Why Brexit will be a non-event

In just a few days, Britain will vote to exit or stay in the European Union (EU), or as it’s more commonly known “Brexit” (short for British-exit).

It’s not the first time the UK has asked its people to vote on staying or leaving. In 1975 the country also voted – although at the time the vote obviously was to stay in – by an overwhelming majority of 2:1.

This time, various surveys and polls have at times indicated both that the UK will stay and will leave the EU, and the result is likely to be much closer than in 1975, although bookmakers are still tipping the UK will stay.

That uncertainty – which is something all markets despise – is causing highly volatile moves in the markets, including the stock market. Hence the reason we saw the S&P/ASX 200 sink 2.1% on Tuesday last week, and fall further on Wednesday with most shares sinking indicating a broad-based sell-off.

Brexit is not the only thing we’ve ever had to worry about

However, we could compare the Brexit to Scotland’s vote for independence, or have you forgotten about that already? In 2014, Scotland held a referendum to decide if it should be an independent country – and not part of the United Kingdom. The “No’ side won with 55% of the vote, but at the time, one pundit suggested a “Yes” vote would herald a Great Depression. In the event, Scotland’s independence vote was a non-event markets-wise.

Or what about Greece’s exit from the Euro Zone before that? The ‘Grexit’ now hardly seems to have been important given it became a non-event too. But at the time, markets were in a frenzy, selling off en masse in June 2015. The benchmark index lost 7.3% of its value in the three months to end of June 2015 — the worst quarter since September 2011.

It’s also perfect fodder for the doom and gloom merchants to declare this is the end of the world – further scaring investors.

In a couple of years’ time, most investors will hardly remember Brexit. And Grexit and Scotland will likely be even further from their minds.

Instead, we’ll have new things to worry about – as the stock markets have for many, many years and they will still continue to be the best long-term investment.

Repeat after me

Investing remains simple but not easy.

  • Buy shares in a diversified array of high quality companies.
  • Hold for the long term.
  • Reinvest on a regular basis.

If you think about the actual companies that you hold in your portfolio and the impact a Brexit would have on their financial performance, investors would be crazy to sell out of most ASX-listed shares. What does Telstra, for example, have to gain or lose if the UK decides to leave? Virtually nothing, I’d wager. Or what about our two supermarket owners Woolworths and Wesfarmers – owner of Coles? People are still going to need to eat and drink in the days, months and years after the UK referendum. Will it have an impact on them? Again, I’d wager virtually none.

For most of Australia’s top 200 stocks, I’d bet the impact will be virtually zero.

So why have our markets been falling?

Fear and uncertainty.

It makes losers out of those with short term views, while those with a long-term view, can simply decide to shut out the noise until the day has passed, or even take advantage of that uncertainty, by picking up shares in quality companies that have seen their share prices put on sale.

As Warren Buffett famously said, “Be greedy when others are fearful, and fearful when others are greedy.

Some investors may have already taken their cues, with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) up 1.2% in afternoon trading to 5,223 points, and strong performances from companies with ties to the UK and Britain.

Foolish takeaway

It’s time for a bit of British stiff-upper-lip – keep calm and carry on. If you have a rock solid portfolio chock-a-block with high quality companies, now could be the time to be greedy.

Why these 5 dividend shares are better bets than the banks

Discover The Motley Fool's top 5 ASX dividend stock ideas for 2016 to get you started building a more diversified income portfolio that is paying you back!

The report is free! No credit card required.

Motley Fool contributor Mike King has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.