On June 23, citizens of the United Kingdom voted to leave the European Union. While there has been much speculation leading up to and since the vote, many of the longer-term implications of the referendum remain unclear, as the negotiations regarding what the UK exit may look like long term is only just beginning to take shape.
The Big Picture
One of the biggest challenges of being a good investor is distinguishing between things that have a fundamental impact on your long term returns versus news and events that cause volatility but serve more as a distraction and potential roadblock to your long term success. We view the events in the UK as a great example of the latter. Investing in its purest form is simply participating in the global economy by owning a broad and diverse mix of companies that reflect the global market place as a whole (UK stocks make up just about 6% of the global market). There has been an incredible amount of progress and growth around the world over the past decades and inevitably the future will hold more of the same. The businesses that make up the global economy, including those in the UK, will continue producing products and services that the world will need and use, and undoubtedly they will become more productive and efficient in the years to come. This is what we need to focus on as investors. For those that are disciplined and diversified, the rewards of long term investing have been, and will continue to be, very plentiful. Alternatively, history has been very cruel to those that attempt to speculate and invest based on short term economic changes and predictions. The details of how the UK extricates itself from the EU and how they reestablish trade agreements with the rest of the world is very much unknown at the moment. While this will likely cause some turbulence and angst, we must look beyond this and focus on the big picture when it comes to our investment portfolios.
Wisdom From Warren Buffett
Warren Buffett, the founder and CEO of Berkshire Hathaway and esteemed advocate for the individual investor, was asked a couple weeks ago about the prospects for the UK and what changes he might consider making. He mentioned that although he had no idea how the events would unfold, “even if David Cameron were to assure me ahead of time that the UK would in fact leave, it wouldn’t change one iota of what I do with businesses and stocks.” Warren has an uncanny ability to see the big picture and to stay focused on what drives long term returns while not fretting about the inevitable bumps and detours along the way. This also holds true for seeing past other often sited causes of concern such as changes in interest rates, government deficits, and changes in tax policy. All of these factors have an effect on the markets, but the global economy is extremely resilient and always manages to become more efficient and productive despite these headwinds.
We take inspiration from Buffett and help our clients develop plans that focus on the big picture and the things we can control. We then develop a disciplined process to manage your investment portfolios, which are specifically designed to weather economic uncertainly such as this. We believe market volatility will more than likely remain heightened in the coming weeks which naturally causes feelings of concern and unease, and of course it’s never enjoyable to see lower account values. However, we empower you to put less weight in the day-to-day news and to have faith in the future productivity of the global market place. And as always, we encourage you to reach out with any questions or concerns.