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Binary Betting


Remember:  the only guarantee about stock market behavior is that it WILL overreact!  Judging from the number of questions I’ve received about today’s BREXIT vote in the U.K., I expect a very volatile stock market in the short term.  This is a good opportunity to ask yourself whether you are an investor or a trader.  Warren Buffett is an investor.  Traders seldom live enough to become famous.

Here is an investing rule:  Don’t make binary bets!

That is a vote when there are only two outcomes – positive or negative, in or out.  In the BREXIT vote, the polling is that U.K. will stay in, and the markets are already adjusting to that.  If the actual vote is to leave, the long-term economic implications will still be unclear, but the short-term stock market reaction will be ugly.  Do you really want to bet your hard-earned dollars strictly on a vote in another country?  Are you ready to place your bets/investments on the November presidential election in this country yet?

I think the only way to play this exogenous event is to hope for the U.K. vote to leave the E.U. and then to buy your favorite stocks when the market drops.

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