June Recap by Jack Moller

BREXIT!!! Or, Maybe Not … Oh, So Humbling

I’m guessing close to all of you have read about (been inundated with?) the surprising vote by the United Kingdom to leave the European Union after 40-plus years.  As John mentioned in his blog post, “Keep Calm and Carry On”, the markets reacted very emotionally as they sometimes do by selling off sharply.  All of a sudden, the world seemed to be a mess with massive uncertainty.  Beliefs varied from, “this is catastrophic for England and/or Europe” to “maybe in the long run it will be good as the UK jettisons some of the stifling rulings forced on it by the unelected bureaucracy in Brussels.”  Then there is the debate as to whether the impact will be primarily felt overseas or if it will came back to these shores.  What strikes me is the utter futility in trying to predict what will happen.  My goodness, the experts were so wrong on the outcome of the vote with all of the polling data etc. that the idea they are going to successfully predict the future path amid the mind boggling complexity just doesn’t make sense to me.

However, the one thing I (and most “investment people”) will likely tell you with great confidence is that the market reacts the most to surprises.  And, a surprise of this magnitude would undoubtedly trigger a violent reaction.  Well, we were right ... sort of.  The initial reaction was panic selling of stocks and buying of safe-haven bonds.  The disaster predicted by many was no doubt unfolding rapidly.  Until, of course, it stopped, reversed course, and many markets ended the month about where they started.  I highlight this with great humility, a humility that I think is appropriate and necessary for all of us when it comes to markets.  What I’ve seen over and over and over during this last quarter century as a financial advisor is what a waste of time and money it is to invest according to predictions.  The future is unknowable.  Period.  Even if we could predict the economy’s course (not really possible, of course, as even recessions are not usually “called” until they are nearly over), we just don’t know how the markets will react.  I’ve seen markets soar on “good news” and crash on seemingly good news.  I’ve seen markets go both ways with “bad news” as well.

Sound Strategy + Patience + Discipline = Success

While I personally have never been good at generating prescient market opinions, I do know that following a well-planned, diversified investment strategy does work over time.  The key is quite simply not to abandon the strategy during those inevitable periods when they don’t seem to be working.  As mentioned in a previous post, “How Long Is Long-Term”, the historical range of stock returns over one to ten year periods is very high.  But disciplined investors who were able to stay the course even during the occasional and inevitable “bad” periods have historically been well rewarded over 20-year timeframes.   This is why patience and discipline are required for any successful long-term plan.