Brexit fears spell opportunity

"The time to buy is when there's blood in the streets." - Baron Rothschild

The Rothschild fortune was made by buying the panic that sent British government bonds down as they fought Napoleon.

Now is an apt time to revisit this theme, as we once again have a similar situation - the Brexit vote and its aftermath on the British Pound and stock market.

Every crisis creates opportunities for the astute investor to step in where others panic. The Brexit vote is no different. The GBP has been hammered following the vote, down about 10% against the USD and approximately 8.5% against the Euro. Panicked investors have sold the pound to a 31-year low, all on the basis of a non-binding referendum which will take at least 4 months to be acted upon, and its implications truly felt only a couple of years from now. A lot of things can happen between now and then.

Taking a longer-term perspective:

• The euro has only been around for 16.5 years. The British pound is the world's oldest currency still in use.
• London is still the financial hub of the world, next to New York. They have a pretty advanced market for stocks, bonds, currencies and commodities. London real estate has always been sought after by investors and political refugees.
• The country has a stable rule of law and well-defined system of property rights. The Magna Carta was signed in Britain.
• The UK as a country has around since 1700s and was at one time the dominant maritime trading power. The EU, as a political union, has been around only since 1993.

The Brexit vote changes none of these. In the aftermath of the vote, several other countries have started to express their dissatisfaction with the state of affairs in the EU. The problems with the PIGS (Portugal, Italy, Greece and Spain) have not gone away, although they are not being reported on. Meanwhile, the ECB is buying corporate bonds in order to pump more money into the economy in the hope of creating some inflation. And the markets have decided to punish the pound against the euro, on the basis of a referendum, while in all likelihood a real Brexit would hurt the euro more than the pound.

To be a successful contrarian, one has to have a variant perception that turns out to be right. Now is probably a good time to develop that perception, before the broader investment community wakes up and seizes the opportunity.