“Don’t be surprised that you’re surprised by the markets.” – Unknown
The UK has surprised nearly everyone by voting to leave the European Union. It’s a strange vote given virtually all the data showed a negative economic outcome should the UK leave the EU.
Just goes to show there’s more to life than money!!
While the result of the vote is now known, the economic and market implications are far from set in stone. Although if Friday is anything to go by, you can safely assume the market isn't too thrilled with the outcome.
Investors are often told to “ignore the noise” in situations like this but the noise can get very loud, so that can be easier said than done.
Here is some perspective:
All that aside, people are going to be coming out of the woodwork to offer their opinions, with many hoping to call the next move correctly. No doubt we’ll have the media flocking to London to milk the story for all it’s worth.
Here’s a few filters you can apply to the deluge of opinions that you’ll see in the coming days, weeks and months:
Share brokers, traders, portfolio managers, financial advisors and the media all approach the markets from a different perspective. Don’t pay attention to what traders are saying about the market and expect that information to be relevant to you if you’re not a trader and vice versa for traders listening to fundamental investors. Don’t abandon a long-term investment philosophy based on short term events.
Understand the agenda of the person handing out the advice. Context matters! This is probably the biggest problem area for the average investor looking for investment advice from the media. The media's interest is getting more eyeballs to watch, so they can sell more advertising. The shiny, the shocking and the new is what gets people's attention.
Don’t expect the message to be tailored to your circumstances. None of the thousands of market voices out there spouting off will have your personal situation in mind when giving their thoughts — why would they? What's right for some may not be right for you.
Tactics always sound sexier than having a plan in place. Hunkering down, hedging your bets, trimming exposures, risk-on/risk-off, getting defensive or searching through the rubble for bargains sounds interesting. It can feel better to do something instead of sitting on your hands and doing nothing. But trying to do these things on the fly because others may be doing them is a sure way to lose some money without a proper plan in place.
Interesting doesn’t mean actionable. You can follow the ups and downs in the market solely for entertainment purposes if you find it interesting. That doesn’t mean you have to act on every single move in the market just because it grabs your interests. Actions should be triggered by something other than your nerves.
You don’t have to have an opinion about everything. After 30 years in this business, I still don’t know where the market will head in the short term. The good news is that it's not that important. Market returns are there for the taking so long as you stay disciplined and build a diversified strategy around risks that carry a reliable reward. You can still manage risk without figuring where the markets will go this Wednesday.
PS – I write about events like this reluctantly, but given the widespread attention, plus the number of people who've asked me about it, I thought it useful to put things in perspective. Anyone with a balanced portfolio should not be losing any sleep over this.
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