Brexit: Score one for sovereignty; score one against the markets.
I don’t like being told what to do, what to think, or what to feel… and neither do the Brits.
The Brexit vote represents the citizens of Great Britain resoundingly rejecting control by the elites atop the European Union ivory tower.
It should be scored as a win for sovereignty—and a win for liberty.
Yet when it comes to financial markets, liberty isn’t always the preferred immediate outcome, especially when that liberty rocks the status quo.
The unexpected outcome of the vote to leave the EU took nearly everyone by surprise (including me), and that surprise is reflected with a robust risk-off trade that sent global equity markets tumbling.
After the first four hours of Friday trade in the U.S., the Dow Jones Industrial Average was down more than 500 points, or about 2.8%
Declines were slightly bigger in the broader S&P 500 Index, which was down some 2.9%.
The flight of capital away from risk assets is a direct reflection of the fear of the unknown that’s sure to reign supreme for at least a little while longer. Fast money tends to flee from uncertainty faster than the mouse flees from the fox.
And while the reaction in stocks put pressure on just about every investor’s portfolio (save for the short sellers), the reactive move in markets is neither cause for panic, nor reason to run headlong for the hills.
Yes, I realize it’s hard to watch your stocks get taken to the woodshed to the tune of 3% plus in one day.
Yet when there’s blood in the streets, and red pulsating from trading screens, that’s most definitely not the time to press the sell button.
So, what should investors do now?
My first advice is to celebrate the current global political environment. It’s one that appears to be rejecting collective control by a handful of unelected elites who think they know better than the individual about what’s good for the individual.
The second thing I want you to do: nothing.
There’s no need to make any rash moves with your money, and there’s no need to react to the current pullback in the wider market with anything other than a sense of calm.
If we see global markets continue to sell off in the succeeding days and stocks come under undue fire, then action to protect and preserve your capital might be warranted.
Until then, I know I will attempt to remain at ease in the face of the current stress—and I will remember that when it comes to the big picture, freedom, liberty and sovereignty are ultimately market positive.