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Short-Termism Gets Brexecuted

The S&P 500 is fast approaching all-time highs again after the brief Brexit scare. I guess that was the fastest panic and recovery during the current bull market. Of course, this has been a repeat theme over the last 7 years. Investors were so badly scarred after the 2008 crisis that every little hiccup in the financial markets has been called the “next 2008”. Brexit was just the latest case of this. I was very quick to downplay the impact of the Brexit here saying:

bremain brational. Brexit will create a lot of uncertainty and emotional reactions in the markets, but I suspect this won’t derail the global economy and we’ll have to find something new to get scared about in the coming months and years.

Here’s what I said on Twitter:

This is the danger of listening too closely to short-term oriented financial pundits and financial TV. All of those people who sold after the Brexit event have now realized a permanent short-term loss/gain, higher fees and (probably) higher taxes. But the problem of short-termism isn’t the main problem here. The key point is, if every little event in the market is scaring you out of your asset allocation then there’s a good chance that your allocation and risk profile are misaligned. The intelligent asset allocator constructs their portfolio during the bull market so that it can withstand the uncertainty and (inevitable) downside of the bear markets.

Speaking of portfolio construction, the July 4th weekend is probably a good weekend to get really nerdy and read my free paper called “Understanding Modern Portfolio Construction”.  Reliable sources tell me that the paper improves sleep, reduces wrinkles and makes you look better in tight clothing.  I can’t say that writing it did any of those things for me, but whatever.

PS – Happy 4th!  Especially to you Brits out there!  🙂