MARKET COMMENTARY: Second Quarter
July 15th, 2016
There’s an interesting phenomenon playing out in the financial press, in the form of a missing word that speaks volumes about human nature. That word is: “referendum.”
Almost everywhere we turn, we’re seeing headlines referring to the “post-Brexit” environment. To imply we are in a “post-Brexit” environment is like stating that a newlywed couple is enjoying a “post-marriage” honeymoon. Current headlines really should refer to the “post-Brexit referendum,” because only the referendum is done. In it, a narrow majority of U.K. voters called for a disunion from the EU, but any actual Brexit is likely to be playing out for years to come. Only then will we be truly “post-Brexit.”
There is a practical reason for the lapse. The media must keep its headlines short and snappy, and “referendum” is neither.
We also suspect there are behavioral forces at play. For better or worse, it’s easier to wrap our heads around compelling conclusions, since neither we nor the markets know what lies ahead. As we saw illustrated this quarter, the markets react to each new piece of information by leaping upward, dashing downward or staying put. Sometimes these knee-jerk reactions end up being accurate, at least in hindsight; often, they prove to be irrational or just plain wrong.
In this context, it stands to reason that we’d rather think about the Brexit as an isolated event that we can make sense of right now. It’s much harder – and yet important – to accept the chronic state of uncertainty that is and always will be inherent to disciplined global investing.
This quarter and ongoing, we encourage you to continue focusing on your enduring relationship with the market. Your “partner” has its moments – that’s for sure. But you can expect happier outcomes by tolerating its tempers and abiding by the solid investment principles upon which your portfolio has been built to last: remaining globally diversified, absorbing risks in pursuit of expected rewards, managing costs, and staying true to your goals.
Like you, we’re in this for the long-haul.