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  1. Home
  2. / Investing

Value Portfolio Performs Well Amid Brexit Turmoil

A group of seven to 15 securities, if carefully selected, can provide all the diversification an investor needs.
By SHAM GAD Jul 05, 2016 | 03:00 PM EDT
Stocks quotes in this article: TOWN, PSX, GM, AA, LNG, SN, SRG, IBM, MHGU, KIN

Investing is full of conventional wisdom that I often find are full of convention but short on wisdom. For example, conventional wisdom says investment portfolios need to be highly diversified to minimize risk. Two weeks ago we had that theory put squarely to the test.

On June 23, a referendum deciding whether the United Kingdom should remain a part of the European Union determined that the U.K. should leave the EU. While the decision was going to be close, it was widely assumed British citizens would decide to remain. The surprise result caught the market off-guard.

Whether you owned five stocks or the entire S&P 500 via an index, your portfolio was impacted. However, the important question was how you behaved during the volatility. If you were highly diversified, you may have perhaps sold securities in order to mitigate the pain. On the other hand, if you were intelligently invested and owned only those securities you knew very well, Brexit created an opening to buy certain things.  

The Gad Winning Value Portfolio was not spared by Brexit. As is our mandate, we buy 10 securities at the start of the year and sit on them for 12 months. I believe a group of seven to 15 securities, if carefully selected, can provide all the diversification an investor needs. Indeed, in the face of Brexit we remain firmly ahead of the comparable indices.

For the six months ended June 30, our Value Portfolio was up 5% compared with 1.5% and 0.3% increases for the S&P 500 and Wilshire 5000 indices, respectively. The volatility caused by Brexit led to a four-percentage-point decline over the past month, but volatility is of no concern.

Moreover, the U.S. markets roared back to pre-Brexit levels during the first few trading days in July, so we expect a healthy rebound for our securities during the month.

I don't expect the volatility to go away. Brexit is likely to create a domino effect of sorts in the EU. But in selecting stocks, we focus squarely on the value of our assets against the price we are paying. If the price offered is well-below the value of the underlying business, the end result ultimately is going to be favorable. More importantly, when events such Brexit occur and cause a decline in security prices, the effect is usually advantageous in that the prices have become more attractive for the same assets.

Caution is indeed the order of day, but value still rules over the long run.

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At the time of publication, Sham Gad was long LNG, KIN, GM-WTB, TOWN, SN and MHGU preferred.

TAGS: Investing | U.S. Equity | Stocks

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