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Instituting Investing Rules: Lessons from the Brexit

BrexitThe world had its eyes on the United Kingdom on June 23, as returns from their national referendum on whether to withdraw from the European Union began to roll in. The ultimate victory of the “leave” camp sent shock waves through political and financial sectors, as investors saw the British pound crash to a 30-year low and markets experienced a significant drop.

Rules-Based Investing

The Brexit tale is only just beginning, and its ultimate effects are anyone’s best guess. That said, there is a lot to be learned from what’s already happened. We think that in the aftermath of Brexit, you need investing rules that you stick to hard and fast.

The market crash post-Brexit panicked a lot of investors. Of course, investors and advisors should have basic philosophies that they stick to, even in times of market crashes, such as not following the herd and selling off when a stock is lowest. (You can read more about the detriments of panic selling here.) But it may be beneficial to establish some firmer rules for exactly what qualities the investments you make will have.

For example, consider the following from Kevin O’Leary, Shark Tank judge and O’Shares chairman: “Imagine if you could create the perfect portfolio manager that had no style drift, that never, ever got emotionally involved in a stock, that only used the most hardcore rules on balance sheet testing, and never, ever strayed from that. That’s what rule-based investing is. It takes out one of the challenges I’ve found as an investor over the decades.”

In other words, you have to eliminate emotion from your investing. As a retirement saver, this can be incredibly difficult after big market swings, whether up or down. We’ve previously explained why active management doesn’t win and one of the benefits of passive investment management is that since it takes a long-term view, it reduces the role of emotion in investment decisions. Creating investing rules can be a good extension of this strategy.


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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
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Brad Sherman

About Brad Sherman

Brad Sherman has over a decade of experience in the financial services industry. He founded Sherman Wealth Management because he believes that every client deserves the highest level of individualized attention, regardless of their age or the size of their financial profile. He prides himself on being an advocate for his clients, providing a Fiduciary, fee-only service, designed to make clients feel comfortable with their investment choices and strategies. Brad lives in Rockville, Maryland, and enjoys football – both fantasy and real, baseball – especially his beloved Nats, and Nerf Ball with his young son.


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