Brexit is currently viewed as a negative event by many investors. Sterling is weaker and has pushed inflation to its highest level since 2013. This means that consumer spending is being squeezed, which could lead to a difficult period for the wider economy. However, such a situation could present an opportunity for investors who are focused on the long run. In fact, profiting from Brexit might be easier than you currently realise.
Buying opportunity
In the short run, things could get worse before they get better for the UK economy. Brexit negotiations have not yet started and already consumer confidence is coming under pressure. With uncertainty likely to build as talks progress, it would be unsurprising for sterling to continue its downward trend and for inflation to move higher. This could lead to negative real-terms growth in consumer spending, which would clearly be bad news for the wider economy.
While disappointing, such periods present opportunities to buy high quality stocks for the long term. History shows that it is during the most difficult of economic periods that the best buying opportunities often present themselves. As such, buying UK-focused stocks which could record declines in their sales and/or profitability during 2017 may prove to be a sound move in the long run. That’s especially the case because in many instances the companies most likely to be affected by a recession have already seen their valuations slide. Therefore, they may offer wide margins of safety.
Long-term view
Clearly, Brexit is an unprecedented event. Therefore, the extent and length of any Brexit-induced economic difficulties are a known unknown. As a result, it is crucial for investors to be able to take a long-term view when it comes to their investments. Just as buying during the depths of the credit crunch in 2009 meant an uncertain number of months while the global economy recovered, the same could be true for Brexit. It may take several years for the UK economy to regain momentum, during which time share prices may be relatively volatile.
However, history tells us that economies and share prices will recover. A loose monetary policy looks set to remain in place for the foreseeable future, which could help to offset the effects of reduced confidence among UK consumers and businesses. Likewise, a weak pound may be good news for UK exporters, which could boost employment in export industries and help to allay fears of job losses elsewhere. Weaker sterling may also boost the profitability of UK-listed shares with international operations, thereby creating an opportunity for investors to profit.
Foolish takeaway
Clearly, the challenges posed by Brexit may lead to some disappointment in earnings and valuations in the short run. However, Brexit could prove to be an excellent buying opportunity for long-term investors. Already, a number of UK-focused shares across industries such as retailing offer wide margins of safety. And with weaker sterling offering positive currency translation for international stocks, opportunities to profit could be significant. Therefore, making £1m from Brexit may sound unlikely right now, but could become a reality for many investors over the long run.
