The United Kingdom Exits the European Union
Capital Markets Around the World Slammed as Uncertainty Reigns
It is 1:48 a.m., Central Standard Time here in Missouri. I am sitting at the desk in the home study after a long day of working on launching the global asset management business (we’re in the process of evaluating advanced performance reporting platforms and client portals at the moment). Aaron and I went out and walked a couple of miles earlier, talking about our thoughts on the various technology vendors. When we got back, he finished his work and is now playing the original SNES Super Metroid game on Nintendo WiiU.
I’ve avoided speaking about the Brexit situation because I ultimately believe that it is not my place to tell British citizens how their country should be run even though I am a stakeholder in their success. While there are what I could consider extraordinarily high probabilities that the decision to leave the European Union will lead to lower GDP, the fact remains that GDP isn’t everything. Money, and the economy, exists to serve a civilization. The current system has largely failed a meaningful percentage of men and women; created a sense of unfairness, perceived or otherwise, that the elite continually waive off as immaterial. Even now, they seek to explain away their loss. It’s nonsense. No matter what opponents may argue, there are intelligent, moral reasons a British citizen might vote to divorce itself from the EU if he or she valued certain things above material comforts, accepting short-term pain for what they believed to be a superior long-term outcome. If Great Britain wants to reclaim some of her sovereignty and independence, she’ll adapt. While she does, she’ll certainly have the United States on her side. We’re family, after all.
The markets did not anticipate this was a possibility. Now that the news has hit the world, as we sit here in our pajamas about ready to turn in for the evening, British futures are down 10.55%, German futures are down 9.75%, French futures are down 11.82%, Dutch futures are down 10.53%, Spanish futures are down 16.90%, and the Japanese market was falling so fast that the circuit breaks were triggered, halting trading.
Moments like this are among the reasons I constantly, perhaps too frequently, talk about the importance of avoiding debt, paying cash for your securities, keeping enough liquidity around that you can never be forced to sell, and owning things that are of sufficiently high quality that you never lose sleep. While there was definitely an intrinsic value shift for certain businesses, for most components in most intelligently constructed portfolios, this isn’t particularly meaningful over the coming decades in the sense that a lot of people think it is going to be. I have no idea what will occur when markets open – things could stabilize and no one remember it years from now or we experience a 1987-level event – but It’s not going to cause Nestlé any great hardship or stop Johnson & Johnson from doing its thing whether shares are slightly up or lose 25% of their quoted market value. If anything, there are certain businesses that are likely to be caught up in the tide that a reasonable person with a business-like approach might want to consider acquiring.
All of this may amount to an ephemeral tempest in a teacup. Or it could start a Global Depression. On that front, your guess is as good as even the world’s best economists because we’re in uncharted territory. What is certain is that you’ve run your estate wisely, it shouldn’t particularly matter to you or your family. If you find yourself with half of your net worth gone on paper as the current ask and bid prices dance around all over the board, deal with it. Get over it. This right here – this experience – is the reason equities tend to shower their owners with wealth over multi-decade periods. Such an event should cause you no emotional distress. Great businesses bought at attractive prices and held for sufficient periods of time have historically been a dream combination.
If you’ll excuse me, I am going to go to bed. I’d like to get some sleep. Whatever world we wake up to tomorrow, know that I’ll probably be paying little attention to it except to figure out if there is anything I want to add to the balance sheet. Neither I, nor anybody else, can predict the market. What I can do is to do my best to value cash flows and assets, pay a reasonable price for them, and put them on the books in ways, and structures, that offer certain tax and asset protection advantages. The rest, I’ve found, takes care of itself if you’re patient enough.