Brexit has left a worrisome wake for investors, which is why we're exploring how best to run your portfolio during this volatile time.
The madness of Brexit has caused tumults of chaos in worldwide markets. How are you meant to manage your portfolio in this chaos? STRIDE believes it’s a practice of patience and diligence, which are the qualities of any successful investor. But during volatile times, patience can often leave you for loss aversion as you find yourself chasing after the market. That’s why we explain in our Practical Guide to Value Investing series just how to manage your portfolio in the wake of Brexit.
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How to Run Your Portfolio in the Wake of Brexit
3 Easy Steps to Outlast Volatile Markets
1. Sit Still and Do Nothing
That's right, sitting back and taking a long, deep breath is the best response. The worst action would be to panic and try to act out of loss aversion. Sit tight and stay the course that you've set out on.
Almost undoubtedly, overtime the market will balance out and again begin to reflect the returns that your portfolio had planned. This is where the most important aspect of a value investor's character comes into play: patience. As value investors, we aren't for timing the market, but rather place our trust in long-term investments that require the patience of at least 3-5 years. That's why volatility shouldn't bother you, if you've invested in long-term value.
If you look at any historical market drop, for those who managed to hang on and stay their course, the market eventually circled back and began climbing again.
2. Re-evaluate Your Portfolio Strategy
The most important concept during volatile times is "risk management". How do you manage risk? Do you run away from it, fearful to even approach the subject. Or do you navigate your portfolio with a level head and see where you can afford to risk and how much.
A lot of the decisions that will come with re-evaluating your portfolio and managing risk, will be down to your investor profile. In this profile, you will have decided on what level of risk you're happy to accept, where you want to invest and what kind of return you're expecting. Re-look your decisions and balance them against the current outlook of the market, but remember that you've made long-term investments and most volatile movements of the market shouldn't direct a change in your portfolio strategy.
You can learn how to create your investor profile by reading my previous blogs.
3. The Intelligent Investor Diversifies
As Scott Nursten (CEO, STRIDE) explained in one of my previous blogs, value investors should seize this opportunity. If you follow STRIDE’s 3D value investing techniques, you’ll know that diversification is particularly recommended in volatile times.
Once you've re-evaluated your portfolio strategy and investments, it's time to protect yourself against volatile markets. Diversification is best used as a risk mediator. Essentially, it helps to limit risk by spreading out your investments over multiple sectors, geographies and industries. How? Well, it follows the rule that where one investment might fall short, another will rise to make up the loss, thus protecting you from the shock of a volatile market. This helps to curb an investor's temptation to avert loss in a panic or make overconfident decisions. As mentioned previously: "You only ever diversify from an understanding that we can’t control markets, and that they will always fluctuate". You can read more about how to diversify in my previous blogs.
Scott Nursten's take on Brexit is to find "great companies and buy them cheap. If anyone thinks that, in the long-term, there won't be a housing market on a small island that is one of the financial power houses of the world... then they're delusional".
Download our Practical Guide to Value Investing below so we can guide you through running your portfolio in detail.