A Rising Tide?
Key Takeaways
Uneven Markets: Unlike past “rising tide” eras, today’s market is highly uneven, with sectors such as German defense and infrastructure thriving while exporters and pharmaceuticals struggle.
Company Matters Most: This divergence highlights that broad economic growth is not necessary for investment success—company-specific factors and policy alignment drive performance.
Bottoms-Up Focus: ACM emphasizes a “bottoms-up” stock-picking strategy, focusing on strong management teams and individual company fundamentals rather than relying on uniform market trends.
Conventional wisdom has it that “a rising tide lifts all boats,” meaning that as broad economic policy encourages and facilitates growth and investment, all participants will benefit—at least to some degree. My colleague Dave Ruff and I have been in Germany for the past week attending investor conferences and meeting with dozens of companies and fellow portfolio managers. The view from “across the pond” is almost exactly the opposite of the encouraging nautical aphorism. Country-by-country around the world, some companies are doing well in the current environment of tariff and trade-war driven uncertainty, and others are doing quite poorly. Is it necessary for investors to have a “rising tide” environment to be successful? Should investors expect all stocks to benefit uniformly in this environment?
Unsurprisingly, the answer to both questions is “no.” Over the past 40 years, investors have had several lengthy “rising tide” environments, namely:
Each period had broad participation across regions and asset classes and typically coincided with economic recoveries with muted inflation. For investors of the past 40 years, most of the time has been a “rising tide.” The stretches between have been relatively short. The point is that even if we aren’t in a “rising tide” environment, we have historically returned to one in short order.
To be sure, we aren’t in such an environment now; the view from Europe is a very mixed bag. Paradoxically, while Germany’s automotive sector struggles under tariff pressures, other segments of the German economy are experiencing unprecedented growth. The country’s commitment to increased defense spending and infrastructure modernization has created significant opportunities for domestic companies operating in these sectors.
Germany’s defense contractors have seen their share prices reach record highs as the government responds to evolving security challenges through substantial military procurement programs. This spending surge reflects broader European recognition that regional security can no longer rely solely on historical arrangements, driving investment in domestic defense capabilities across the continent.
Similarly, infrastructure companies have benefited from massive public works programs designed to modernize aging transportation networks, expand renewable energy capacity, and enhance digital connectivity. These investments represent a deliberate policy choice to strengthen domestic industrial capabilities while reducing dependence on foreign suppliers in critical sectors.
The contrast between struggling exporters and thriving domestic infrastructure companies within the same national economy illustrates how current market conditions defy traditional sectoral correlations. Investors who might have expected broad-based German economic performance to move in tandem are instead witnessing dramatic divergences based on end-market exposure and policy alignment.
Outside Germany, the conditions are quite varied as well. A Swiss financial services company I met with is making all-time highs, insulated from tariffs and trade and benefiting from Switzerland’s demographics: retiring workers. Contrasting dramatically, major pharmaceutical companies are wrestling with their tariff level impacts, which change from day-to-day, making budgeting and planning exceedingly difficult, if not impossible. Obviously, the environment does not impact all companies equally.
Our separate accounts (those with individual stocks) at ACM are primarily driven by a “bottoms-up” approach. This approach focuses on the company, not the country, not the sector. We believe our company focus approach is superior in all market environments because of the inherent uncertainty of the future. Trends don’t last forever and market timing has proven again and again to be a losing strategy. Focusing on quality management teams that are able to negotiate uncertain times and deliver shareholder value is the winning strategy. We recognize and knowingly accept that not all stocks are going to be “working” at the same time, but adjust our holdings as companies evolve and our investment thesis matures around each holding. Individual stock picking requires attention to each company on a stand-alone basis, not on a broad “all boats rise” basis. That’s what we deliver.
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