You have likely heard by now that the U.K. voted last week to leave the European Union (Brexit). Financial markets thrive on predictability and last week’s surprising outcome has increased the volatility in the markets. It is days like these that demonstrate the importance of a disciplined investment process and a long-term focus on goals.
The full Brexit is expected to take at least two years to accomplish. 2 years! A lot will be printed and talked about over the next few weeks, but in the end, no one really knows what the complete impact of this will be for the world markets and economies. We can certainly speculate and spend countless hours guesstimating what may or may not happen. However, as we have written many times before, we are not in the business of predicting. Rather we choose to spend our time implementing rules based investment strategies that employ risk management and keep us in the game for the long term.
Here is what we do know. As we step back and take a broader view we see that economic data in the U.S. has continued to gradually improve. The job market is healthy. Housing prices have continued to increase. U.S. manufacturing data has turned higher. Auto sales have been strong and while it may change after today, consumer and business confidence has been improving. In addition, the Fed has delayed further rate increases for the time being.
At the time of this writing the S&P 500, despite the recent selloff, is simply back to levels from a month ago. Drilling down even further, if you are invested in one of our individual stock portfolios, you are a shareholder in companies that will continue to produce and sell their goods and services today. Customers will buy batteries from Energizer for their children’s toys and flashlights. The summer heat will have many drinking Gatorade from Pepsi. Crown Castle’s cell phone towers will still allow you to use your smartphones when away from home. Critical healthcare products from J&J and Becton Dickinson will be used all over the world today. General Mills cereal will be eaten and Republic Services will continue to pick up your garbage and recycling regardless of what is going on in Europe.
If you are invested in one of our diversified ETF and mutual fund strategies, a portion of your portfolio may be invested in products that focus on lower volatility and higher quality investments. In addition, gold is part of these strategies as well. If your personal investment plan is appropriate for a fixed income portfolio, know that bonds may actually increase in value today, showing the benefits of diversification. Again, a paramount reason why we continue to preach diversification.
In spite of these news driven market volatility events, we remain steadfast here at Lakeview. Per our investment philosophy, we will continue to own higher quality assets and remain diversified. We will remain resolute to our risk management strategy which includes stop loss levels on our holdings. We will also check our emotions at the door and stay true to our rules based disciplined strategies. We ask you as our clients to do the same.
Please know we are available to answer any questions you have so don’t hesitate to call or email.
Source: Greg Towner, CFA®, CMT