"Brexit not a major issue for true investors" - Rory Gillen

Brendan Burgess

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A good article from Rory here:

https://www.gillenmarkets.com/featured_articles/brexit-not-a-major-issue-for-true-investors.cfm

"In an interview with Warren Buffett on US television (mid-2015, I think), the interviewer asked Buffett if he was worried about the then upcoming Friday employment numbers. Buffett replied that he bought See's Candy, the Californian-based luxury confectionery maker, in 1972 for $25 million when it was earning $4 million annually. Today, See's Candy is earnings $80 million annually, a 20-fold increase. He said he didn't worry about the gyrations in employment numbers then, and he doesn't now.

That's kind of how this newsletter service thinks about Brexit. Sure it's an issue, but probably not overly relevant on a medium-term horizon, and certainly not hugely relevant to the vast majority of stocks and funds we cover and recommend to subscribers of this website."
 

cremeegg

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Well then it is not a very good article is it.

Uk economic policy for the last 40 years has been based on closer integration with the EU. Now that has been stopped in its tracks, with no plan as to what the basis of future economic policy will be.

That is in no way comparable to fluctuations in employment numbers in an economy with continuity in its basic policies.

There are many possible futures for the UK economy, but all are starting from ground zero now and face but strategic and execution risk.

In my opinion the Uk will fall into the hands of neo-Thatcherists driving down taxes wages and government. Their overall economy may grow but inequality will soar.
 

odyssey06

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I would find it hard to disagree with the general thrust of the article e.g. "Sure it's an issue, but probably not overly relevant on a medium-term horizon, and certainly not hugely relevant to the vast majority of stocks and funds we cover and recommend to subscribers of this website."

But I think the author was stretching it a bit with the quote from Buffet which feels like it has been shoe-horned in.
If he had a quote from Buffet about the UK joining the 'Common Market' back in the 1970s, that would be worth reading!
e.g. I bought British company X shares in 1972 before the UK joined Europe, they were a good investment then and still are now
 

cremeegg

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So it is a good article?

I am very confused now.

Brendan
The article is about the effect Brexit will have on stocks and three named stocks in particular. I dont know if it is good or not in that respect. As far as the comments about Brexit go, the article completely misses the point.


"Sure it's an issue, but probably not overly relevant on a medium-term horizon."

The Uks main trading relationship is ending. That is relevant over the medium-term and the long-term. No one knows whether whatever comes after will be better or worse, but the potential exists for it to be very much worse.

"And we seriously doubt that Brexit ranks up there with any the real calamities that have occurred over time."

Brexit may not even be a calamity, most people in the uk apparently think it is a good thing, but it is a BIG thing. Comparing it to fluctuations in monthly employment statistics is, dozy !
 

odyssey06

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The Uks main trading relationship is ending.
*Possibly* ending... it's quite possible to imagine a scenario where the UK remains in the common market but not in the EU.
All the referendum asked is whether to remain in or leave the EU. Most MPs favour remaining in the common market (the Norway \ Switzerland model) and I would expect majority of the population too given that 48% wanted to remain in the EU - though maybe not UKIP voters.
 

Brendan Burgess

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Brexit may not even be a calamity, most people in the uk apparently think it is a good thing, but it is a BIG thing. Comparing it to fluctuations in monthly employment statistics is, dozy !
OK, I see your point now.

But the overall point is that the stockmarket does very well over the long term, and this is one, albeit unwelcome,dip along the way.

Brendan
 

Sunny

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*Possibly* ending... it's quite possible to imagine a scenario where the UK remains in the common market but not in the EU.
All the referendum asked is whether to remain in or leave the EU. Most MPs favour remaining in the common market (the Norway \ Switzerland model) and I would expect majority of the population too given that 48% wanted to remain in the EU - though maybe not UKIP voters.
Maybe. But Norway allow free movement of people and contribute to the EU budget. Not exactly part of the Leave campaign. They seem to think they can leave and then act like nothing has happened. That won't happen. Wait for the first bank to confirm thousands of job losses in London and watch the panic start.
 

Sophrosyne

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*Possibly* ending... it's quite possible to imagine a scenario where the UK remains in the common market but not in the EU.
All the referendum asked is whether to remain in or leave the EU. Most MPs favour remaining in the common market (the Norway \ Switzerland model) and I would expect majority of the population too given that 48% wanted to remain in the EU - though maybe not UKIP voters.
Boris Johnson also thinks this is possible. He said so this morning.

Following Johnson's comments, David Cameron was asked in the House of Commons today whether there are any countries that are in the single market that don’t also have to contribute to the EU budget or accept the free movement of labour.

Cameron said there isn’t one.
 

odyssey06

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I don't know what the ultimate settlement will be... but in the range of options...
(1) UK stays in the EU with further opt outs after second referendum
(2) UK has same deal as Switzerland & Norway - this entails much smaller EU contributions than full membership, and requires free movement of labour.
(3) UK remains in Common Market but with ability to limit movement of labour.
(4) UK outside Common Market, but with some sort of 'most favoured nation' trading status
(5) UK has no trade deal with EU

(5) would be the one with potential for wider financial impact. Now that the ball is in parliament's court, and it's quite possible that a remainer will succeed Cameron, 2-3 would seem to me to be the likeliest outcomes given that the majority of MPs favour 1-3 and the majority of the population favour 2-4 (if not 1).

In 1975 the last time the UK population were consulted, they joined the Common Market. This time they were asked to leave the European Union. There's a big range of options between full EU membership and some membership of the Common Market.

