Interactive Investor

Time to 'do a Buffett'?

24th June 2016 12:59

Lee Wild from interactive investor

What it's like living under Boris Johnson and Nigel Farage? The answer to that question, the stuff of bar room jokes until very recently, will come sooner than we expected. David Cameron has handed in his notice, and Brexit will have further political ramifications for the UK. There are obvious economic consequences, too. Again, the true extent will only become clear over time.

Inevitably, markets responded in panic-fashion. The FTSE 100 lost 550 points, or 8.7% within 10 minutes of the open, and the pound sank to 1.38 versus the dollar. Only hours earlier I'd watched futures prices top 6,400 and 1.50 respectively as traders bet big on a 'Remain' win.

I'd thought a vote for 'Leave' was rather like turkeys voting for Christmas. The Bank of England is tipped to prop up the local economy with a cut in interest rates, perhaps within the month, with another wave of quantitative easing if needed. But a sharp decline in business confidence could have major consequences for investment, jobs and growth, and tip Britain into recession while it negotiates an exit from the EU.

However, something quite remarkable has happened. Rather than drive share prices down toward February's four-year low, as I suspected might happen, investors have taken advantage of the early chaos to buy quality stocks at cheap prices. There's little doubt that's a sensible strategy for long-term investors.

Our research showed that many were waiting to invest only once the uncertainty over Brexit was removed. It has been, and that wall of money has flooded back into equities. The obvious question now is will it last?

The FTSE 100 is currently holding up above 6,000, which, remarkably, is currently about 150 points better than its low-point just a week ago at 5,899. Clearly, potential buyers let sellers do the leg work early Friday before timing their entry point to perfection.

Lloyds at 51p, a 29% discount to Thursday's closing price, and Aviva, down 35% in minutes, proved too tempting and both have partially recovered. Selling housebuilder Taylor Wimpey down to 109p from 192p seems crazy now. It's currently 148p.

It is encouraging that investors were prepared to take on risk in the darkest hour. And this was certainly the best opportunity in ages to put into practice Warren Buffett's mantra: "Be fearful when others are greedy and greedy when others are fearful".

My fear is that there will be other, perhaps even bleaker occasions to exploit Buffett's classic rule of investment in the months ahead as Britain - perhaps led by Boris - haggles its way out of Europe.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser