Saturday, June 25, 2016

Post Brexit sell off yields plenty of bargains for astute investors

This week in a historic vote the people of the UK narrowly voted to leave the European Union. The leave side was maligned in the press relentlessly as racists and rubes for not understanding the damage they would do to the UK economy.

Being a member of the EU means giving up sovereignty to unelected bureaucrats in Brussels, some of which were former communists! I suspect the main reason the British voted to get out was the immigrant invasion and all that goes with it. Nevertheless I don't see how this will be a negative long term. Sovereignty will be restored to the British people and the elected officials will now determine what policies the UK will put into place. The tendency will be to put British interests ahead of the interests of the EU whatever hell that means. 

This action is part and parcel of what I have been predicting for some time. As people begin to see that government policy and the elites have failed them economically, socially, and politically they are rejecting the status quo for more populist and nationalist sentiments. 

They are throwing off the yoke of central authority that is concerned only with its powers and perks and could care less about the "little people". Expect to see more of this all over Europe and here in the US as Donald Trump has real chance to become President.

As this is an investment blog the comment I have is that the big worldwide selloff that happened post election is an excellent opportunity to take advantage of peoples irrational fear. The first fact to realize is that although the UK voters are choosing to leave the EU it will take at least two years before this even happens. The second thing to realize is that the UK is a very large economy and regardless of the scaremongering there will be trade between Europe and the UK.

The reason that the mainstream media and statist politicians are painting a negative picture for the future of the UK is because they are scared that this "leave the EU sentiment" will spread to other EU members, which of course it very well could as both Marine Le Pen in France and Geert Wilders in the Netherlands have called for referendums. 

Investment markets hate uncertainty so with the 24/7 press putting forth all kinds of apocalyptic scenarios we have a "ready shoot aim" scenario where people just sell because they are scared due to uncertainty. When you panic sell of course you do not get a good price especially if other lemmings are selling also. 

I like panic selling because prices tend to drop significantly as selling pressure overwhelms the buyers. I will make other peoples irrational panic my opportunity. For example, the Vietnam Opportunity Fund which I discussed in a previous post was selling for $3.00 a share prior to Brexit. This price was already a discount of 17% to the net asset value of the fund's holdings. The stock dropped to $2.83 post Brexit which is even more of discount to the value of the funds holdings. 

Vietnam is going to grow at plus 7% per year over the next several years regardless of what happens in the UK. The selling in VOF is unwarranted but it is an opportunity to pick up shares at a cheap price. There are many other examples. Oil was down 7% however nothing changed regarding the supply and demand fundamentals. 

There might be some more selling over the next several weeks but interested investors should be putting together a shopping list of companies they want to buy and take advantage of other peoples irrationality. 

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