Bill Nygren: In April, on Liberation Day, the world was shocked at the magnitude of tariffs that President Trump announced, and it kind of put the market into turmoil and, in a matter of weeks, we had lost twenty percent of our value or of prices. And the first step that we always want to take when that happens is to figure out if businesses are experiencing the same thing that the stock market is.
So, we try to speak unusually frequently with our C suite contacts that the companies were invested in to find out what they're seeing in the world. And when we, when we reached out in early April with that, what we were hearing from our companies was that business activity wasn't really declining yet, but they were concerned that people were getting worried about what the future looked like, and if that sentiment didn't improve, it was going to be tough to continue at the growth rates that, that we had.
So, we decided it was probably prudent to lower our forecast for GDP, and for us, we almost always assume GDP is going to be about normal, so a couple percent increase in real terms, and we thought that seemed on the high side in April. So, we had all of our analysts change their individual company earnings models to a moderate recession in 25. We had them assign tariff risks, categories one through five, to make sure that, as we contemplated portfolio changes, we weren't inadvertently taking on increased tariff risk.
We're happy to take on increased risk when we know we're getting paid for it, but we want to make sure we aren't inadvertently taking on risk and not getting paid for it. We also had our analysts roll out their earnings models to 2027 because we were concerned that there could be lingering impacts in 2026. And with all those adjusted valuations, we were able to re-rank order all of our companies on our approved list, and what we saw was the spreads had become unusually wide between the names that were the cheapest and the most expensive. So, as we looked at clean-sheet portfolios, if you were starting today from cash, what would you invest in? We saw an unusual amount of change that we wanted to deploy.
A normal bear market, if you look once we were down twenty percent on April eighth, if we look historically at bear markets in the past eighty years, it's about five or six months until the market hits bottom, so that would have been sometime in September. And then it would have been well over a year until we'd recovered to the February highs.
So, what we embarked on was a portfolio restructuring that we hoped to accomplish in about ten weeks.