It has been said that there are known knowns—the things we understand; known unknowns—the uncertainties we are aware of; and unknown unknowns—the surprises we don’t realize exist until they happen.1
The start of 2025 may well be defined by the “unknown unknowns” as the markets responded to two largely unforeseen events: the emergence of an allegedly cost-competitive Chinese AI model DeepSeek, and U.S. President Trump’s decision to unleash a trade war with Canada and Mexico. Uncertainty often drives short-term market behaviour. Technology stocks took a hit in January, with Nvidia losing over US$550 billion in market capitalization, while concerns over a 25 percent tariff were acknowledged by the financial markets, as tariffs were deferred in February, implemented in March and then adjusted days later.
Times like these highlight the importance of diversification. Until now, Canada’s heavy reliance on the U.S. as its primary export market has largely been overlooked: 77 percent of Canadian exports go to the U.S., while no other destination accounts for more than 5 percent. Just as diversification is important in portfolio management, it is equally critical in trade. Canada’s reliance on a single trade partner makes it especially vulnerable to unexpected shifts in U.S. policy. The evolving trade war serves as a wake-up call. In this new era of rising national protectionism, there is much work to be done to strengthen Canada’s economic position.
In recent years, diversification may also have taken a back seat in investing focus due to strong market gains, largely driven by a handful of dominant U.S. tech giants. However, DeepSeek’s emergence serves as a reminder that no sector remains unchallenged—disruption is inevitable in any innovation cycle and technology continues to evolve at an unprecedented rate. Could this mark the beginning of AI democratization? One of the best ways to navigate uncertainty is to prepare for multiple possible outcomes, and diversification is intended to position portfolios to withstand changing environments and varying market conditions.
Similarly, the rapidly shifting rhetoric on tariffs suggests we have entered a new age of uncertainty, influenced by the current U.S. administration. As Portfolio Managers, we continue to assess the evolving developments and their potential impact on portfolios—while emphasizing the importance of discipline. Unknown unknowns can tempt investors to react hastily. However, even the “known unknowns”—such as fluctuating interest rates, high inflation, economic declines or stock market drops—remain beyond the investor’s control. Yet, more often than not, an investor’s reactions to these uncontrollable events can have the greatest impact on long-term outcomes.
If the first months of 2025 are any indication, the next four years will bring considerable speculation about Trump’s next moves. The challenge will be to look beyond the headlines. A longer-term perspective reminds us that policy changes can take time to unfold, are often subject to revision and may not always have consistent or predictable effects. Markets and economies also don’t always react as expected, as we saw in the aftermath of the pandemic. While the near term is likely to bring new unknown unknowns, the underlying forces that drive progress—resilience, adaptation and innovation—will endure over time.
1. Attributed to Former U.S. Defense Secretary Donald Rumsfeld in a speech given in 2002.
To My Clients —
The evolving tariff situation has been unsettling for many. I continue to monitor the ongoing developments and assess their impact on portfolios, maintaining a disciplined approach and the belief that quality companies with solid fundamentals will continue to build wealth over time. If you have concerns, please call.
While challenges lie ahead, an op-ed in the popular press reminds us: “Much of Canada’s history is the story of bravely carving out a remarkable country against long odds. We can do it again.”
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