It is hard for you not to notice that the people in the United Kingdom have decided to leave the European Union (also known as Brexit). The news shocked the world on 23 June 2016.


On that single day

  • Sterling pound fell by 10% against the US dollar to its weakest level in over 30 years
  • Japanese stock market plunged 8%
  • Hong Kong’s stock market dropped 5%.
  • US stock market fell by 3.6%
  • Closer to home, the Straits Times Index was down nearly 3%.

It was a doomed news for the financial market, or really?

Judging by the speed of stock market fall after Brexit, most investors must have been very panicked and sold their stocks holding. The interesting thing is that suddenly a lot of “experts” came out with a crystal ball, some say volatility will remain high; some say there will be a contagious effect; some say financial crisis is coming again…

There are no facts, only opinions. – Ivan Guan

The real question we should ask is, “how should you invest now”? You have 3 choices:

  • Anchor to your previous investment decisions and try to find ways to justify it
  • Bet on your own predictions of the future
  • Make decisions based on currently available information and manage your risks rigorously

To survive any stock market crash or event such as Brexit, you need to be the third one. Here is why.

We think we know, but we don’t

What was the odds of Brexit? You may think it was a tie. The truth is, the probability of Brexit was only around 26% before the voting.

The following chart shows the average betting odds on Brexit. This is compiled information from three markets that trade on the outcome of events such as Brexit, namely Predictit, PredictWise and Pivit.

The probability of Brexit before the voting based on betting odds

In another word, people were betting real money that Brexit would not happen and they were insanely wrong.

We make assumptions about the world around us based on some incomplete or false information. We think we know what is happening but those are merely just our perceptions.

We know the market trends, but we choose to ignore

What will be the long-term impact of Brexit? Frankly, I don’t know. I bet you are the same.

I have never heard of the so-called “Article 50 of the 2007 Treaty of Lisbon”, I also have no idea how the potential two-year negotiation for the UK to “withdraw from the EU in accordance with its constitutional requirements” will turn out.

But there was one thing I knew for sure, I did not want to invest in European stocks at all.  It was just too obvious. It is the same when the oil price was falling.

People may tell you that the market lost the confidence of the UK because of Brexit, is that true? If you look at the exchange rate of British Pound (GBP) below, it has been dropping for the past 2 years (currency tends to depreciate when investors lose confidence in the country). Smart investors have been dumping UK assets for long.

British Pound has been a free fall
British Pound has been a free fall

If we go back to the European stock market’s chart, do you agree it was an obvious downtrend market?

European stocks were the worst stocks in the past 2 years despite repeated recovery stories
European stock markets were the worst in the past 2 years despite repeated recovery stories

It does not take a genius to figure it out stock market trends, but it takes a lot of courage to accept it. – Ivan Guan

Identifying investment market trend is not rocket science, you can do it too if you know how.

Follow a system and you can’t be too wrong

If you have been following my blog, you know I use a momentum system when it comes to growth investing. I named it Global Momentum Compass (GMC) because I hope it helps navigate in the financial jungle.

Whether you just started investing or have invested for a while, you may suffer the fallacy of buy and hold or believe in long-term investments.

I am not saying GMC is the only way you should invest, but that is how I manage the investment portfolio of my clients and for my own.

Are you satisfied with your existing investment performance? Are you struggled to kick-start your investment journey because of fear?

As a fee-based financial adviser, I offer a non-obligatory investment discovery meeting to review your existing investment portfolio. If you want to know more about how I can help you manage and turn around your existing investment portfolio, submit your request using the form below.

About the Author

Ivan Guan is the author of the popular book "FIRE Your Retirement". He is an independent financial adviser with more than a decade of knowledge and experience in providing financial advisory services to both individuals and businesses. He specializes in investment planning and portfolio management for early retirement. His blog provides practical financial tips, strategies and resources to help people achieve financial freedom. Follow his Telegram Channel to join the FIRE community.
The views and opinions expressed in this article are those of the author. This does not reflect the official position of any agency, organization, employer or company. Refer to full disclaimers here.

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