Stock markets around the world experienced heightened volatility during the second quarter—punctuated by the unexpected referendum vote result on June 24th by British citizens to leave the European Union. Commonly referred to as the “Brexit”, stock prices were particularly weak in the aftermath of the vote. Worldwide stock indices fell between five and 10 percent on the two business days after the vote. The decline in the stock markets underlined a fear associated with the “Brexit” vote and whether it represents a worldwide tidal shift in the view of individuals and governments favoring protectionist economic policies over free trade. Despite the increased volatility of stock markets, our two core investment strategies posted small gains during the quarter. Our Intrinsic Value Equity Strategy posted better gains than comparable indices while our Dividend Growth & Income Strategy, which had posted very strong gains over the previous four quarters, lagged the broader market indices.

Many investors and market pundits are trying to ascertain how the “Brexit” vote will impact future economic growth, future stock market performance and the management of portfolios. We feel it is nearly impossible to measure the potential impact of the changing attitudes of individuals and governments towards trade and economic policies. We feel more comfortable focusing on more quantifiable measures like the quality of the businesses we own and the underlying estimated intrinsic value of these companies compared to their stock prices. Much of successful investing requires staying within ones “circle of competence”, focusing on what you know and adhering to a disciplined investment process. We think this is a much better path to long-term investment success than what amounts to trying to predict human behavior.


The above post has been excerpted from a recent letter of Granite Value Capital.

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