Britain Elects to Leave the European Union; Markets React

Markets around the globe experienced heavy selling pressure after the unexpected vote by British citizens to leave the European Union (EU). Asian markets saw the worst selling pressure, but most of the world markets experienced at least a 3% decline. One thing we know is that news of this magnitude spurs widespread reaction by speculative traders and so-called “investors”. Reactivity is the kindling to opportunity. We are anxiously awaiting entry points for current cash positions and new money.

The “Brexit” will take months, if not years to complete.  This is not a flip the switch and be out type of referendum. There will be a schedule of events and a timeline of work to be done in order for Britain and the United Kingdom to become independent, once again. The United States and Britain are very strong allies and it is very likely that we provide great support in assisting them with this transition. New banking and trade policies will be formed. There is no doubt that this decision will create an enormous amount of work and a large number of new regulations, which will take years to finalize and implement. After all, Britain has been a part of the EU for 46 years. A move back to the Pound as the stand alone currency may pose a few challenges, but will ultimately find stable ground. Companies will adjust to the new sanctions, laws and currency related issues and consumers will continue buying cars, dining out, drinking Starbucks coffee, and posting about their lives on Facebook.

We have been holding between 7% and 10% cash in our growth models and will likely be taking advantage of this short-term sell off by investing that cash in high quality dividend paying companies. We made the decision to sell some of our international holdings at this time to provide us some cushion while my team and I monitor the outcome and get a better handle on any other marginal countries making plans to exit the EU. The risks presently are that the Eurozone could disassemble and political unrest may cause the entire European region to fall back to post WWII silos. EU officials will likely make an example out of Britain to dissuade any further fallout from existing countries so this outcome seems remote.

Remember, there will always be a reason to “not invest” in the equity markets.  We are mired in several this year. Each and every market decline has been followed by a new high. Treat negative market news and reactivity like you would a sale at your favorite store – with a smile. This will all pass just as Y2K, 9-11, Desert Storm, SARS, banking collapse, real estate collapse, oil collapse, and hundreds of other “scary events” that have come and gone.  I leave you with this thought – ‘What Would Warren Do’?  In times of uncertainty, ask yourself what the most famous and successful investor of our lifetime would do. He is probably smiling and sharpening his pencil to write out his investment shopping list.

The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material, is not a complete summary or statement of all available data necessary for making an investment decision, and does not constitute a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Billy Peterson and not necessarily those of RJFS or Raymond James.

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