Brexit and Your Portfolio

by Dave Clayman, CMT®, C(k)P®, AIF®, CPWA®, Co-Founder and Principal

June 23, 2016 is a day that everyone who is involved in financial markets will remember for life. In fact, a British politician has playfully (I think) suggested that England declare it a national holiday, their own Independence Day. As you probably have heard on the news, the United Kingdom has taken the historic step to vote to leave the European Union of which they have been a part for 40 years.

Markets around the world were stunned by the announcement as every national poll for the last week had shown that the Leave movement would fail. What does this mean for your portfolio? On days like this, one can never have a small enough allocation to stocks. However, we have purposefully had a significantly smaller allocation than anyone I know of, not because we knew ‪#‎Brexit‬ would happen, but because stocks are expensive and “priced for perfection” (in our opinion) and we all know that perfection never happens.

So it is not that we were prescient about the specific tipping point but we were aware that there is always something and it appeared that markets were too complacent. While today is looking like an ugly day, the S&P is still priced approximately 10% above its low of February 12, 2016. We do suspect that US markets need to fall further and in that scenario, your positions like AQR Managed Futures, Caldwell & Orkin, Gold and VXX should be valuable buffers which should go up when the market goes down.

We still believe, despite the vote, that the Central Banks in Europe and Asia will provide more liquidity to their respective economies to spur growth, and take comfort in the fact that the positions we own there, are far cheaper, by measures of Price/Earnings and Price/Sales than stocks here in the United States.

If you have any further questions regarding your portfolio, please don’t hesitate to call me 978-318-9502 or contact me here. I love nothing more than talking markets (even on days like today).

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