Brexit – Early Thoughts

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Wow, so Brexit really did happen… Despite overwhelming bets made in favor of Bremain, the opposite occurred. I guess it just goes to show that nobody ever really knows what’s going to happen… In regards to investing, here are my early thoughts.

  • Uncertainty reigns supreme. When in doubt, people get scared and try to wane themselves out of “risk” assets. This means moving into traditional “safe haven” assets – cash, bonds, precious metals, it even looks like utilities, REITs, and some consumer staples are holding up well. I am expecting this trade to overshoot in the short-term as the pandemonium starts to kick in.

 

  • Panic creates opportunity. I was watching the ASX last night, and man, did those lithium stocks get hammered (along with everything else)! Some of my favorite names were down -10+%. As investors, if we don’t panic ourselves, but instead use these brief periods of market insanity to pay closer attention, we might just be able to find a golden window of opportunity that presents itself… One of my favorite names was down -15+% at one point… But it ended up finishing the session in the GREEN. No, I didn’t catch the exact bottom, but I did manage to scoop up a good amount of shares at a price well below my original cost basis (I’m quite happy about that). If you trust your investment thesis (see below), you won’t care if prices go lower… You’ll just feel blessed that you’re even in a position to capitalize on such “bargain basement discounts” in the first place…

 

  • Be patient. Although I made a small move last night, by no means do I think the turmoil is over… Far from it… Truth be told, I have absolutely no idea what to expect moving forward… So, I’m going to just sit back, be patient, and watch how things unfold from the sidelines… I don’t think there’s a need to play “hero ball” immediately… Again, I added some shares, but at this stage of the game, I think it’s far too early to be “backing up the truck”… Could things get far worse from here? Absolutely… Could this turn out to be a non-event and just a small blip on the radar? Possibly… But I have no earthly idea, I am nowhere near smart enough to know what comes next… When in doubt, do NOTHING (or the bare minimum; e.g. buy in tranches and spread out your purchases)…

 

  • The importance of hedging. Should the markets recover by next week, or the week after, or whenever, I think the events of last night just help to reaffirm my own belief that we all need to be hedged as investors, at all times… What I mean by hedged is that we should have investments that are anti-correlated with each other… In my own case, I own a lot of real estate, precious metals, and lithium stocks. Well, last night, my lithium stocks got smashed left, right, and center, and pummeled by the markets… So, yes, my portfolio took quite a beating… But since I also own a good deal of gold and silver mining stocks, I was able to offset those losses; my Fear Trade investments saved me from even more disaster… As I mentioned earlier, with these type of events, they’re very much like Black Swans… If we could all see this coming from a mile away, we’d all be multi-millionaires and super wealthy by now! It ain’t easy trying to predict what the markets will do, that’s for damn sure… So, the importance of having hedges set up and in place cannot be overemphasized.

 

  • Trust your thesis. If you are an active investor, know your thesis and know it intimately well. Then trust in it… Your thesis is the only thing that will help you “weather the storm” with full conviction… For instance, I’m a big believer in the coming clean energy revolution. Thus, I am very bullish on lithium and graphite stocks… But I also know that my timeline for that story to play out is between 3-5 years… Since I’m not expecting immediate results, I don’t need to sweat the technique. My thesis is predicated on the countries around the world implementing policies and actions to wane us off of fossil fuels as we switch over to renewables… Does Brexit change any of that? Is Tesla suddenly going to stop moving forward with their Model 3 release schedule? Did China’s smog and pollution problems just vanish away? Is Global Warming now considered a non-issue? Did a new, superior battery technology magically appear overnight that is now going to render lithium-ion obsolete? No! My clean energy thesis hasn’t changed in the slightest bit… It’s business as usual, for all the major players, so why should it be any different for me? Brexit or no Brexit…

 

Last night was definitely pretty crazy… Honestly, I don’t remember anything quite like it since Lehman Brothers of 2008… Every 5 minutes I was getting a new text message from my brother, Living Proof, showing me the GBP:USD dropping more, and more, and more, and more, and then some more…

