I’m sure many of you know by now that Britain voted to leave the European Union (EU).
The current government wanted to make it super simple for voters. They gave them the simple choice of ‘in’ or ‘out’.
A lot of people are rejoicing at the idea of a Britain not encumbered by the pressure of the EU. However there are probably just as many people on the other side who dislike the outcome. Voting came down to the wire. The end result was 51.9% ‘leave’ and 48.1% ‘stay’.
As soon as the Brexit votes were counted the financial world made headlines. Gold went up, the pound went down, and financial markets around the globe shuddered with the fear of uncertainty. But is the decision to leave good or bad for Australian investors?
The S&P/ASX 200 has dropped 5.1% from its high on Friday. This shouldn’t be viewed as a bad thing. This is a typical case of an overreaction by the market. Already people are selling.
Why? Because they believe things will be worse in the future. However, there is still no empirical data to base this contention on.
An article in the Australian Financial Review this morning stated, ‘the direct impact on Australia of Britain’s decision to exit the European Union should not go too far beyond the hit to investor sentiment for now, say economists.’
And I completely agree. The global economy is like a child. And a child must have a play toy. In the present case, this play toy is Britain leaving the EU. However there will come a point where the child will become bored. The world will move on and find a new more exciting play thing.
So if the only thing that has been injected into the market is fear, why not capitalise? Of course this will be risky; no investment bears zero risk. But as Warren Buffett says, ‘Be greedy when others are fearful and fearful when others are greedy.’
Junior Analyst, Money Morning
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