Brexit Schmexit – A Quarter Later

September 9, 2016

Back on June 23rd, an historic vote was held that will eventually lead to Great Britain’s exit from the European Union (AKA Brexit). This vote was a shock to the market. In fact, on the day of the vote, traders had positioned themselves with 80% confidence that the vote would go the opposite way. Their guess was wrong, and quickly they had to make adjustments to curtail their market losses.

These events led to two nasty days in the market where large US stocks (S&P 500) lost over 5% and international stocks (MSCI EAFE) lost almost 10%. In hindsight, it’s easy to understand why Brexit had such a negative impact on the markets. Great Britain, the European Union’s second largest economy and the world’s fifth largest economy voted for a huge change with an unknown impact, sparking great market uncertainty. No one had ever left the European Union, let alone a giant economy that was volunteering to do so. What would this mean for the market? For stocks? For the Euro? For national security? All of these questions along with the big drop in the markets invoked fear, and justifiably so.

But what has happened since then? Fear subsided and the markets took over. Yes, the British vote was historic, but how much different were things fundamentally than they were a couple days prior to the vote? Even so, the whole process of Britain formally leaving would take a couple of years. Time would still be needed to digest and understand the true impact of this vote.

Now, just over a full quarter later, we see a lot of positive results to staying the course. In fact, since those two ugly days in the market, large US stocks are up 9% and international stocks are up over 11%. This leaves us with solid returns for global stocks (S&P BMI Global) of 6.6% on the year through August despite the two bad days triggered by Brexit.

The markets are unpredictable, and this is the most recent testament to that. Returns could have easily kept falling and we’d be able to look back and convincingly explain why they in fact did continue to slide. But they didn’t. They rebounded and did so significantly. If a reactionary move was made after the vote, nothing but negative consequences would have been the result thus far.

It’s never easy to be an investor. Just think, even if you had a crystal ball of events that were coming our way the first eight months of 2016, you would still have no clue what type of market return those events would produce. Here are just a few of those events:

  • The worst start to a year in stock market history
  • Oil continuing its bottomless fall
  • Recession fears mounting in the US
  • An unpredictable presidential election cycle
  • Brexit

Our emotional side would say wait that stuff out, but the markets don’t have the patience to wait for us to be comfortable. If we wait, we miss an opportunity when it inevitably comes. In the short term, it can often be painful to be an investor. But if you have a proactive and strategic approach that makes you an investor rather than a trader (see March Madness and Mad Money), you position yourself to enjoy the long-term fruits that investing brings. While in the moment strategy can appear stubborn, in the end, investing without strategy is guesswork, and that’s a far cry from a sound way to manage your wealth. The markets continue to prove this time and again.