Assessing The Brexit Bombshell

June 30, 2016


In another example of the “smart money” not knowing anything useful, the Brexit caught many off-guard.

My inbox has been inundated with never-ending opinions as to what will happen, to whom or by when all from the smart people who misjudged the Brexit call in the first place. Evidently, the smart money has a very cloudy crystal ball.

Possibly, the best line heard in describing the entire situation was “This is a great day for journalism.” Yes, that may be quite true. Sensationalism makes for attention grabbing headlines. However, does it sell more product, employ more people or increase GDP? Not really. In fact, it does little unless you are invested in the journalism and/or advertising business.

Many described Britain’s exit from the European Union as a divorce. We don’t think it is as dramatic as that. Great Britain is still going to do business with all of its neighbor countries.

Certainly, some business agreements, regulations and immigration policies will be renegotiated. However, regardless of Britain’s status, people will still buy food and drink, pay the electric bill, watch TV, drive their car, go on vacation and do pretty much everything they were doing before. Furthermore, despite the knee-jerk reaction, none of the changes will be implemented for two years.

Probably the only one whose life will immediately change is David Cameron, the now former Prime Minister of Britain, who resigned the day after the election.

If the Brexit is causing you sleepless nights, there are few things you should evaluate.

First, the short-term blips of the stock market should never affect your day-to-day living.

Always have enough non-volatile liquid assets set aside to cover three to six months’ worth of living expenses. If the short-term volatility of the stock market is bothering you, then revisit your time frame. Understand that things go “bump in the night.” We just never know when. One of the best factors for enhancing stock market returns is to have patience and a long time frame. In managing money for ourselves and clients, we never allocate money to stocks unless we have a 10-year or longer time frame. Time heals many things that appear scary at the moment.

Secondly, recognize that when you own a stock, you own a business.

Behave as if you own 100% of that company. If you owned all of HEB, Academy, or Buc-ee’s would you sell out just because Britain was leaving the EU? Doubtful. The reason you own a stock is because of its long-term profitability. Focus on profits and facts, not emotion and irrationality.

Thirdly, remember the stock market is no different than the local livestock ring.

If you go to the auction and don’t get the price you like, you can go home and wait for prices to improve. The financial markets are not there to give you fair or full pricing, but rather quick pricing. As such, offer financial markets liquidity. Sometimes, people who demand quick pricing will receive good prices, but most likely they will not.  

Additionally, financial markets have always been bumpy and lumpy in the prices offered. Even in “average” years, the stock market will jump up or down by 15 percentage points. Some years, it will increase or decrease by more than 35 percentage points and, at the extreme, the markets have bounced up or down by 60 percentage points over a two-year period. If you know this, you will be better prepared the next time an unusual event occurs.

Topics: Investing

Dave Sather

Sather Financial Group

Dave Sather is a CERTIFIED FINANCIAL PLANNER and President of the Sather Financial Group, Inc. Sather Financial Group is a $400 million “fee-only” wealth management firm based in Victoria. Sather Financial is ranked as one of the top independent wealth management firms in the country according to Financial Advisor Magazine. Dave was raised in El Paso, received his B.A. in Business Management from Texas Lutheran University and received his M.B.A. from Texas A&M University. He has spent the past twenty years in the financial analysis, investment and banking industries. Dave is an adjunct professor in the business program at Texas Lutheran University. Additionally, Dave is a director of Business Bank of Texas as well as the Chairman of the Finance and Investments Committee for the Brownson Children’s Home and is a member of the Executive Advisory Council at Texas Lutheran University. He resides in Victoria, Texas.
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