Prime minister Boris Johnson reckons the UK will be leaving the European Union on 31 October “no ifs or buts.”
With the situation still unclear as it looks like the country could leave the EU either with a withdrawal agreement of some kind or without one, how does that affect investing?
There’s always something to worry about
Leaving the EU won’t affect my investing strategy at all. Because there’s always something to worry about in the world of investing — the so-called ‘wall of worry’ that stocks have to climb. If anything, I think the stock market will heave a sigh of relief when the UK finally exits the EU because businesses and the financial markets hate uncertainty.
And we’ve certainly experienced plenty of uncertainty over the past three years because of the Brexit ‘process’. But even that has been small-fry if you step back and consider the macro-economy around the entire world. There are bigger things to worry about if you must. Think of the trade war between the US and China. Slowing growth in Asia. The prospect of a new nuclear arms race between Russia and the US (and potential proliferation of nuclear weapons among other, smaller countries).
But if it wasn’t those issues, there would be others to worry about. Yet over the long haul, shares have out-performed all other major classes of assets such as property, cash savings and bonds, despite all the fretting and worrying we can always indulge in. I think shares will continue to out-perform in the decades to come.
Opportunity in the market
Brexit will look like a blip on the charts five or 10 years from now, in my opinion. But it’s not even clear whether the act of the UK actually leaving the EU will be seen as negative or positive by the stock market. It’s positive that the uncertainty will end, for example. It’s positive that many of the UK’s largest public limited companies trade beyond the UK and Europe. And right now, it’s positive for investors wanting to buy shares if valuations are being held back by Brexit uncertainty.
There’s even opportunity in the market today because of the effects of the Brexit countdown. The pound is weak against the euro and the dollar, which makes UK assets and companies look cheap for overseas investors holding other currencies. And we are seeing a fair bit of action in the markets where a foreign company bids for a British firm. If one of the stocks you’re holding receives a bid, there’s a good chance it will be at a premium to the market share price, which would drive the price of the stock up.
So I think now is a great time to be buying and holding individual shares and share-based investments such as index tracker funds or managed funds. But which stocks should you buy? Nothing has changed. Look for shares underpinned by good-quality enterprises with a decent trading record, a strong trading niche in their markets and a reasonable valuation. That’s always a decent strategy, in my view, and any stock market weakness we see in the immediate future could throw up even more opportunity for investors.
