The EU referendum has prompted some lively debate here on the Stockopedia discussion boards in recent days. Paul Scott’s daily reports (such as here and here) have had a huge response, and we’ve had some great views on portfolio positioning, stocks that could be due a referendum bounce and even a poll of subscribers. From our side, Ed and I have written on some of the psychological challenges triggered by uncertainty here and here, and what to do about them.
With opinion polls still pointing to a close result, it’s impossible to make predictions about the outcome or the consequences either way. One area of general agreement is that the uncertainty of a Brexit vote would likely cause a lengthy period of market volatility, perhaps stretching across European stock markets as well. If you believe the words of famous financier George Soros, we could be in for a ‘Black Friday’ if the UK votes to leave. By contrast, a vote to remain in the EU will arguably see a relief rally and return to business as usual, albeit with some very frayed nerves.
If things go to plan, the referendum result should be out by 7.00am on Friday morning, just in time for the market open. So what’s an investor to do? At Stockopedia we advocate a checklist approach to investing to help fend off the risks of emotion-driven impulse trading. So here are some ideas. Feel free to pitch in with your own in the comments below.
In case of Brexit
1. Prepare for prices to freak out
One of the key figures in researching and understanding volatility was the late Professor Robert Haugen. His work on the subject found that volatility caused by uncertainty actually feeds on itself - see this previous article by Ed. In essence, the very existence of volatility causes more volatility which leads to extremes of uncertainty and pricing.
Many economists agree that leaving the EU would be damaging for the economy (at least in the short term). And they think it would create uncertainty in relation to how specific companies, sectors and the economy as a whole might be affected. So a Brexit is perhaps likely to cause some momentary mayhem as investors struggle to figure out the repercussions. Specific sectors - such as banking -…
