Mini Coopers and Land Rovers Are On Sale
Last week, Britain voted to leave the European Union and stock markets and the British currency declined. It may be tempting to jump to extremes, as irrational as it seems, and worry that this event could trigger the next Great Recession.
But the deep problem is fear. Please talk to your advisor if you are feeling unsettled about recent events. We have better tools than ever here at A&I Financial Services to help you understand your risks and align your money with your priorities, relationships, and values.
The vote for Britain to leave the EU will take at least two years to work out--the treaties require that long. And the "Brexit" vote is a political event, not a financial market breakdown. I hazard a guess that surveys would now show the British feel as much, if not more, fear than they did before the vote. Just ask NPR and Google.
The British are evidently tired of the European Union. So what? Great Britain is the fifth-largest economy by size, 40% the size of the U.S. economy. The U.S. exported to the British about $56 billion in 2015, or 2.3% of our GDP (we also import about the same amount). Even if it went to zero, and of course the British economy is not going to zero, the U.S. stock market gave up that percentage in value the very same day of the news event.
Stock market declines are unpredictable but commonplace. They are run-of-the-mill. In fact, we've had several of these since the Great Recession. Three in particular coincided with scary events: March 2011 (Japanese earthquake), August 2011 (U.S. debt ceiling standoff), and March 2012 (European debt crisis).
Since 2008, the S&P has doubled in spite of these short-term catastrophes.
Date S&P500 Gain Since
3/9/2009 676.53 201%
3/16/2011 1256.88 62%
8/10/2011 1120.76 82%
3/6/2012 1343.36 52%
6/27/2016 2037.30 N/A
Brexit is not a catastrophe. They are still a free country, and now they are voting to be a little more free than before. This opinion article sums up what some of the "Brexiteers" may be thinking, at least in financial terms. But this NPR article might be more to the point.
The bigger issues are related to self-rule, to immigration, to defense, to globalization, to race, to national identity--all of which are driven by fear. The young are generally less afraid than the old and largely voted to stay.
Understanding why we fear so many things exceeds our expertise and the scope of the Weekly Periscope. From an investment standpoint, many investors loathe this stock market rally. This may be the most hated stock market rally in the history of the stock market. Indeed, I believe it to be the most despised of my investment career. Do you believe it is good to invest when it feels good or when it feels bad?
I can't predict whether stocks will be higher or lower a month--or a year--from now and no one can. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. These are Warren Buffett's words from a 2008 New York Times editorial.
Back then, we looked over an abyss. Today, we climb a wall of fear. Stock investors usually have something to fear. And the markets often overreact. And times like these are often when our investment managers find great companies for sale at lower prices.
Like a Land Rover, or a Mini Cooper, or maybe some bangers and mash--England is on sale right now. I don't want to sound flippant, but let's put the British vote for independence into perspective. It's a free country, one of the world's largest economies, and one of our greatest allies. Let's stand by Britain and consider booking a flight to visit.