As a portfolio manager, you dream of a world without bombs going off, where you don’t have to wear your tin hat, and where things like Brexit don’t come out of left field. But that isn’t reality. We have genuine bombs going off, unfortunately, and we’re managing the portfolio through wars, recessions, financial crises and elections.
But as political uncertainties arise, what’s important is to turn them on their head and see how they can present an opportunity to buy great companies cheap. You can only have that perspective if you are prepared to look to the long term and really invest over a long time horizon, which is what we’ve always done. I believe this is the sensible, considered way to invest.
When markets overreact to short-term events, they present great opportunities, in many cases allowing strong businesses to go on sale at cheap prices for no good fundamental reason. Furthermore, there are more good businesses today, in my opinion, than ever before.
The Benefits of Geographic Diversification
Three decades ago, businesses were much more insular and domestically-oriented, and therefore far more vulnerable to local shocks and economic conditions. For instance, an event such as Brexit would have hit the share prices of far more companies in the UK much harder than it did today. More importantly, the potential adverse effect on operations was greater, and the ability to respond effectively was lower, than it is today. The last 30 years have seen tremendous globalization of everything, including the footprint of the companies in which we can invest.
In my view, geographic diversification has made the companies in our portfolio much more robust, mitigating their operating risk, and sometimes even their price volatility. In the wake of the Brexit vote, for instance, the share prices of multinational companies based in the UK held up well, with the exception of the banks. But the share prices of domestic businesses fell sharply, regardless of whether Britain’s exit from the European Union could affect their operations in any way.
What Investors Must Remember After Brexit
Brexit reminded us of two big lessons. First, the perception of crisis creates the opportunity to buy great companies cheap. Secondly, a company’s geographic diversification may mitigate its operating―and even share price―risk, and there are more companies than ever before with a robust spread of businesses around the world.
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Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Eurozone investments may be subject to volatility and liquidity issues.
These views represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.