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Wednesday, August 24, 2016

Why You Shouldn't Pay Attention to Short Term Market Movements and News..A Great Case Study...

I'm back after a bit of a summer hiatus

Exactly two months ago the British voted to "Brexit" leave the European Union. This was almost universally regarded as a worst case outcome with disastrous long term consequences for European stocks. European stocks fell a mouth dropping 10% the day after the vote....and where are we a mere two months later ? As can be seen in the graphs below European stocks (etf VGK) and German stocks (ETF EWG)  and even the UK (etf ewu) have recovered entirely from the drop on August 25 in response to the Brexit vote. The Euro is virtually unchanged against the dollar ...only the British pound shows a sharp fall since the Brexit vote.

The lessons from this. Certainly it shows the perils of attempting to time short term market movements or pay too much attention ot headlines. In fact for some disciplined long term investors that pursue rebalancing the sharp drop in European stocks could have presented an opportunity to actually add to an allocation in European stocks that might have become underweighted vs. target due to market movements.
VGK European Stock ETF
EWG German Stock ETF


British Pound/$ Exchange Rate

Euro/$ Exchange Rate


Safal Trading said...

Nice post, thanxs for sharing with us and all the best for !!2016!!

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