Riding the Brexit wave
Kiwi investors should take stock after the UK vote.
When the tide goes out we discover who has been swimming naked. So said the Oracle of Omaha, Warren Buffett, and it is times like Brexit that represent a low tide.
Without the protection of deep water (and with no togs) there will be a few investors – including KiwiSavers – who may be trying to cover up at the moment.
No one knows what will happen with Brexit. There is no precedent for such a thing and no instruction manual.
Opinions vary. Some say there will be a calm and orderly exit, and others say to prepare for the worst. Economies and markets, already fragile and overvalued, will take some big hits.
It is times of uncertainty like this when investors find out whether they have their asset allocation right. Those who have the right proportion of shares, property, bonds and cash will sit more comfortably throughout the volatility.
However, some investors, like naked swimmers, will find that they have taken on too much risk and feel very exposed.
Although most investors should do nothing at the moment, the group who will be hurting and who should act now will be those who have loaded up with an uncomfortable amount of shares. We have had five years of good share market returns and this has caused some investors to forget risk and concentrate solely on returns.
If you are now overly anxious because you have been investing too aggressively, you have your asset allocation wrong.
People with too much risk should act now by selling down some shares.
Investors and KiwiSavers with few shares and big amounts in bonds will find the losses are made up by the profits from their relatively large amounts of bonds. Conservative and balanced investors will find the share price fall softened by an increase in bond values.
There will be good buying opportunities at some point but Brexit will take years to sort out. Buying currency or shares now is far too early. I have fielded calls from clients asking if it is time to buy Sterling or bank shares. My advice has been to wait - be patient and do not try to catch this falling knife.
Just because something is cheaper than it was last week does not mean it cannot get cheaper still. It is still very early days. My advice to potential buyers who hope to profit is to wait - Brexit will be a long game.