Have you or anyone close to you gone through a late in life career change?  I’m not talking about a job change, but a career change.  You spent 25 years working for a bank and now you run a kitchen remodeling company.  You taught elementary school for 30 years and now you bake cupcakes out of your kitchen for weddings/graduation parties.

What are the chances that the skills needed for the new career suddenly blossomed at age 55?  For decades you enjoyed baking and everyone told you that you should sell your cupcakes…and one day you decided that you agree – and you took the leap.  And while you began by selling to your friends and former co-workers, it didn’t take long before they were referring others to your website.
Sounds easy, doesn’t it?  But anyone who has lived through this change knows how challenging it is to create success in a new career after decades performing other work.  There are the emotional costs of leaving security (salary, title, desk) behind.  There is the fear of failure and losing touch with co-workers who may feel like family.  And there is the actual $ costs of starting a new business. 

This is true for large, publicly traded companies and even countries.  We are seeing the effects of this as the world adjusts to both new governments and life after COVID.  As investors, we need to be aware of both the challenges and potential rewards when buying into these opportunities.
Here are two examples:

In June of 2024, The Detroit News reported that GM reduced its 2024 EV production goals by at least 50,000 units.  This was while the Biden Administration and certain states were still pushing for the eventual elimination of gas-powered vehicles.  The reduction in production was due to a variety of reasons – consumer demand, production costs, and a potential change in government policies (which ended up happening when Donald Trump won November’s election).  As an ecologically aware investor, this may disappoint you.  As an investor more concerned with profitability, this would excite you.  At the time of the announcement, GM shares hovered around $48/share.  As of 2/25/2025, GM’s share price is $46.  This is an example of a company attempting to change its identity from 100+ years of gas powered to electric vehicles in a relatively short time.  And it turned out that its consumers were not completely ready for the change.  But just when the investors could get ready to cheer (November 2024 share price high of $59.63), President Trump began to create tariff uncertainty that exists today.  GM has a lot of upsides, and a lot of potential downsides.

Starbucks is one of the most well-known companies in the world, and it seems to exist on every corner.  For a company that theoretically sells a commodity (coffee), it has had decades of growth and is woven into the fabric of the coffee drinking world.  The company had explosive growth in employees and physical locations throughout the early 2000’s and expanded dramatically overseas as well.  When COVID hit, the stores were shut down for almost 5 months and opened up to drive thru business in June of 2020.  In July of 2020, Starbucks’ stock price was $126/share.  Only 4 ½ years later, the company announced layoffs of over 1100 employees as it restructures the company and menu.  The change in momentum comes from multiple issues.  First, the company’s locations went through multiple changes over the years from a place to get a cup of joe to political hotspots, from a quick stop for a drink and a pastry to a workspace, and from employing college students to being organized by labor unions.  Second, consumers in other countries began frequenting companies that were more in tune with local tastes – China is a country that had a significant reduction in revenue for Starbucks.  Finally, the inflation that hit the US had an impact on how much consumers were willing to pay for a coffee.  How will Starbucks look after trying to return to its roots?  Will this be a boom or a bust for investors?
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In business, as in life, change is constant.  As an investor, you must be aware of the potential opportunities and pitfalls of companies.  It’s not enough to look at current or historical returns.  Evaluate why those returns occurred and does the risk involved in achieving those returns match your tolerance.  Let us know what questions you have about individual investments.  Let us do the research and help you make decisions.  There’s nothing wrong with a company making a leap of faith and changing their business.  The question is whether you want to leap with them.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct

“THE TARIFF WAR HAS STARTED!  American consumers are going to go broke paying higher prices and inflation is going back up to Biden Administration levels!”

Ok, maybe this is overstating what’s going on.  It could also be downplaying the benefits that could be generated by the current sporadic trade policy of the Trump Administration.  There is no guarantee of any specific outcome at this time – other than we are in for another wild 4 years.  With this in mind, let’s take a deeper dive into tariffs – what they are, why they are used and potential pro/cons of these strategies.  Brandon and I will be doing a podcast on this same topic next week.

