When you know that you don’t know

What might be happening over the decision to stay or leave and what, if anything, can be done about it in terms of your investments?

Who wants to be a millionaire anyway?

Most of us have seen this programme. The contestant is faced with multiple-choice questions, which become more difficult as the stakes are raised.

Tension rises as even the most talented contestants are challenged by the complexity of the question and which answer they should choose, for fear of making the wrong choice. Seem familiar to Brexit?

Phone a friend

Most people have the ‘brainy mate’ who seems to know everything. In Brexit, we have two “friends”:

  • The Remain Campaign – In arguing for the status quo; the “remain” campaign is able to point out familiar characteristics of membership.
  • The “Out” Campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known.

It is impossible for any individual to predict the implications of these unknowns with certainty, so which friend should we even phone?

Ask the audience

Intriguingly, if you can’t decide upon which friend to choose, then why not ask everyone and collate the responses? In the game show, the audience response is unerringly accurate in its choice.

That is how stock markets reach valuations – a collective response to all of the available information.

Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.

Is there a right answer?

While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome.

We have faced many uncertainties in the past – general elections, market crises, recessions, wars – and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.

And while these events have caused uncertainty, volatility and short-term losses and gains, none of them have altered the expectation that stocks provide a good long-term return in real terms.

So what do you think?

At the time of writing, the Brexit result remains very hard to call. Each morning the media publish claim and counter claim prophesies of doom and despair from both sides. From “do it yourself recessions” and crashing house prices, to political emasculation and the diminishment of the UK. So what does the Brexit result mean for you? To be honest, we are not entirely sure and we suspect, hand on heart, not many people do.

However, we have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns.

Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.

So how does this terribly complicated picture impact on portfolios?

Well, in short, uncertainty creates nervousness which in turn adds to volatility. It is worth reminding ourselves that in the week that the UK holds the Brexit referendum we have two major central bank announcements from the US Federal Reserve and the European Central Bank (ECB).

Should we stay or should we go?

We have diversified to cover either eventuality. For example, we believe that government gilts and global equity (stocks and shares) will benefit in the event of Brexit.

Conversely, if the UK population were to vote to remain we anticipate a “relief rally” in UK equities, something we saw in the aftermath of the Scottish Referendum.

However, as we all know, the world will not stop spinning after the vote whatever the outcome, which is why our portfolios hold and will continue to hold UK equities, global equities and government gilts, as part of the well diversified portfolio construction that we believe in.


As a final thought it is useful to look to people who have seen it all before.

To quote one, who certainly falls into that category, Warren Buffett, once said;

“Predicting rain doesn’t count. Building arks does”.

Consequently, we don’t spend that much time trying to guess events which are beyond prediction, but ensuring that we are prepared for long-term outcomes as they arise.

Naturally, if you would like to discuss any issues then please do not hesitate to contact us.

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