Founder of wealth management company SCM Direct, Gina Miller, edifies investors on how to navigate turbulence in the aftermath of the Brexit vote.
Following the Brexit announcement on 24 June the whole country ventured into unknown territory and several of my female clients got in touch to express concern over their investments. The future is uncertain – which is like poison to stock markets – but investors need to stay calm and be as objective as possible.
To ride the waves of uncertainty in the short to mid-term, savers and investors need to focus on the longer term. Data from the FTSE shows that since 22 June 2009, investing £1,000 in the FTSE 100 would have given investors a 46.29 per cent increase on their investment, compared with just 0.5 per cent return on cash.
On 24 June there was drop in markets but not as much as many experts were predicting before the referendum vote. I was not surprised as we have not yet left the EU and we have no idea how things will pan out. For example, UBS forecasted just a few days before the vote that the FTSE 100 could fall, following a Brexit vote, to as low as 4900. At the time of writing the FTSE 100 stands at 6033.
A common theme of the referendum was that so called ‘expert’ views were frequently wrong. The problem was that people seek a concrete answer but as with any financial forecasting, no one has a crystal ball to see the exact future – however much they pretend they know best.
The only near certainty, in my view, is that overall volatility of markets is likely to rise and the fundamental questions investors should be considering are one, how can I dampen down my overall portfolio by investing in different assets that are likely to be impacted by differing degrees and in different directions to unpredictable events? And two, how can I actually benefit from such times of uncertainty?
At SCM Direct.com and MoneyShe.com we believe the answer is greater diversification across and within various asset categories. Take the Brexit Referendum – for a GBP sterling investor, many of the falls in overseas markets have been reduced partially or fully by the falls in sterling. Within the UK market, the impact on the largest UK stocks, in which our UK equity exposure is focused, has been less than smaller to medium sized companies, due to their greater overseas exposure.
You can see how this works in action by looking at our in-house portfolios. Even though the headline level of the FTSE 100 is down 3.4 per cent from the end of 2016, as of 10.15 am 24 June, all three of our portfolios remained in positive territory.
In terms of benefiting from an uncertain time, the answer is a simple strategic one, which is to be well diversified. Seek out assets deemed attractive on old fashioned fundamental yardsticks and take advantage of market opportunities as they present themselves.
Highly successful investor Warren Buffett, the Oracle of Omaha, who is a master at outperforming the market during bad times, has three golden rules:
The absolute worst thing investors can do in a correction or crash is to panic and sell out. If history is any indicator, stock market corrections and even crashes are a completely normal part of a healthy stock market. In some cases people who buy at the worst possible times end up winning over the long term.
2 Buy cheap, sell high
Instead of looking at it as an excuse to panic and sell, a market correction should be embraced as a time to build up on your favourite stocks at a discount. In Buffett’s words, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it’s marked down.” During a down turn, your losses are only on paper. However, if you decide to “cut your losses” and sell, that’s when they do become real.
3 Not all cheap stocks are worth buying
Another one of my all-time favourite Buffett quotes is: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” But if you don’t have the time or expertise to make these decisions yourself, turn to an expert who has their own money at risk and invests side by side with you, on exactly the same fees and terms.
I do appreciate that it takes nerves of steel to put money into a falling market, as you may not see the gain next week, next month, or even next year, but years down the road. But as the L’Oreal advertisement says, ‘Ladies, you are worth it’!
About the author
Gina Miller co-founded SCM Private in 2009 as a challenger brand offering modern investment management underpinned by ethics and 100 per cent transparency. In September 2014 Gina launched SCMDirect.com, and MoneyShe.com which uses technology as an enabler to offer low cost, high quality investments to smaller clients.
Gina is also a passionate philanthropist and conscious capitalist which infuses everything she does. She lectures and funds projects on financial equality, domestic violence, disability, special needs education and employability, and second chances for ex-gang and prison offenders. Gina also funded and co-authored reports on modern day slavery and social justice for the Centre for Social Justice. Through her foundation, True and Fair, she supports small dynamic charities making huge impacts.