A Few Words on Brexit
Dear friends,
We wanted to quickly address Brexit and the subsequent market volatility as we know the situation is on everyone's minds. Britain’s decision to exit the European Union has no doubt created uncertainty and fear, which is a recipe for short-term market movements. Below are a few things we’d like you to know about Brexit and, finally, some advice going forward.
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Far better than far worse: The UK is one of the strongest economies in Europe, least not the world, and in many regards has been largely held back by its association to the union. As the largest foreign investor in the US, the long-term decision to be independent will help their country much more than hurt it. While we are being told this “unprecedented” move is bad, it most likely will end up as a positive. The UK will now be free to protect, innovate and progress in a way that is now unachievable by current European standards.
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Long timeframe for the transition: The referendum on Brexit is actually not binding and Article 50 will need to be invoked to start the legal process. This would initiate a series of events to separate Britain from the European Union and could take years. In short, this long disentangling process is positive because it will allow for much of the emotions to dissipate and permit a logical transition rather than a quick, rash disorganized one.
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For every dollar that is lost; another is gained: In any situation or enterprise where money is lost, it is important to remember that money is gained somewhere else. If you have a holding in a diversified portfolio that temporarily loses value, it is eventually returned by another investment in the portfolio. We have always maintained that having a diversified portfolio is best; for that reason we are not bothered looking ahead despite the short-term volatility.
- Long-term market prices are always determined by companies not governments: In contrast, short-term fluctuations, like we are currently seeing, are always controlled by irrational fears and emotions, which ultimately give way to corporate fundamentals and earnings. We are witnessing nothing more than emotional reactions that will eventually play out. The idea that somehow politics controls the fate of the market is inaccurate. The smartest people in the world are not sitting on legislative or parliamentary floors, they are instead working for the best companies in the world creating products and services that make our daily lives better. As a result, these companies thrive and their long-term stock prices that comprise the market follow suit.
Our recommendation, if you haven’t guessed it already, it simply to do nothing. In every documented case throughout history, had one not reacted to market turbulence they’d be much better off. It is only when people react that they put the odds against them. If you’d like to discuss this with us further, please reach out by responding to this email or give us a call. We’d love to hear from you.
Best regards,
Mark
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