Heartland Boy’s Strategy for BREXIT

 

BREXIT. BREXIT. BREXIT. This seems to be the only buzzword dominating the news these days. And rightfully so, because BREXIT was described and predicted as the single and greatest financial risk that has ever happened to the financial markets in history. Well, the good thing about BREXIT is that there is actually a fixed date to ascertain its occurrence. Therefore, companies can act with certainty and draw up a strategy for BREXIT. For instance, many companies, especially banks, actually booked hotels and set up buffet lines so that their staff can pull all-nighters in the offices and monitor the EU Referendum. So knowing that the EU Referendum was going to take place on 23 June 2016, what was Heartland Boy’s strategy for BREXIT?

Review and Tweak your Portfolio before BREXIT

Given Heartland Boy’s short investing record, he has only witnessed one calamitous financial event thus far- China’s Black Monday on 24 August 2015 when the Central Government decided to devalue the Yuan. About S$10,000 was wiped out from Heartland’s boy portfolio in that single week! The painful thing was that Heartland Boy’s portfolio was extremely lopsided at that point- he was highly exposed to stocks and low on cash. Therefore, he was very much affected by China’s Black Monday and did not even have ammunition to capitalize on undervalued stocks suffering a sell-off then.

Having learnt a painful lesson, Heartland Boy quickly recognized that a knee-jerk reaction to an unexpected financial or economical event is almost guaranteed. There will be panic selling, regardless the fundamentals of your stocks. So it is best that you stay out and watch from the sidelines during this period. No need to get your feet wet as you may get swept off by a flashflood instead. Therefore, Heartland Boy’s immediate strategy for BREXIT is to review and tweak his portfolio. He used the preceding two weeks to unload some shares and took profit on First Ship Lease Trust, Innovalues and Micro-Mechanics.

Of course, you may think that Heartland Boy could be overly cautious here. He might have got it all wrong and there was a BREMAIN instead of a BREXIT and the stock markets embark on a bull run subsequently.

Well, Heartland Boy’s stance is that it is always better to miss out on gains rather than suffer losses. Missing out is always the lesser evil of the two because losses incurred are real and put an actual dent to your portfolio. Remember that your stock has to double in share price just to recoup the losses that you have incurred!

Review the Stocks in your Shopping List

Having adjusted your portfolio and primed yourself in a position where you are possibly least affected by the financial event, it is now a good time to review the stocks inside your shopping list.

This is because even good stocks with no direct linkages to the financial event can suffer a massive sell-down as a result of panic selling. To validate this point, Croesus Retail Trust and Religare Health Trust fell to 75 cents and 81 cents respectively during China’s Black Monday. However, Croesus Retail Trust and Religare Health Trust have their entire business operations exposed to Japan and India’s domestic consumption respectively, and Yuan devaluation should have no direct impact in theory.

For BREXIT, the most fundamental question to ask would be: “Does this stock have direct business operations in United Kingdom? ”

For instance, Ho Bee has a few investment properties in England while Comfort Delgro also runs a few bus routes in London. Heartland Boy would avoid these stocks because he dislikes uncertainty.

Having performed this assessment, the next step would be to identify clear entry or exit points for the shortlisted stocks.

Identify Clear Entry or Exit Points

Heartland Boy has always been very methodical when it comes to stocks investments.  As such, he identifies clear entry or exit points. Therefore, this allows him to take emotion out of the equation and simply press the button when the respective entry or exit points are triggered. Here are the companies on Heartland Boy’s shopping list with a clear entry point already identified.

Table 1: Heartland Boy’s shopping list for BREXIT

Currently, Heartland Boy’s portfolio is segmented into 28% cash, 58% equities and 13% insurance. Heartland Boy is looking to deploy probably another 8% of his cash into equities. There is some quick money to be made during this volatile period, as evidenced when both Croesus Retail Trust and Religare Health Trust rebounded to 82 cents and 95 cents in a couple of days after Black Monday.

However, it is extremely important to be patient here. Borrowing a phrase from ASSI, nibble and not gobble because you may end up choking yourself!