About a week ago, we woke up with a new word, Brexit, and everyone was all a twitter about it. People who had never given a thought about the small island off of the coast of Europe called “Great Brittain” were suddenly selling in a panic because it — Egad! — was voting to exit the European Union. Sure, the country had existed for more than five hundred years as an independent country and had done just fine, conquering most of the known world at one point, yet for some reason it can no longer stand up by itself. Obviously, its economy would instantly collapse without the support of the autocrats in Brussels. Really?
So what did I do when I heard the news of the Brexit? Other than say it was a stupid name? Nothing. Absolutely nothing.
OK, not quite. I did find that I had a couple of thousand dollars sitting there in cash in one of my accounts, so I called my broker and said I’d heard the stock market was on sale today. I bought another hundred shares of a company that is on my watch list, LKQ Corporation, for about $32 per share. It had fallen a couple of dollars per share that day, so I wasn’t too picky about the price I got. Of course, it decided to fall down to about $29 per share over the next few days after I bought it at $32 as the saga of the great and powerful Brexit continued to wreak havoc on known civilization. This is the risk when you buy a falling stock, particularly one falling for no apparent reason.
Now, about a week later, the stock markets have all basically shaken off the effects of the Brexit. My LKQ is back up (I’m still at a small loss because of commissions.) Some economists will say that it is because the voters in Great Britain really didn’t mean it and will vote to nullify the Brexit vote now that they have come to their senses. That it was just a protest vote that many didn’t really think would pass and are now eager to undo. I hope not – I think Great Britain can stand on its own just fine and do much better without unelected eurocrats telling them what to do.
I think really that now that the event has happened, there is more certainty in the markets. (The markets hate uncertainty because they don’t know how to value stocks when things are uncertain. They therefore pay a much lower price than they would if they could figure out what they should be paying.) Now that the news it out there and people have had a chance to digest, they realize that it really isn’t all that bad.
In general, once news events have happened, it is too late to do anything anyway. You’re “locking the barn doors after the horses have been stolen.” If events cause an unjustified sell-off, as this one appears to have done, you might be able to take advantage of the opportunity to pick up some shares. Conversely, if you’re a couple of years away from needing the money, you should be moving to cash anyway, regardless of what the market is doing. Your investment strategy should ignore the hysterics and remain on course regardless of the headlines of the day. Sometimes you need to have a “stiff-upper-lip,” as the Brits like to say.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.