I tend to look at the financial markets and the bookies for a hint of collective wisdom in situations like this. Both were badly wrong on Brexit, surprising many and leading to a sharp reversal in the anticipatory market rally in the days leading up to the vote. The UK stock market (FTSE 100) is now right back to where we were at the market close on the Friday before Brexit week. Up and down. Back where we started.
The same can’t be said for the pound, down from 1.47 GBP-USD resting for the moment around 1.33. Nor can the same be said for the UK government, it’s leader, the UK credit rating, the political and economic future of Great Britain and NI and while we’re at it, the English football team and manager. All has changed. Maybe not down and out but certainly uncertain.
I was very disappointed – I’m a dual citizen of the UK and Canada and aside from thinking that Brexit was a bad idea for the country in many respects, I selfishly liked the prospect of my children growing up with the opportunity to work and travel freely across Europe. Was it enough to compel me to vote even though I could have? Unfortunately not.
There is a lot of rhetoric swirling around since the results of the vote about political loopholes to maybe block the referendum results or ways to have a “do-over” vote. Both of these things would probably make things worse, not better. While referendum democracy is not ideal, reneging on it’s results may be worse. When the heat subsides, perhaps the “remain” voters will see the irony in their protestations that those who voted to “leave” might have made a mistake or are ignorant of the issues. Another vote might just yield an even further entrenched result for the leave camp.
But I digress – what should you do as an investor during this Brexit inspired volatility?
- Don’t panic.
- Ignore the noise of market pundits and media commentators – they’re in their element right now and more dangerous than ever.
- Wait until the dust settles before making any decisions.
- Monitor your portfolio weightings for opportunities to re-balance.
- In summary, stay the course and stick to your plan.
Markets often over-react as investors sell into the bad news. Patient investors can take advantage of opportunities to buy cheaply as impatient sellers lose their nerve. Disciplined re-balancing naturally leads you to buy low and sell high.
The time to re-balance in favour of UK and European stocks won’t coincide with good news stories of how everything is getting worked out. Investments tend to be cheap when people don’t like them or are afraid. Your plan and your discipline will help you overcome the temptation that besets most investors in times like this.