Bernard Gallimore

23rd September, 2016

IC Insights

An indirect lesson from Brexit…

Seven months on from my last blog ( and we are now in Kalkan, Turkey. We are 2,500 miles away as the crow flies, but we still haven’t managed to escape Brexit; the fall in the value of sterling has caused the cost of food and drink to surge dramatically since last year. As I’ve grown older I’ve developed the urge to take the opposite view, on this occasion reminding the four Brexiteers in our group of six “how much cheaper it was last year!” I probably should be careful, as there is only a finite number of times you can say “it’s all Brexit’s fault” without being banished to another part of the restaurant, or even town.

In reality, the exchange rate to the Turkish Lira is still very good, and remains considerably higher than it was five years ago (mentioning this would have removed the satisfaction though, so I didn’t). It’s funny how people overemphasise changes like that in the short term, without putting them into context over the longer term. Last year for example, a holiday to Turkey wouldn’t have raised an eyebrow, but this year I’ve started to hear comments like “good luck” and “oh dear”. What has changed… my response should be:

“Mate, we are actually holidaying in a place that’s over 10 hours’ drive from Istanbul and Ankara, and even further to the Syrian border. Arguably, most European capitals are as dangerous as Istanbul and if you ruled out anywhere within a 10-hour radius of Paris, Brussels, Munich or London you would be struggling to find anywhere to holiday!”

It’s clear that what’s really changed is sentiment. Whilst you should never say something will never happen (it probably will sometime and somewhere) we cannot allow ourselves to be bound by ‘potential’ threats that ‘might’ affect us one day. Yet looking around the resort, the number of visitors is considerably down and the local economy is struggling. It feels from a distance that things have altered, but in fact nothing much has changed.

This brought me to consider short term and long term thinking –  something the Investment Committee at DB Wood distinguish between quite often. When a risk is in vogue, maybe the chance of a recession in the UK, or the potential for the US to raise interest rates at the wrong time (thankfully, they didn’t on Wednesday), sentiment can massively drive markets in the short term, even though not much has really changed. As the hysteria subsides though, over the longer term things should revert back to how they were (just like tourists coming back to Turkey).

From their commentary, I can clearly see that markets are in an appropriate environment. Whilst I do not profess to be an expert, I do note that often large daily moves in investment markets happen on the back of pretty much nothing (either that or the Turkish version of the Sun is not very informative). Every time a policymaker sneezes it causes a chain reaction across most markets, so to me markets are thinking very short term. From our point of view, either being able to stick to our guns, or move against the grain to take advantage of an opportunity, should ensure great rewards over time.

I think it was Warren Buffet who famously said (and to note, he is older than me and therefore wiser) “be greedy when others are fearful, and fearful when others are greedy”. Sat sipping a nice glass of red in Turkey, I can truthfully say I agree Mr Buffet. Touché.