As a result, while we do not aim to predict political outcomes as a source of investment thesis, we identify where the markets have mispriced the odds of an outcome compared with other available data.
The Brexit referendum is a good example of such an event, given the wide gap between the market-implied probability for a remain result versus narrow and balanced polling. These events are few and far between, however, which again leads us to focus on valuations analysis because price data for liquid markets is available and updated daily.
Neither Brexit nor Trump’s grand plans are even close to being put in place yet. Both will take many years to come to fruition and, as a result, we will see plenty of concern, excitement, fear and greed in coming months.
However, with this volatility comes opportunity. While uncertainty is sometimes uncomfortable, as professional investors we await it eagerly. Ten years from now we may look back on the year 2016 and wonder what all the fuss was about.
