Brexit: A Catalyst to Put Cash to Work - June 2016
The Bottom Line
Today: “Brexit”- Britain Exits the European Union, Global Markets Fall
- Affinity Capital Portfolios have averaged 50% in cash and fixed-income since the first quarter.
- Affinity Capital has viewed the markets as overvalued and unsteady and have been awaiting a catalyst to put funds to work. We will evaluate today’s market activity as well as news over the weekend that will affect Monday’s open.
- We have made some measured investments today and will continuously evaluate opportunities to incrementally invest portfolios.
- Cash is widely considered to be a strategic part of the asset allocation of a portfolio. We have always considered cash as an investment allocation and a strategic decision rather than cash unused. Warren Buffet and Charlie Munger of Berkshire Hathaway have consistently promoted the use of high cash positions when warranted. For retirement or long-term investors, monthly or quarterly cash positions are relatively short-term periods.
- We limit our television time. We are patient investors managing well-balanced portfolios ill-suited to a sports broadcast play by play approach.
Bad news may move investments but uncertainty rattles the markets
- The markets were anticipating that Great Britain voters would elect to remain in the European Union, (EU)
- The Uncertainties:
- How will this affect a major economy like Great Britain going forward, and then ultimately global economies and markets?
- Is this the first domino to fall in an overall breakup of the EU?
- The European Union was established in 1999 as a primarily economic partnership and secondarily a political and policy partnership among European Countries.
- The primary concern among voters in Great Britain was that the growing political and policy component of the EU had led to a loss of control and identity. Speci fically they wish to control their currency and borders.
- Currency valuations are key right now as the British pound has fallen to 1985 levels.
- As mentioned in a previous market comment, the Dow has had two declines of over 2500 points since last July. These two declines are warning flags. A boxer may get up after getting knocked down in the first round and get up again after getting knocked down in the second round but a definite trend is developing. The Brexit could be the catalyst for a third.
With our partial investments today and additional cash to put to work at selected market levels, we feel well-positioned going forward. Our investment selections and allocations lean to a defensive posture able to weather market weakness while participating in market gains.
As always, please feel free to call with any questions.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Affinity Capital. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.