It was a cloudy late-summer day at the annual FT (Financial Times) Weekend Festival in London this past Saturday.
Held in the shadow of Hampstead Heath’s tony Kenwood House, the event attracted a large cadre of well-heeled and loyal Financial Times subscribers.
The festival held sessions on technology, wine, adventure travel and the arts…
But one topic dominated the hearts and minds of all attendees – the political and financial implications of Brexit, Britain’s upcoming departure from the European Union, on March 29, 2019.
Brexit dominates the newspaper headlines in the U.K… and for good reason.
After all, as one Financial Times correspondent argued, Brexit is the biggest event in the U.K. since the Second World War.
Whether they voted “leave” or “remain,” British investors are worried.
They are worried about the tumbling value of their real estate investments.
They are worried about the fate of the British pound sterling.
They are worried about the migration rights of the 1.3 million Brits who have retired to “a place in the sun,” whether in Spain, France or elsewhere in Europe.
Still, as a U.S. investor, should you care about Brexit?
My answer is “yes.” Post-Brexit Britain represents a once-in-a-decade investment opportunity.
As such, Brexit also highlights two principles of “crisis investing”…
Principle No. 1: Understand the Psychology of Booms and Busts
Investment booms can be great. Markets can go crazy on the upside. And there’s nothing better than watching the value of your investment portfolio soar. The “fear of missing out” can drive prices higher than you ever thought possible.
But to be a great investor, you must learn to appreciate the busts as well.
After all, it’s during a bust that you sow the seeds of big bull market gains.
In the midst of a market crash, investor instinct is to sell, sell, sell… with no concern for underlying value. Emotion completely overwhelms reason. Yet it’s when price becomes unhinged from value that savvy investors make their best investments.
Principle No. 2: Ignore the Consensus
As humans, we are social creatures. Being part of a family or group promotes your health, happiness and longevity.
However, in crisis investing, your herding instincts work against you. Doing what everyone else does is a sure route to the poorhouse.
Recall how investors piled into internet stocks in 1999, right before the dot-com bust of 2000. Or how they piled into real estate right before the 2008 crash.
To be a successful investor, you must ignore both the headlines and your instinct to be part of a crowd.
Why the Brexit Crash Is Great News for Investors
The media is whipping the British investing public into a frenzy. News outlets are even running countdown clocks to Brexit.
Asset prices in the U.K. have started to fall precipitously.
For savvy investors, this fall is hardly a bad thing. In fact, it’s great news…
If you can keep a level head while other investors are losing theirs, you can load up on valuable assets at extreme bargain prices. The lack of buyers means asset prices can become very cheap.
Not that it’s easy…
The headlines will be terrible. Tell your neighbor what you’re doing and he’ll think you’re crazy – you’ll be the only one interested in buying.
These are all signs you’re doing something right. Buying cheap and hated assets is a lonely endeavor. But it’s extremely rewarding.
Here’s a Brexit-related example…
Since the Brexit vote, London real estate has gone on sale.
Half of the newly built flats in London are failing to sell. Real estate prices in prime central London have already dropped by 20%.
Meanwhile, the value of the pound has tumbled to $1.30. That’s down from more than $1.50 just before the Brexit vote.
The combination of a crash in real estate prices and the drop in the value of the pound means that real estate in London is 35% cheaper today than it was just 15 months ago for a U.S. dollar-based investor.
And based on my conversations with investors at Financial Times’ conference this past weekend…
I expect prime London real estate prices to drop even further, as weak-handed investors throw in their cards. (And the British pound may continue to weaken as well.)
So here’s my prediction…
All U.K. assets – stocks, real estate, the British pound – will continue their slow-motion crash as Brexit looms.
London will become a crisis investor’s paradise.
Savvy investors will be swooping in to pick up bargains even as others abandon ship.
But within six to 12 months after Brexit, asset prices will recover sharply, as the post-Brexit frenzy fades.
The bottom line?
Brexit offers a once-in-a-lifetime opportunity for crisis investors. Don’t miss out.