The Oxford Dictionary defines a tariff as “a tax or duty to be paid on a particular class of imports or exports.”  There are two types of tariffs; 1) Specific – a fixed fee based on an item ($500 levy on each car) or 2) Ad Valorem – a levy on the value of the item (a 25% tariff on import value = $4 item means $1 additional tax).  The most basic strategy is to increase the price of goods/services purchased from another country, making these goods/services less attractive to domestic consumers which would theoretically increase the production of these goods/services by domestic companies.

Sounds straight forward, right?  The US imposes tariffs to encourage domestic production and increases manufacturing jobs and wages for US citizens while increasing tax revenues from foreign companies.  In a perfect world where the US can produce all natural resources needed for the creation of the goods/services demanded by US citizens the use of tariffs would work this way.  However, we don’t live in this perfect world.  Thanks to technology, the world economy is more intertwined than it has ever been.  When you go to Amazon and order an item, it might take you (literally) 5 minutes to shop/order/pay – and less than that if it’s a repeat item – without ever leaving your kitchen.  Few consumers research the origin of the item beyond the price and potential quality.  This has created a consumption economy that depends on goods being created throughout the world but available 24/7 for next day delivery.

So how does a tariff work in this imperfect world?  First, understand that the rest of the world has had tariffs on US goods for decades.  China has imposed tariffs on over $110B out of the annual $131B US goods imported into their country.  The EU?  According to TARIC (the EU Taxation and Customs Union) there are over 58 classifications of tariffs on foreign chemicals (pharmaceuticals) and 200+ on animals/animal products alone*.  So, prior to Trump’s imposition of new tariffs, US companies were already limited by the strategy of making US goods less attractive to local consumers.  A few reasons the tariffs haven’t created constant trade wars are that there are usually carve outs for essential industries, some goods/services are better produced near to the resources needed for production, and cost benefits of offshore production can make up for the increased tax burden.

An example of the integration of economic activity is crude oil traded between the US and Canada.  While the US became “energy independent” in 2020, we still import crude from our Northern neighbors.  The oil the US produces is lower density (sweet or low sulfur) grade crude, which is easier to refine and commands a higher price overseas.  American refineries are tooled to process heavier/dirtier grades of crude produced by Canada.  US refiners could reconfigure facilities, but the costs of downtime and capital would be extreme.  It is simply cheaper and more profitable to import the crude from Canada and export the crude produced domestically.  How high would the tariff have to be to make it beneficial to change US refineries, and at what cost to consumers?

How does all this play into the current “trade war?”  Potential benefits to the tariffs imposed by Trump could be more domestic manufacturing, higher tax revenue from foreign parties, and a stronger US dollar.  Potential consequences are higher costs to US consumers, increased inflation, and more geopolitical chaos.  Currently, when GM makes a single car, it may cross the US/Canada/Mexico border multiple times during production without tariffs being imposed.  If the 25% tariff goes into effect, each crossing of the border would increase the price of the car to end buyer.  Will consumers pay more for the exact same car for a theoretical perfect world of complete domestic production?  Does GM have the capacity to build the car completely in the US?  Many companies did bring some production to the US after the tariffs during Trump’s first term but not all.

Financial analysts have no more certainty than the average investor.  Some believe the entire “trade war” is a bargaining tool to improve US trade positioning.  It is true that China puts extreme pressure on other countries by creating cheap exports while increasing costs on imports.  Will new tariffs open that market more than those that have been in place for years?  Are Americans willing to pay more for a happy meal while we find out?

In any case, investing in quality companies that have the financial ability to make it through this uncertainty is more important than trying to be right on all of the potential issues.  We plan on being flexible in our investing to take advantage of opportunities, but we are not willing to increase the risk to clients without corresponding benefits.
 
Written by Sean Budlong, CFP®, AAMS, Chief Executive Officer, Majestic Financial, Financial Consultant, RJFS
 
Disclosures: Any opinions are those of Sean Budlong and not necessarily those of Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.
*Source (AP News, “China counters with tariffs on US products”, 2/4/2025)