Break-ups are never easy, especially when they come as a surprise. That’s exactly what happened with last week’s Brexit referendum results. Financial markets were caught off-guard, given many prereferendum polls were showing the Remain camp with a slight edge. Like many divorces, the UK Brexit will be extremely messy, rancourous and drawn out, until all the details are finalized over the next couple of years.
What are some of the financial lessons that have been learnt from this disruptive episode?
1. These periods of extreme volatility are nothing new and there will be more in the future. (see chart below)
2. Panicking or making an emotional decision relating to one’s investments during the heat of a geopolitical crisis rarely translates into an optimal decision over the long term.
3. Ignore the financial pundits who are now telling you what to do even though they had it wrong in the first place.
4. Brexit only makes for emotional times for those who are unprepared.
5. A well-constructed portfolio is durable and ready for anything. Therefore it is critical that one has established a strong foundation (Investment Policy Statement) with one’s investments and do not divorce the sound, fundamental principles needed to grow and preserve one’s portfolio.
6. Take the time to calmly review your investment policy and follow your plan so that you are able to achieve your long-term financial goals and objectives.
At Holdun, we have always been focused on the long-term, investing in individual companies we deem to be of high quality with strong fundamentals, durable competitive advantages, and a history of growing free cash flow. Whatever happens, in the aftermath of the Brexit vote, we believe that paying attention to those important company fundamentals helps us manage risk, provide a measure of capital protection in volatile markets, and the opportunity for long term capital appreciation.
Diversification, a long term mindset, and the discipline to adhere to a well thought out investment strategy is the path to financial success.
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