So, it’s happened. The UK has voted to leave the EU. Whether you’re for it or against it, the reality is that within the next few years the UK will go it alone and no longer be a part of the giant trading bloc. Clearly, this is a major event for all investors and it won’t be easy to navigate. However, by having the following Foolish attribute it will be possible for your portfolio to perform much better than it otherwise would.
Of course, that attribute is ‘patience’.
The UK has been a member of the EU for over 40 years and the unwinding of that process will take time. Therefore, investors must be willing to take a long-term view and give their investments the time they need to come good.
Political change
Looking ahead, the Conservative party must elect its leader. This may or may not be a straightforward process, since there are a handful of individuals who look set to throw their hats in the ring. While Boris Johnson may be the favourite at the moment, past Conservative party elections have taught us that the favourite doesn’t always win. Notably, Michael Portillo and Ken Clarke lost out to less familiar names in years gone by.
While the Conservatives are choosing their new leader, there’s likely to be a continuation of the political vacuum currently engulfing the UK. This will inevitably lead to a high degree of volatility and it could be easy for investors to become rather frustrated. This could be exacerbated by the potential for a General Election later this year and then, of course, by the beginning of the process of negotiating the UK’s exit from the EU.
This process will be long and it will be nerve-wracking. On the one hand, the EU and the UK enjoy a mutually beneficial relationship. It makes sense for them to continue to trade on attractive terms to boost their economies. However, at the same time the EU faces a real threat of break-up. Other countries that have support among their electorate for following the UK out of the EU door would see a favourable divorce between the EU and the UK as a reason to step up their efforts to leave.
Talking tough
Therefore, the EU must keep in balance these two conflicting objectives and this may lead it to talk tough in public, but offer more generous terms in practice. Following this period of negotiation, the UK will finally go it alone as a fully independent state and this will probably be the most uncertain period of all. Nobody knows how the UK will perform and whether it will do better, worse or the same as it did while being a member of the EU.
With all of the above yet to come, the next few years will be very interesting for investors. But there will be times when frustration comes to the fore since it will feel like a slow process, with share prices often performing less well than had previously been hoped. However, for those investors who are able to stay patient and take a long-term view, there are likely to be numerous buying opportunities through which to generate stunning long-term returns.