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The Best Thing Investors Can Do About Brexit

As some of you must have heard by now, the people of the United Kingdom had voted last Thursday to leave the European Union. The vote had caused stock markets around the world to fall. Some were hit hard.

Japanese stocks, for instance, fell by nearly 8% last Friday. Reactions in Singapore were relatively muted with the Straits Times Index (SGX: ^STI) dipping by ‘just’ 2.1%.

When the U.S. market opened on Friday night, the S&P 500 had fallen by 3.6%. That’s not exactly trivial and represented the largest single day decline in 10 months for US stocks. Sounds scary.

But here’s the thing: Do you remember when was the last time US stocks actually crashed by 6.7% in a single day? You don’t have to go too far back in time. That happened slightly less than five years ago on 8 August 2011, the first trading day after the US was stripped of its triple-A credit rating for the first time by ratings agency Standard & Poor’s.

(Does anyone even remember this event anymore? Anyone?)

Investors who were holding onto stocks just before the US was slapped with a lower credit rating must have been a pitiful bunch… right?

Not quite. The S&P 500 closed at 1,199 points on 5 August 2011, the last trading day prior to the credit-rating downgrade. The S&P 500 – after the ‘hammering’ it took on Brexit-Friday – is at 2,037 points, some 70% higher.

Back then, the US’s loss of its credit rating seemed like a huge deal and the market’s short-term reaction said as much. Over time though, life – and business – went on and stocks in the country started moving higher again.

Apple and Alphabet, some of the largest stocks in the US market, have seen their share prices climb by 75% and 137%, respectively, since 5 August 2011 with their profits having grown by 147% and 77%. Their businesses continued growing even through the US’s credit-rating downgrade and their shares were rewarded with a higher price.

Nobody knows what’s going to happen in the aftermath of the Brexit vote. I certainly don’t know what the financial markets are going to do next. Besides, the Brexit vote’s not even binding, so anything can happen.

But one thing I do know is that investors who react to seemingly big and hairy macro-economic fears in a knee-jerk manner are doing themselves a massive dis-service.

A few large daily declines is no guarantee that long-term returns will be poor. There are businesses that can still function normally – and perhaps thrive – even if the UK does leave the EU. The best thing an investor can do about Brexit is to remain calm, focus on businesses, and think long-term.

Can this business still do well five to 10 years from now? Can I get to buy this business for considerably less than what it’s worth? These are the questions that ultimately matter to investors. Everything else is noise.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing owns shares in Apple and Alphabet.