Less than a month ago world finance markets tumbled as news of Britain’s Brexit vote first got out. If there is one thing investors hate, it’s the unexpected news.
For three days stocks got pounded as nervous sellers dumped their shares in expectation of a market pullback.
Three days later stocks turned sharply and began to quickly recover. The NASDAQ, DOW, and S&P 500 all climbed at least 1%.
It didn’t take long for investors to suffer seller’s remorse and jump back in. In fact, less than a month later the S&P 500 achieved it’s biggest breakout in over a year, and has been making new highs virtually every day since.
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Investors that held are already back in the green. Investors that waited, then bought in near the bottom have made a killing.
There are lessons to be learned from incidents like Brexit. Here are just a few.
Have Cash
It is incredibly important to keep cash as part of your portfolio. What ratio of cash to stocks you choose to keep is up to you.
Investors that had their portfolio in large amounts of cash were able to scoop up incredible deals during the Brexit fallout, and many of them have likely made incredible gains in less than a month.
Beginning Stock Trader recommends basing your cash on current market conditions. The market previous to Brexit was an obvious market to keep a lot of cash in.
Investors were jittery with potential news from the federal reserve on rate increases, the S&P 500 was just about to hit all-time highs, and we are over 6 years into one of the biggest bull runs in U.S. history. These conditions were ripe for a scare, and Brexit provided the opportunity.
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See Big Picture
The crash largely came because investors didn’t full understand the impact Brexit would have. So unexpected turns, combined with the unknown pushed people to cut their losses and wait it out.
It is worth noting that Brexit does have the potential to hurt U.S. stocks, particularly those that do business in Europe. However, many news outlets reported potential worse case scenarios, pointing to the end of the European Union and the rise of Russia.
While these are possibilities, they are unlikely. What is more likely is Britain will try to keep business as close to normal as possible.
Many Brits that voted for Brexit aren’t in favor of massive changes, they are in favor of having more say, which the Brexit vote gave them.
Sell Soon or Hold
It became quickly clear that Brexit was going to have at least a short-term effect on stocks. Those that sold quickly on the first day were able cut losses and buy back in at or near the bottom.
Others held on for a few days, then sold. There is no worse feeling then selling your shares, seeing that you were one of the lowest sellers, and that the bounce occurred right after you sold.
In an event like Brexit, or Black Monday, or any other financial meltdowns, hold your shares for the long run, or sell as soon as you see world markets react. It usually takes a few days for stocks to start recovering after news like this, so don’t be the one to sell at the end.
To most of us events like Brexit mark great opportunities. It is like the Black Friday of stock market shopping.
There are great deals everywhere, and often recovery comes extremely quickly. Study the news, decide for yourself whether it truly has the potential to send the world into recession, then take advantage of the opportunities that are presented.
