On June 23, citizens of the United Kingdom voted to leave the European Union. It was a special day for the British people, who placed their own liberty before all things economic. It was also a special day for CJM Wealth, who did not receive a single call of panic, fear or skepticism from its clients. Even those who moved additional funds into their accounts just days before, did so without a whimper. It was the same for the Dimensional Advisors that I spoke with during the day, no calls of panic or fear from their clients. The relationship that Dimensional Fund Advisors, CJM Wealth and their clients is a very special one that allows us to rejoice, along with the British people, regardless of what the stock market says.
Dimensional has nearly 35 years of experience managing portfolios, including during periods of uncertainty and heightened volatility. We monitor market events—including their impact on trading and trade settlement—very closely and consider the implications of new information as it comes to light. For years, we have helped investors pursue dimensions of higher expected returns through advanced portfolio design, management, and trading. Our enduring philosophy and deep working relationships with the academic community underpin our approach to investing and form the foundation for new strategies. Our investment philosophy and process have withstood many trying times, much more so than BRexit, and delivered to our clients unparalleled investment experience and performance. Market mechanisms function very well, whereas many individuals do not.
Successful investors are long-term investors and recognize that risks and uncertainty are always present in markets. A drop in prices is generally due to traditionally basic responses to markets and news, lower expectations of cash flows, higher discount rates, or investors demanding liquidity. We have seen markets behave like this many times before in times of uncertainty, resulting in lower prices. However, it is essential to remember no one knows when good outcomes will materialize in the future. By attempting to time the right moment to invest or redeem, individuals or active managers risk not enjoying the potential benefits of such materializations. Many of those who exit the markets miss the recoveries.
Surprises like this past week’s shock are a reminder of the importance of knowing what kind of investor you are. In a speech he gave in 1963, the great financial analyst Benjamin Graham said: “In my nearly fifty years of experience in Wall Street I’ve found that I know less and less about what the stock market is going to do but I know more and more about what investors ought to do.” What we do know and realize in our investment experience, as the likes of Benjamin Graham, Warren Buffet, David Booth, Eugene Fama, Kenneth French and many others have advised us, is that investors who remained in well-diversified portfolios have been rewarded over time.
The UK will have up to two years to negotiate a withdrawal, during which time it remains subject to EU treaties and laws. Any potential operational changes depend on what path the UK and EU decide to take. Dimensional remains centered on helping our clients in the US, UK, other parts of Europe, and around the world have a good investment experience.
Friday was a special day for human liberty.
Charles J. Massimo
CEO, CJM Wealth Management