Hi Guys,
Much worry, much overreaction, much uncertainty, many diverse predictions from market prophets, and likely not much change whatsoever. I hesitated to contribute to this MFO dialogue that focuses on the Brexit event because I believe it will be modest in scope, in magnitude, and in timeline.
Over the world map, our population has not changed, our consumption characteristics have not changed, our entrepreneur cohort is constant, our wealth level remains at a high level, and the event will be spread over a generous timeframe.
As Alfred E. Newman arrogantly said: “What, Me Worry?” Here is a short music video that documents Newman’s famous saying:
On a far more serious note, here is a Link to a 10 minute Charlie Munger video that emphasizes the wisdom of staying the course during market disruptions:
Stock markets are a rollercoaster ride. We must be flexible enough to absorb all dislocations; they happen frequently enough. The long term history of various stock markets clearly demonstrate the robustness of our industrial revolution.
Yes, the British decision will promote some reordering and redistribution of who does what and who makes what. But the marketplace does this all the time anyway. Often, it's identified as progress.
As I reported earlier, I am not making any change to my portfolio. Sometimes, it’s a challenge, but I am committed to sitting on my investments.
Experts fail at the prediction game. Most experts predicted that the Brexit initiative would not be accepted. They were wrong about that; they will likely be wrong about the impact of that decision also.
As Lao Tzu observed: “Those who have knowledge, don’t predict. Those who predict, don’t have knowledge.” An anonymous source adds that “Forecasting is the art of saying what will happen, and then explaining why it didn’t”. The data show that market forecasters are well practiced at that art.
Given the cumulative cataclysmic world events that we have survived, recovered from, and finally prospered from, the Brexit vote hardly deserves to qualify for that list. I don’t sweat it and plan to stay the course. Naturally, I encourage each of you to locate and follow your own North star.
Patience and commitment will be rewarded. Don’t trust me; trust the market historical data sets. Calm carries the day.
Best Wishes.
Comments
And thanks for posting that excellent Charlie Munger clip, MJG
"Over the world map, our population has not changed, our consumption characteristics have not changed, our entrepreneur cohort is constant, our wealth level remains at a high level, and the event will be spread over a generous time frame."
Thanks for reading my post. I was trying to lighten the mood.
Catch, you presume correctly. I wrote the brief paragraph emphasizing that the world economy one day before the Brexit vote was essentially the same as the day after the vote. It was a little tongue in cheek. I do expect some adjustment over a longer timeframe, but then a new normal will be established that has a relatively minor impact on the US stock market.
I have little confidence that my future guesstimate will be accurate. I'm just having some fun. My forecasting record likely equals that of the experts. It's equivalent to a 50/50 coin toss.
Best Wishes.
Thank you MJG.
I fear Brexit is another example of "scorched-earth" politics, but one that actually succeeded. Hard to believe that such an important national decision could be decided with just a simple majority, instead of say two-thirds.
(Another example of such politics is the refusal to vote on Supreme Court nominee Merrick Garland.)
Financial sectors hammered Friday, since so-called passporting rules, which I believe allow banks based in London to operate seamlessly in other European countries, are now up in air.
Might read the brilliant and perhaps more disturbing piece published in The Atlantic recently, entitled "How American Politics Went Insane".
Thanks again.
Hope all is well.
c
Hi @Charles
You noted: "Hard to believe that such an important national decision could be decided with just a simple majority, instead of say two-thirds."
You'll enjoy this even more, Nov. 1994: major trade policy passed with Lame Duck congress.
I find the above very disgusting. I met with some U.S. house members at the time and found them mostly clueless and not qualified to make a proper decision for such important legislation.
― Carl Sandburg
The discussion about Brexit here are like the quote above. People don't discuss why Britain should have remained. They focus on the law and pounding the table.
The people have voted and the world is still spinning. If Britain was not the first to leave it may have been Greece, Spain or an Eastern European country.
MJG put it all into perspective very well.
Putin has been consolidating power recently, and a less united Europe plays into his hands. This is probably my biggest fear. I think the folks arguing to leave were sold a bill of goods, and are suffering near term buyers remorse. The larger impact may indeed be down the road with a destabilized Europe.
If an investor utilizes an empirically derived, systematically based, risk managed process with a diversification over different asset classes, then long term results shouldn't be affected by news driven, geopolitical events.
For example, investing in a blend of small cap value and emerging small cap from Nov 1 to Apr 30 and then switching to utilities sector or cash equivalents ( depending on signaling instruction from risk profile variable * ) from May 1 to Oct 31 of each year, forward 5 year total returns periods after 10 major geopolitical events over the last 50 years have produced: > 100% in 7 periods and 50% - 100% in 2 periods with no losing periods.
A more compelling test of an investment process' returns involves a review of 5 year total returns after market peaks and then subsequent market corrections of > 5%. Since 1954, forward 5 year total returns periods for the small cap value / emerging small / utilities / cash process after the "peaks" have produced > 100% in 11 of 24 occurrences, between 50% and 100% 5 year total return periods in 8 out of 24, with no losing periods.
