Iron Capital Insights

  • Iron Capital Insights
  • June 24, 2016
  • Chuck Osborne

You Can Never Go Home Again

Yesterday I was watching interviews of people in Britain leaving the polls. The reporter asked one gentleman, who had voted to leave the EU, why he thought older voters were more inclined to vote “leave” than younger voters. He responded, “They have been in the EU their entire lives. They don’t remember life before the EU.”

Recapturing the glory days: This is a political theme that is driving decisions everywhere. People don’t like the post-economic crisis world and they want to turn back the hands of time. The people of Great Britain want to be free of the European Union (EU). They are, after all, a proud nation. Those of us who were born in the United States after World War II often fall into the trap of thinking that the U.S. has always been the great world power. The international language of business is English, and I have been told many times from intelligent people that this is because of America. But, that is incorrect. English is the international language because of the English. They built an empire on which the sun never set – an empire greater than Alexander the Great, greater than Caesar, greater than the Mongols or the Russians. An empire that peaked in population not in some far-off ancient time, but in 1938.

The reporter did not ask the gentleman his age, but I would guess that his parents were alive and well in those days before the second Great War. I would assume he has good memories of Britain before the EU, and probably some romanticized memories of the stories his parents told him about Britain’s glory days. Somewhere in his head he believes that if we just leave the EU, then Britain will be free to live those days again.

Are we that different? Many sociologists have suggested that America’s great political divide is two competing romanticized visions of the U.S. in the 1950s:  Conservatives long to return to the days of traditional marriage, regular church attendance and a feeling of being safe in one’s community, while liberals want to return to a day of incredibly high tax rates and invasive regulation.

The problem is that one cannot go back. Dealing with the present is one of the hardest things for humans to do. We tend to dwell in the past or worry about the future, or both. It is hard to actually focus on now. This is certainly true in my world. Prudent investment decisions are made in the now. The past is past; good or bad, it is what it is. The future is unknown. Now is the only moment over which we have any control.

This brings us back to the Brexit. Now that Britain has voted to leave, what will be the real impact? There are lots of doomsayers out there, and the initial market reaction has been very negative. The reality is likely to be far less brutal. Some of the “leave” voters are likely to be disappointed. The British Empire is not going to magically rise from the ashes. Last century’s manufacturing jobs are not going to return.  You can’t go home again.

As for the doomsayers: As of today, absolutely nothing has changed. Yes, change is coming. Britain has two years to renegotiate trade relations with the EU countries. Some of those countries may be mad now, but it is unlikely that they will hold a grudge for two years. New trade agreements will be negotiated. Britain needs German cars and Germany needs Britain’s banks. Over the next two years they can hopefully work out new agreements.

In the meantime, should the short-term sell-off continue for more than a day then opportunities will be there for the taking. As we said before the vote, Brexit will not cause Apple to sell fewer phones or Coke to sell fewer drinks, of Ford to sell fewer cars. Prudent investing is done from the ground-up. It is also done in the now.

Now is time to be patient.

Warm Regards,
Chuck Osborne, CFA