Hind sight is a great thing. Whilst highly improbable events initially feel like they will blow us away in their magnitude, human instinct naturally finds a way to provide a retrospective explanation. That is the way we are wired.
The Brexit will go down in the annals as an extreme and rare event. Whilst I think most people believed the result would be close, very few people thought that the “leave” campaign would actually end in victory and hence I’m sure that in the fullness of time it will be classified as a “black swan event”. Once the dust has had the chance to settle a little more, history will provide us with the black box of cause and effect which led to this result.
Human beings naturally try to predict risks and these will largely be based on either statistical likelihood, using a more formulaic approach, or on one’s own experience. And this is the fundamental problem that the Brexit presents to us all: it’s unchartered territory.
If you were to ask an investment expert what his reaction would be to the events of the last week or so, it’s likely he would do relatively little. Markets go up and markets go down and as difficult as it may feel, avoiding making knee-jerk decisions is crucial. We need to be mindful of our risk analysis and how we react to implement the mitigation strategies that we might already have in place. Common sense, to a degree, needs to prevail and in reality we may also be able to take advantage of some unforeseen opportunities which may occur.
There are, however, some key areas that you should keep an eye on from a practical house keeping point of view.
- Fluctuations in foreign exchange rates
- Hedging your fuel bills as the price of oil will increase
- Be wary of the interest rates that you have agreed to as part of your borrowings as it be time to start considering hedging opportunities
- Consider your import and export position and the effect of a weaker Sterling
- Check your labour position – are you reliant on a large proportion of EU origin nationals and what is your exposure? What are your workers’ intentions and are they likely to return to their countries of origin?
By identifying any areas of particular vulnerability, being sensible and keeping a cool head, businesses have a greater chance of turning black swans into white ones.
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