Portfolio Buffeted By Brexit

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

With the news of the United Kingdom’s vote to exit the European Union (EU) last Thursday, it was a tough week for global stock markets across the board. The Dow Jones fell 2.36%, the S&P 500 tumbled 2.53% and the NASDAQ fell 3.14%. The MCSI Emerging Markets Index fared surprisingly well by falling only 2.75%.
A single stock in your Alpha Investor Letter portfolio, BYD Company, Ltd. (BYDDF), ended the week in the plus column, rising 0.51%. Your newest recommendation, NVIDIA Corporation (NVDA), actually hit a new 52-week high before pulling back.
A whole slew of your positions fell below their 50-day moving averages and therefore changed to Hold: Berkshire Hathaway (BRK-B), Vanguard Russell 2000 Index ETF (VTWO), AdvisorShares TrimTabs Float Shrink ETF (TTFS), First Trust US IPO ETF (FPX), Guggenheim S&P 500 Equal Weight ETF (RSP), Vanguard Global ex-US Real Estate ETF (VNQI), Guggenheim Spin-Off (CSD), PureFunds ISE Cyber Security ETF (HACK), Global X Guru ETF (GURU) and the iShares Currency Hedged MSCI Germany (HEWG).

Countless gallons of virtual ink have been spilled in analyzing the potential long-term impact of the United Kingdom’s vote to exit the European Union.

I added to the pool of ink with yesterday’s edition of The Global Guru, in which I argued that for all the chaos surrounding the exit, there are plausible scenarios where it may not even happen.

In terms of your current Alpha Investor Letter positions, the iShares Currency Hedged MSCI Germany ETF (HEWG) is the one with the most direct exposure to European markets. The good news is that any downward pressure on the euro should be hedged out in this position.

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With the caveat that no financial pundit has any idea about the ultimate implications of Brexit, here are three general insights to keep in mind.

First, financial markets always tend to overreact to events like Brexit. Investors throw the baby out with the bathwater as markets can’t stand uncertainty. At the same time, it is times like this that offer the greatest investment opportunities. This is also when big bets are placed on blown-out sectors — say, European banks — and huge profits are made.

Second, because the political class and media are so aghast that the Brexit voters prevailed, you are likely to hear more than the usual amount of “I told you so” comments on the back of every market hiccup. And expect every pro-Brexit voter or politician to be portrayed in the most negative light possible. In that way, the media’s current apoplectic reaction to Brexit is a preview of what would happen if Donald Trump is elected President.

Third, realize that the media, academia and financial pundits thrive on creating perceptions of chaos.

Remember when the inevitable coming collapse of Greece dominated the headlines, up until about 9 months ago?

Back in December 2013, The London Financial Times predicted that the “euro currency had 10 days to live.”

Yet here we are two and one half years later, and Greece has quietly disappeared from the headlines. And despite almost five years worth of predictions to the contrary, it is still in the European Union, and muddling through its economic crisis.

The “good news” is that the media now has another crisis, Brexit, to keep itself busy for the next five years.

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My advice to you echoes that which was told to Londoners during the German bombings during World War II:


Portfolio Update

Berkshire Hathaway (BRK-B) lost 2.26% over the last five trading days — and what a five days it was. Nearly every market index, stock and exchange-traded fund (ETF) was affected by the United Kingdom’s “Brexit” referendum result last week. Even the mighty flagship company of Mr. Warren Buffett took a swift kick, falling down below the 50-day moving average (MA). However, BRK-B’s bounce up from its 200-day MA is a positive sign. BRK-B changes to a HOLD.

Google Inc. (GOOGL) fell 2.49% last week. Microsoft recently announced its $26.2 billion acquisition of working professional social media site LinkedIn. This has ratcheted up speculation that Twitter is next on the list to be acquired, and Google seems to be the news media’s favorite candidate as of late. If anyone knows how to covertly leverage a sea of eyeballs-on-screens into more advertising revenue, Google does. GOOGL is a HOLD.

The Walt Disney Company (DIS) pulled back 2.80% last week. Disney has been making headlines in the movie business for a very long time, boosted by the addition of the “Star Wars” franchise. Disney’s newest film “Finding Dory” generated $73.2 million in box office revenue this past weekend. Perhaps the even bigger news is that Darth Vader himself will make an appearance in the next “Star Wars” film titled “Rogue One.” This is sure to rev up fans’ rocket engines and send revenues into outer space once again. DIS is a HOLD.

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iShares MSCI Philippines (EPHE) lost 3.20% over the market’s most challenging week in many months. Despite this, EPHE has been trading quite positively since early May, even hitting a new 52-week high a few weeks ago and coming back to within striking distance of this level again just last week. EPHE also held firm at the lower end, bouncing up from its 50-day MA on Monday to remain a BUY.

Market Vectors Biotech ETF (BBH) held tough last week, dipping just 1.10%. The biotech sector continues to stand near tested recent lows — lows that coincide with its 200-day MA on a weekly-based chart. Biotech is currently one of the most promising sectors based on an insatiable global need for new and better pharmaceuticals, high profit margins and current trading levels at multi-year lows. BBH is a HOLD.

Costco Wholesale Corporation (COST) gave back 1.02%. COST had been on a roll lately, ever since it’s late-May earnings report, gaining nearly every day. Volume has been steady, closing most days with net buying, and volatility has been on a smooth glide path downward as well. On a related note, Costco members have now been using their new Citi VISA cards for the past week, signaling the end of Costco’s years-long relationship with American Express. COST is a BUY.

BYD Company, Ltd. (BYDDF) managed to buck the trend last week, eking out a 0.51% gain in a sea of red indicators. This bet on the future of battery power is up nearly 10% in just a few short weeks — despite the sharp pullback in stocks as a result of the Brexit referendum. BYDDF remains a BUY.


Nicholas Vardy

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