* quantitative price based variable # 2 https://stockmarketmap.wordpress.com/2015/11/14/market-map-model-tactical-asset-allocation-using-low-expense-index-etfs-2015/
Thank you all for participating. Really thoughtful stuff!
We are all free to express our opinions. They are only opinions, some better informed then others, but still opinions. Those who claim to own a crystal ball often need to cleanup broken glass.
I did read the extensive “The Atlantic” article recommended by MFOer Charles. It is a fast paced rush through our nation’s political history. I agreed with many of its interpretations, and took exception to a few others. The author’s interpretations are similarly only opinions. The referenced piece is a worthwhile read. Thanks Charles.
Chaos seems to be synonymous with democracy. That’s the way it was in the beginning; that’s the way it is currently. And it’s not unique to the United States either. As Sir Winston Churchill remarked: “Democracy is the worst form of government, except for all the others”. Chaos can produce good outcomes.
It is a constant struggle not to allow democracy to decay into either full chaos or perhaps even tyranny on the opposite side of the scale. Historically, even Plato warned about that danger. But we have successfully escaped that dire outcome for over two centuries with an unfortunate history of electing terrible Presidents.
We are survivors. It may take some time, but we finally do recognize the dangers, adjust our behaviors and preferences accordingly, realign our support, modify our reactions, and ultimately overcome Washington’s transgressions. They have been numerous, but they have always been imperfectly overcome. In the political arena, just like in life itself, perfection is an unrealistic target, a textbook illusion.
Unlike the referenced article, I don’t worry the constant exposure that the political class must now address. Basically, that exposure is goodness. Yes there are some negative aspects to it, but from my perspective, the good far outweighs the bad effects. Yes, the Brexit decision will cause some disruptions, but we will discover some functional workarounds that limit its impact, and perhaps even promote a better world investment climate.
The folks in West Virginia will survive the flooding. Brexit is far less threatening to us.
Best Wishes.
http://www.bbc.com/news/world-middle-east-25299553
But as I posted in another thread the EU was going against the historical trends. We can expect more countries to leave the EU in favor of localized government.
Longer term Europe will build stronger ties with Russia and it will not be a bad thing for them. And it will be going back to what it was historically - Russia, just another western European country. Russia is not the USSR, it is facing the same problems as the western European countries.
You noted: " Brexit is far less threatening to us." ??? Than flooding or something else???
OMG..........a prediction based upon the unknown...............as with "black holes", one may presume with confidence, eh?
No,No! Never in confidence as I have made abundantly clear in endless earlier posts. Forecasters have a terrible scorecard, and can't forecast with any reliability. That includes me, and I don't consider myself a forecaster. Forecasters are really guesstimaters, some lucky but not for long.
My closing comment was meant to draw a distinction between the "clear and present danger" of those West Virginians currently exposed to ongoing flooding conditions, and the nebulous, uncertain threat of a future Brexit rolling effect. One is real, while the other is a definite maybe. Now that's a big league distinction.
Why so exercised over a rather innocuous comment that just made a comparison between the now and the possible future? You are making much of 1% of the post that was mostly independent of the main theme of that post. That theme would not be degraded whatsoever if that closing statement were entirely deleted from the submittal. Some folks might call your comments nitpicking. You're always free to do so.
Best Wishes.
As has been said "May you live in interesting times".
For example, investing in a blend of small cap value and emerging small cap from Nov 1 to Apr 30 and then switching to utilities sector or cash equivalents ( depending on "high risk" signaling instruction from risk profile variable * ) from May 1 to Oct 31 of each year, forward 5 year total returns periods after 10 major geopolitical events over the last 60 years have produced: > 100% in 7 periods and 50% - 100% in 2 periods with no losing periods.
A higher confidence of an investment process' returns involves a review of 5 year total returns after market peaks and then subsequent market corrections of > 5%.
Since 1954, forward 5 year total returns periods for the small cap value / emerging small / utilities / cash process after the "peaks" have produced > 100% in 11 of 24 occurrences, between 50% and 100% in 8 out of 24, with no losing periods with median 5 year return = 87% vs. 43% for S&P500 buy & hold. Median 5 year return periods outside of correction occurrences = 114%.
In summary, market corrections and geopolitical events are temporary. An investor who has utilized a robust tactical investment process combined with superior asset class selection, and has been disciplined and patient for at least 5 years has been well rewarded.
* quantitative price based variable # 2 https://docs.google.com/document/d/1u5PjMjpeLICy8fa-34c89oHqV6bghPTipGO_0IY3VRc/edit?usp=sharing
http://finance.yahoo.com/echarts?s=^N225+Interactive#{"range":"max","allowChartStacking":true}
And the S&P with its double tops
http://finance.yahoo.com/echarts?s=^GSPC+Interactive#symbol=^GSPC;range=my
Eventually, 'this time is different' happens.
I don't think the Brexit will do it. I think will be acknowledging deflationary pressures will be the cause. We are not there yet. And it is a difficult idea for the news media to see and understand.