in the world are competing head on elevates the risk of a cascading effect on economies across the globe.

Investors cannot choose to ignore the possible outcomes of the trade war.

If US and China continue to destroy global trade networks and adopt protectionist policies, several economic parameters from inflation to interest rates to currency and GDP growth will be affected too.

Howard Marks famously wrote in one of his memos "You can't predict, you can prepare".

This emphasises the inherent uncertainty in investing and the importance of being ready for various possible outcomes.

What kind of outcomes does Marks expect you, as an investor, to prepare for?

Unpredictability of Markets: Marks acknowledges that financial markets and economic conditions are inherently unpredictable. Despite thorough analysis and forecasting, it's rarely possible to estimate the exact outcome or tenure of a market crisis.

Changes in Allocation: Allocating to assets that suit one's risk profile, holding cash for liquidity and to take advantage of market opportunities, go a long way in tiding over upheavals.

Prolonged Underperformance: Timing the market in times of crisis cannot help. Rather, even in the event of prolonged underperformance of good quality stocks, holding on to them with patience could pay off over time.

So, keeping Marks' broad guidance in mind, here is a seven-step blueprint to turn the 2025 tariff tantrum crisis into an opportunity.

#1 Do NOT Sell in Panic

There's no doubt that Trump's tariffs are a major problem. Or that the market reaction so far has been severe. What really matters is whether the correction is proportional to the possible worsening of corporate fundamentals.

A lot of investors believe that getting rid of stocks is the best way to avoid the decline in share prices. They think selling the stocks even in their long-term portfolio could help avoid further carnage. But that is far from truth.

Selling stocks due to panic can only harm a long-term investing portfolio. Along with some questionable stocks, you may also let go of potential multibaggers. Selling the stocks with strong fundamentals could deprive your portfolio of the safety net that it deserves for the long term.

So, do not pay heed to talking heads who are propagating panic. Such irrational activity could only do more harm to your portfolio.

#2 Review Your Portfolio Allocation

In times of market crisis, it is most important to review your portfolio. Both in terms of overall allocation to stocks and the quality of stocks.

Stocks that fail to meet minimum quality parameters in terms of cash flows, return ratios, growth, and profitability are best avoided or reduced to negligible exposures.

#3 Be Very Selective

The tariff led market correction may continue for a while and few sectors could suffer prolonged damage.

So being selective about the stocks you wish to buy or keep in your portfolio can help weed out the laggards. Invest only in stocks with great fundamentals backed by solid management teams.

Even if the valuations seem cheap buy only the businesses that have the capacity to survive downturns for long.

#4 Consider Dividend Bargains

Attractive valuations can go a long way in compounding your returns from great stocks. But don't forget to count the dividend yields.

In fact, stocks that offer steady and attractive dividend yields over long periods are the ones to hunt for during such market corrections.

#5 Don't Sideline Smallcaps

Indeed, the best approach in these times is to not let go of conservatism. However completely ignoring smallcap stocks is not a great idea.

Keep a close watch on the Smallcap to Sensex ratio. Historically whenever the ratio has gone below the long term average of 0.45, quality stocks in the smallcap space have become ripe for investment.

#6 Have a Watchlist

The best quality businesses are rarely available at reasonable valuations except during crisis-led deep market crashes.

Having a watchlist of such stocks can help act on them instantly in the event of a market crash, thus turning the crisis into an opportunity.

Here are few watchlists on the Equitymaster Screener.

#7 Allocate in a Deferred Manner

Irrespective of how confident you are about the businesses you wish to buy; it may be a good idea to increase your allocation to stocks in a deferred manner. Particularly, keeping the stock specific and broader market valuations in mind.

For instance, the Sensex valuation could be an important yardstick for your overall allocation to stocks. And you could take partial exposure to expensive but good quality stocks before increasing exposure to them on further dips.

Happy investing.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Research Private Limited (formerly Equitymaster Agora Research Private Limited) (Research Analyst)