Update: It should also be noted that 2 and 3 would likely appease the Scots, and mean no need for a border between Republic and the North - there is no border between Norway and EU countries.
The UK might be able to swing 3 on the basis of a higher contribution to the EU budget e.g. 50% of what they currently put in, which is their leverage in any negotiations.
 
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cremeegg

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But the overall point is that the stockmarket does very well over the long term, and this is one, albeit unwelcome,dip along the way.

Brendan
It does while the market economy which underpins it continues to function as normal.

The St Petersburg stock market lost 100% of its value in 1917, when the economic system which supported it collapsed.

More comparably, the market value of the Irish banks fell effectively 100% following the recent crisis.

Unlike many others I cannot foretell the future however, Brexit may well be comparable in scale to the 2008 crisis.

Standard & Poors has been the most supportive of the agencies toward Britain in recent years. Here is what they think of Brexit.

“In our opinion, this outcome is a seminal event, and will lead to a less predictable, stable, and effective policy framework in the U.K. We have reassessed our view of the U.K.’s institutional assessment and now no longer consider it a strength in our assessment of the rating.”
 

Brendan Burgess

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The St Petersburg stock market lost 100% of its value in 1917, when the economic system which supported it collapsed.
I am not sure if you can compare Brexit to the overthrow of a government by a communist revolution.

The banking crisis is probably a better comparison. Have diversified portfolios not recovered?
 

Gordon Gekko

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The point is that things happen...the Communist Revolution, World War II, the Cuban Missile Crisis, 9/11, the Financial Crisis. Of course an investment in the Russian stock market or Irish banks or Nokia can result in permanent wealth destruction. But a diversified investment portfolio has always done fine through whatever nastiness the world throws up. Brexit is just noise for the diversified investor with a medium to long term time horizon.
 

joe sod

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Boris Johnson also thinks this is possible. He said so this morning.

Following Johnson's comments, David Cameron was asked in the House of Commons today whether there are any countries that are in the single market that don’t also have to contribute to the EU budget or accept the free movement of labour.

Cameron said there isn’t one.
I wouldn't put much importance on what boris johnson says, he hasn't a clue what to do now because he never believed that brexit would win referendum. No european leader will deal with Johnson now so the tories are mad if they make him leader, especially as europe is now the no 1 issue for them and will be for a very long time. There is talk that they will never initiate article 50 once they realise the huge costs on their economy.
 

horusd

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There is of course the added issue of Scottish independence and all that throws up. Scotland will not be led out of the EU against its will per the SNP. If/when article 50 is triggered it requires approval from these mini parliaments -approval it won't get, what then? Regardless of immediate economic impact, Brexit is and will continue to convulse the entire British political system with deep and seismic existential impacts. Not exactly the right environment for stability or business confidence. And of course we haven't even mentioned NI and its majority in favor of Remain. Tis a complete and utter mess.
 

Sophrosyne

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I wouldn't put much importance on what boris johnson says, he hasn't a clue what to do now because he never believed that brexit would win referendum.
That was essentially my point!

The slogan of the Vote Leave campaigners was "take back control", which convinced older voters and those in deprived areas that the UK could return to its former glory, control its own destiny, raise its own taxes, control immigration, replace EU laws and regulations with its own and pull out of the EU more or less overnight.

But it is all unravelling. Vote Leave, including Boris Johnson, had no forward plans and were shooting from the hip.

Since the stark reality of what they have done has dawned, they have backtracked, deflected and denied.

UK politics is in turmoil. The continued existence of the "United" Kingdom is under question.

By resigning David Cameron has, quite rightly, dumped them in it.

The new, more than likely pro-Brexit Prime Minister will have to negotiate a deal with the EU from a vastly weakened position.

Would British citizens who backed Vote Leave accept any deal that involved free movement of labour or the all pay and no say Norwegian style agreement?

Uncertainty will rule for at least a two-year period.

Meanwhile, businesses and the markets, to which uncertainty is an anathema will not wait.
 
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cremeegg

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While comparing brexit to the russian revolution is certainly over the top, things indeed do happen.

The point is that things happen...the Communist Revolution, World War II, the Cuban Missile Crisis, 9/11, the Financial Crisis. Of course an investment in the Russian stock market or Irish banks or Nokia can result in permanent wealth destruction.

But a diversified investment portfolio has always done fine through whatever nastiness the world throws up. Brexit is just noise for the diversified investor with a medium to long term time horizon.
A well diversified portfolio in St Petersburg, Shanghai, and Berlin were all wiped out in the 20th century.

The idea that a "diversified investment portfolio has always done fine through whatever nastiness the world throws up" is only true if you confine your attention to those parts of the world that have not undergone a seismic shift in the basis of their legal and economic systems.

Brexit by itself is a seminal event to quote S&P, the political turmoil that seems to be engulfing the UK, may pass but it may do considerable damage before it does.
 

SBarrett

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We all know that there will be stock market crashes, investment risk is part of why we make returns. What we never know is what will cause these crashes to happen. We have just found out the reason for this one!

These crashes are indiscriminate and ignore the qualities of individual companies. As the CEO of Domino's said when their stock price fell by 7.9%, "People will still want to eat pizza"


Steven
www.bluewaterfp.ie
 

joe sod

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Regarding Russian revolution , yes shareholdings may have been wiped out but so too were property and cash , maybe only gold if you could successfully horde it but then how do you sell it , the authorities would have confiscated that too and you would be severely punished from hiding it from state. As for Germany after ww2 shareholdings in German industrials survived and prospered after the war with rebuilding, I think they fared much better than property which was wiped out in the bombing . Also cash was wiped out during the Weimar republic. So any asset can be wiped out during incredible periods, there is always good reasons for not investing, in many cases more convincing than the case for investing.
 
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