June 24, 2016

Dear Investor:

The UK’s decision to leave the EU will roil markets today, especially as it reversed the conventional wisdom of the past few days.

There’s no doubt this Brexit adds further grime to an already grim picture of a politics that rejects inclusion and globalism—headwinds that will challenge commerce and markets worldwide. Sobering news for politicians and citizens, and also for investors.

But investors should no more make broad retirement plan decisions around Brexit than they did about Greece’s quasi-debt default a couple of years ago. Regardless of short-term macro speedbumps and worse, money gets made over time by investing in solid assets trading at discounts to their intrinsic value.

The single most important thing for all investors is to have the allocation appropriate to their individual risk preferences, financial circumstances and time horizon. We believe we have that right for all of our clients, but if your circumstances have changed, please always let us know.

In conservative accounts, we currently have large cash and bond positions ranging from 30%-65%, boosted further by our sale of tech and healthcare assets over the past few weeks—based not on any “opinion” of Brexit’s outcome (prognosticating such events is dangerous, as bookmakers like Ladbrokes are learning this morning)—but based on the overly rich valuations of those assets which are trading at 20 times free cash flow.

I intend to use panicked selling today as opportunities to invest some of that cash. Even if markets follow lower over the next days and weeks (as they could easily do), today will provide attractive pricing on many assets. Days of panic are always good days to buy. As Warren Buffett says: “Be fearful when others are greedy and greedy when others are fearful.” I have the latter in mind for this morning.

Many asset classes are extraordinarily cheap—and will get still cheaper today—such as emerging markets and energy. Even cheaper are Japanese equities which plunged overnight as appreciation in the Yen caused a massive selloff in the Nikkei. Japanese stocks are now trading under book value (their estimated liquidation cost in bankruptcy) —a rare occurrence and the lowest valuation since 2009. In accounts where appropriate, I plan to buy Japanese equities today through the Yen-hedged Japanese ETF, the DXJ.

Like Greece, the debt-ceiling debacle, the flash crash and all other negative market events, the fear and memory of Brexit will fade over time and will mean little for anyone who has a 3-5 year time horizon.

In the meantime, I will take advantage of any opportunities as best I can. Please don’t hesitate to call with any questions or concerns.