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But I will confess, it’s the following chart that has piqued my interest the most…

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European banks… How any investor could possibly have any interest in that sector (going long), I have no idea why…

 

Anyway, this whole Brexit event has been pretty surreal…

 

I actually woke up around 4:00 AM PST this morning, I guess because even subconsciously I was having trouble processing everything… Gotta admit, it sort of felt like waiting in line for a Black Friday supersale this morning, as Sharon (Digital Nomad Quest), Bryan (Income Surfer), Sabeel (Roadmap2Retire), Living Proof, and I all anxiously counted down the minutes until opening bell…

 

Interesting times we live in, to say the least…

 

Be safe, and happy hunting!

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grace cruiseFI FighterEric BowlinMidwestern LandlordMike A Recent comment authors
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Tawcan
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I’ll be looking for buying opportunities. 🙂

Roadmap2Retire
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It was like waiting on Black Friday — waiting for the markets to open and seeing if there was anything for sale. There have been a few, but I didnt pick up anything.

Will be interesting to see how things progress once the dust settles around this vote.

Thanks for sharing your thoughts. Like we discussed, investing simply in different sectors across the equity market doesnt give you good hedge. There is correlation…thats why investors need to pick things with different correlation to hedge against big swings.

R2R

Sharon
Guest

Lol Black Friday!

JC @ Passive-Income-Pursuit
Guest

I haven’t been following the Brexit situation at all but seeing just about every market flashing bright red caught my eye. Too bad I’m short on cash right now, well investable cash. What it does to the market is just create a bunch of uncertainty, but in reality I don’t think it’ll do much of anything. 5-10 years down the road I’d venture to guess that no one will even be talking about the Brexit and it will just be a long forgotten footnote in the history of global economies.

Mike A
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Mike A

@PIP “5-10 years down the road I’d venture to guess that no one will even be talking about the Brexit and it will just be a long forgotten footnote in the history of global economies”

I don’t think so PIP. Borders, language and culture is where we are heading. The global economy is still going to remain— but it will be different with a nationalistic preference. No longer are countries willing to allow these global organizations to have this great of influence. I hope we are seeing an inflection point where nations get back to doing for their nation first, others second.

This is the only way nations will survive and I think they want that. To far has everyone been pushed to blur borders. You will see walls, you will see fences, you will see troops at borders. As it should be.

Pon
Guest

I’m looking to buy as well, just wondering which sector interests me now. Last week when there was mass panic, I bought quite a bit already. Today, the stocks I was eyeing just dropped the level which I purchased last week.

If the markets drops just a little more, I’d be inclined to jump in.

chillywit
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chillywit

Still looking to buy more gold as I missed the correction (if you could call it that). Having to remind myself that collecting some profits is better than a poke in the eye with a sharp stick. In a bull market everything feels expensive. There’s no point awaiting for the perfect entry point under these circumstances as gold tends to rally through the fall season. Might follow Fighter into the lithium flats courtesy of Brexit too. Another area of interest is uranium stocks such as UEC, UUUU. They were hit with a double whammy. Last week was a bad one for uranium prices, and today was Bexit. Good luck everyone.

Midwestern Landlord
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Midwestern Landlord

I really like your point on “trust your thesis”. You seem to really have a skill for finding pockets of opportunity. 1st with real estate when it was depressed and now with various stock sectors. One of these days I might just have to jump in with you on some of these ideas.

For now, I just focus on maximizing my rental cash flow. I do like that I have direct control over my rental business whereas I don’t feel the same way about paper investing. Not to say you can’t do well, you have done great. I just sleep better at night with investments that I understand well. I was burned in the market in my younger years and have been cynical ever since regarding assets I don’t truly understand or have more direct control over.

Thankfully there are a lot of ways to make money in this world. Find a way that fits your personality / skillset.

Eric Bowlin
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I think a lot of the reaction is way overblown. This is a great buying opportunity for investors.

grace cruise
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grace cruise

Useful piece . I am thankful for the information , Does anyone know where I can get access to a fillable a form copy to edit ?

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