Keep Calm and Carry On by John NowakSubmitted by Moller Financial Services on June 28th, 2016
The slogan “Keep Calm and Carry On” was created by the British government in June 1939 as a way to raise morale before World War II. While the stakes are much different, investors may need similar moral support today after citizens of the United Kingdom unexpectedly voted in favor of exiting the European Union last week.
Stock investors usually over-react to unexpected news. Whether that news is a jobs report, pandemic, natural disaster, or nuclear incident, people tend to react with their natural fight-or-flight response. It is in our DNA. This fight-or-flight response is an asset for survival in the wild, but a liability when it comes to investments.
The recent Brexit flight response resulted in the global stock market index (Vanguard Total World Stock ETF) declining 8% on Friday and Monday before opening higher today. Despite this sell-off, the world stock price is higher today (about $55) than the pullbacks in September 2015 ($54.05) and January-February 2016 ($50.96).
The two-day decline is also not unusual for this current bull market that began in March 2009. Below is a list of the short-term declines greater than 7% for global stocks since March 2009.
- May 2010 – four days 9% decline
- August 2011 – five days 15% decline
- September 2011 – four days 9% decline
- June 2013 – four days 7% decline
- August 2015 – five days 10% decline
Even with these short-term declines, the total growth for the world stock market is over 100% since March 2009.
Legendary British-born investor Benjamin Graham once wrote 'In the short run, the market is a voting machine but in the long run, it is a weighing machine.' Like the Brexit vote, the short-term results can come in unexpectedly and surprise everyone. The ‘weighing machine’ is your ability to follow a well-prepared and disciplined investment strategy. We believe that over time Great Britain, its citizens, and the market will be fine and continue to prosper and grow.
Keep calm and carry on. Give us a call if you need a helping hand.