Brexit - What's it all Mean?

 

June 27, 2016

 

Your Question: Do I need to be concerned about this?

 

My Answer: Don’t know. Not much we can do about it at this point.

 

Not a very encouraging response, I know, so let me expound a little bit.

 

If you are listening to CNBC or Fox Business News, Bloomberg or CNN right now, you are hearing one commentator after another rattling on about what it all means. Some are educated professional economists, some are business people or investors, some are just journalists. But all this info is not helping, in fact, if you are like me, you are even more confused.

 

Because, at the end of the day, no one really knows what to expect. Fed Chairman, European Central Bank President, JP Morgan Chairman, Chairman of the Economics department at Yale or University of Pennsylvania, or East Podunk State, or Economics Reporter for the Wall Street Journal, CNBC or the Mudville Gazette, none of them know exactly what to expect (and the smarter of these will readily admit it) because none of them have ever been through this particular state of affairs before. Or anything remotely like it, for that matter. This is the very definition of a “black swan” event.

 

It’s somewhat instructive that those who seem the most certain about whether this is a positive event or not are politicians lining up on one side or another of the political event it is. And this is a critical point. This is not a financial event; it is a political event with financial ramifications. This decision was made by people voting for political reasons, on the basis of rabid demagoguery in my opinion, but clearly with no understanding of the true nature of the decision they were making, or the likely outcomes and unintended and unexpected consequences. For evidence of this assertion, take a look at this link: http://www.cnbc.com/id/103741735. After the vote was complete, and the surprising results began to come in, suddenly all of Britain jumps on Google to ask “Aw shoot, what did I just do?”

 

So if I, after telling you that Janet Yellen or Jamie Dimon, Steve Forbes or Larry Kudlow, or Jim Cramer or (pick your favorite fund manager), don’t know what the long-term outcome is going to be, then it would be somewhat arrogant for me to suggest that I do know.

 

What I can tell you, however, is that these things have a way of working themselves out and fading into insignificance over longer periods of time. Furthermore, at least always in the past (time for the disclaimer … past performance does not guarantee future results), it has been a mistake to react
negatively to major events after they have transpired. On the other hand, those who have stuck to their plans through good times and bad, never over reacting to temporary market spikes either up or down, have done well through entire market cycles. And those who have found the courage to commit new funds in these kinds of circumstances have rarely not celebrated the move 12 to 18 months later.

 

As for what, specifically, we are doing in response to the conditions that exist right now, about the same thing we do every day, in good times and bad. We are evaluating each investment we own, in the light of conditions and circumstances that exist right now, to determine whether it is something we want to own right now. Every holding must stand on its own merits, either in light of, or regardless of what is going on in Europe and/or the rest of the world. From a big picture and longer-term perspective, as I have assured you in the past, your portfolio is designed in recognition that “stuff happens” and is diversified in such a way that any impact should be limited and temporary.

 

So in this light, I guess the answer to your question is “No, you don’t need to be concerned about it.” And if you are in a position to do so, it might not be a bad idea to toss a little fresh cash at it. Bargains will probably identify themselves.

 

The observations and opinions expressed in this commentary are those of the author and do not necessarily reflect the views of LPL Financial. This commentary is for general information only and is not intended to provide specific advice or recommendations for any individual.