A New Beginning?

With the UK voting to leave the EU having unleashed all manner of market messiness in June, we find ourselves with an interesting and uniquely positive view of the road ahead. Like the drive to the local railway station in the early morning mist, visibility is limited, yet as the day wears on the way should become clearer.

It’s arguably times like this that are simplest to analyse though. The keyword is of course uncertainty, and what do we do when times are uncertain? Look at it like this: Imagine you’re a golfer. Everyone knows golfers go out onto the course whatever the weather. It looks as if there’s a thunderstorm brewing – an 80% chance according to forecasts. Of course, you go out and play. You’ll put on your waterproofs and pack your enormous umbrella but, by Jove, you’re going to play. You adjust your game for the conditions and you play well. You’re no fair weather golfer!

Another potential (and entirely made up) situation. An important referendum is nigh. Heavy rain is forecast and the news anchors are suggesting many may not head out into the deluge to cast their votes. It’s raining after all. In this case, however, the inaction of those who wouldn’t brave the storm has ushered in an even greater one. A Tempest! This Tempest appears pleasing to many but it’s left those who wouldn’t face the initial storm holed up inside.

All that’s been written above is post-Brexit vote. Yet it argues that action is better than inaction, whatever the weather. Action realises opportunity. Inaction does so only for other people.

Opportunity knocks again

So, action it is – but you want to know where to focus your energy. You’ll need every bit of it in some areas of the market but there are others that are tamer. Financials for example. Rough and potentially thrilling. Like bungee jumping, you’ll need to calculate how much cord you need to avoid being dashed on the rocks before the tension hurls you back into the sky. These stocks are the most sensitive to the Brexit uncertainty and the implications that’s had for global growth and the course of both UK and US monetary policy. Banks like it tight (namely higher interest rates) but the fashion appears to favour the loose these days.

Consumer goods / pharmaceuticals / tobacco. Defensive. More like riding the Severn Bore – catch the wave and it’s exhilarating, miss it and as long as the tide’s coming in the river might at least be flowing the right way. At the current time there are many discounted stocks and plenty of bargain hunting to be had, but remember a bargain’s not a bargain until it stops getting cheaper.

The fence separating the bulls and the bears – certainty from uncertainty – is easily visible through this particular morning mist. We are therefore eschewing a cautious approach to selecting this quarter’s portfolio, because in this instance caution may well bring decent capital gains as well as the traditionally sought income. Why throw caution to the wind and hope for more?!

Let Q3 2016 herald the rise of the fussy glutton…