I know more than a few financial journalists who bought the FTSE100 before the Brexit vote, expecting a ‘relief rally’ as we voted to stay. They got their rally – but off the back of a leave vote. Right outcome, wrong reasons. These things are hard to call.
I had coffee with the boss of a large UK fund manager yesterday who was unashamedly clear that he hadn’t a clue what lay ahead. Such honesty is unusually smart IMHO. Trouble is you don’t sound very credible on Newsnight as a financial expert if you say that you haven’t a scoobies what’s going to happen. But this week, my special place in hell is for the financial ‘experts’ who produce endless column inches telling us how to position portfolios for Brexit. Delusional egotistical madness.
Well, looking in the rear view mirror, I can at least tell you with certainty what has happened over recent months. Talking to online investment businesses, they report that people are nervous, selling up and moving into the perceived safety blanket that is cash. 2018 was bumpy, portfolios were down over the year, bloody Brexit is freaking us out and people are getting spooked. But is this flight to cash sensible?
I think the short answer is No. In one scenario, if we do have a no deal Brexit, that basically marks us out as a basket case high-risk scary market. International investors will say “No Thanks”, ditch their pounds and sterling will be as popular as a spotty boy at his big sister’s birthday party. Which means it will tank.
We have to then think of cash not as the safe, familiar folding stuff that can go under a mattress, but as its own asset class. A type of investment. And it’s the worst short-term bet I can think of making. Why would you sell out of a nicely balanced global portfolio to sit in the really uncertain asset class of sterling? Right now, cash looks like the wolf in sheep’s clothing to me.
Her view is that the most important and difficult thing to manage over the coming months is currency. She also reminds us that big global brands in the FTSE 100 which make most of their money abroad– think firms like Burberry (posh macs), GlaxoSmithKline (drugs) and Pearson (education) - will look stronger if sterling falls and they translate solid dollars back into cruddy old pounds. So sterling tanks and the FTSE rises – just as retail investors are bailing out of the stock markets and heading to cash. Ouch. Of course this is only one potential scenario but you get the point.
And when you look at the UK in a more global perspective, maybe it’s not as stuffed as many make out? I talked to a hugely experienced Research Director this morning and he pointed out that Italy is in recession yet again, there are riots in France, Germany’s flirting with recession and the US is battling shut-downs and trade wars. Gosh aren’t humans doing well!!
Nothing different. Make sure there’s a cash buffer for emergency spending or needs over the next year or so. And leave the rest in markets, spread around a decent mix of countries and businesses. Which make or do things that I understand and generate a profit. Nothing weird. Nothing trendy. Don’t fiddle. Eat chocolate. Keep wine in the fridge. And turn off the telly and phone.
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