The day after Brexit, I decided to be supportive of the British people and headed over to the British Motor Car dealership to check out if there were any deals. After all, the FTSE 250 had collapsed by 12% the first day of trading after the vote. Moose, my beloved Discovery II that I had driven between 2005 – 2014 was part of the Land Rover family. He was great and I kinda miss him.
As a person who worked in Equities his entire career, I have this Pavlov’s Dog instinct of always wanting to spend money when I see opportunity. This instinct can sometimes get me in trouble as it’s very similar to the “buy more, save more” mentality where you end up buying things you don’t need. During times of financial chaos, financial discipline is paramount!
Spending Money Post Brexit
When I got to the dealership, I found the exact model I wanted: a 2014 Range Rover Sport V6 with 22″ rims, a massive moon roof, black on black, and a CPO warranty valid until March 30, 2020. The asking price? A reasonable $62,000. These cars are asking roughly $85,000 new, which includes a $5,000 dealer mark up.
As any normal car consumer should do, I negotiated. $62,000 equaled $67,700 after taxes and fees. After a 30 minute test drive, I told the slick salesman that I would do $63,000 out the door. He almost had a heart attack when he heard my offer!
The salesman stormed away telling me he had to talk to his manager. Five minutes later, his portly manager came by to say, “Here at BMC, we price fairly. Our clients usually come in and just pay what we are asking.”
I was thinking to myself, “Then your clients either have money to burn, are not reading Financial Samurai, or you’re bullshitting me.”
But of course, I responded with an enthusiastic smile and said, “I have never bought a car before without first negotiating. I am honored you’re here to talk to me!” Going back to speak to the sales manager or having the sales manager try to close the deal are classic moves.
Making a final effort, the sales manager asked if I had any flexibility. I told him not today, and walked away. I was surprised the sales manager didn’t give me at least a counter halfway or something. But given everything is rational, it must mean their margins really are low, or demand is strong. This was Friday, 6/24/16.
I was a bit disappointed I couldn’t get my $63,000 offer price, but not really as I’m currently leasing a perfectly fine running car in Rhino. It would have been a pain in the ass to get out of the lease without losing money, so the best course of action was to just be happy with what I already have.
On Saturday morning I got a v-mail from the slick sales guy asking if I had thought more about the car. As I had been hoping for a counter and there wasn’t one, I didn’t immediately return his call. Instead, I went to CorgiCon at Ocean Beach to support British sovereignty! It was such a blast petting so many chunky Corgis.
When later that evening I finally called the sales guy and asked whether he had a counter, he told me in an annoyed voice, “Our price is our price. We have customers all over San Francisco who have no problem paying what we ask.”
After he said this, I thought to myself, “Then why the shitake are you calling me? Get your other customers to buy the car!” But of course, I told him, “No problem, we’ll be in touch.”
On Sunday, the sales manager texts me with some good news. “Dear Sam, we’ve adjusted the price lower by $1,000 to $61,000. That’s $66,650 out the door. We’ll round down and agree to $66,500.”
Alrighty! Now we’re talking! We’re still $3,500 away from my $63,000 initial offer, but at least they were no longer delusional. I stood strong and told him I’d have to think about it. After all, Monday 6/27/16 will be DAY 2 trading day post Brexit, and equities generally never rebound the day after a massive crash.
Sure enough, the US stock market on Monday, 6/27/16 is selling off by another couple percent, so I buy more stocks. I even buy a European bank trading at a 60% discount to book value with a potential 6.25% dividend yield. If the British Motor Car dealership didn’t want my money, I’d give it instead to the good people of Europe!
The sales manager and sales guy both texted me again on Tuesday 6/28/16 asking for a decision. They told me I could finance the car for only 0.9% over 3 years, or 1.9% over 4 or 5 years and put no money down if I wanted. Tempting! But by this time, my enthusiasm had waned. So I thanked them for the details, and again told them I’d get back to them. On Wednesday, 6/29/16, they informed me the car had been sold, and for me to keep in touch. Aw, shucks.
But wait! On 7/11/2016, a new sales guy texted me saying the car is now available again! The buyer backed out and supposedly bought a new one instead. They lowered the price by another $500 to $66,000 out the door, still $3,000 more than my initial offer. I’ll just sit tight because things will get worse over the next couple of years.
Money Is Fluid
I’ve made three serious all cash offers on three vehicles this year and nobody wants to take my money. There was a 2011 Porsche 911 GTS I offered $60,000 that was rejected because the seller originally asked $65,000 and wanted $61,000. There was a 2006 Porsche 911S I offered $31,000 that was rejected because the seller originally asked $36,500 and wanted $32,000. And now there’s this 2014 Range Rover Sport V6. What gives folks? Sell your unnecessary toys to me before the economy comes crashing down on you!
Since nobody wanted to take my money, I decided instead to make lemonade by buying $76,500 worth of stocks during the two trading days post Brexit. I came up with $76,500 because I wanted to buy a Range Rover’s worth of stock to show them my money was real. Oh, and I also wanted to be opportunistic and try to make some money too. Below are the purchase details from my Solo 401k, SEP-IRA, and Rollover IRA accounts.
Please note that all these investments are in my PRE-TAX retirement accounts where I can’t touch the money until age 59.5. I’ve been holding a 30% cash position in these pre-tax retirement accounts for roughly a year in anticipation of market sell-offs. Post Brexit, I finally decided to deploy about half of my pre-tax retirement account cash. I’m still aggressively saving after-tax money to stay as liquid as possible. I don’t plan to invest any after-tax cash in the market. Instead, I plan to pay down debt or hoard it so I can take advantage of lower housing prices by 2018.
In the short-term, the UK vote to leave the EU seems to be a non-event as European and US markets have rebounded almost all the way to where they were before Brexit. But over the medium-to-long run, who knows. Let’s hope dividends don’t get slashed too badly while investors get paid to wait. All I know for sure is that if you have a hoard of cash, you have options to do whatever you want.
I did my best to support the people of Europe by trying to purchase their vehicles. Alas, it was not meant to be. At least I did pet a lot of English Corgis that weekend and did buy some Molton Brown London body wash to smell so fresh!
1) During times of chaos, be opportunistic. Upheaval abroad almost always leads to lower US interest rates as foreigners seek the safety of US Treasuries. Borrow money more cheaply or lower your existing interest rate. Perhaps buy some securities if they’ve gone past your normal break points. My normal investment cadence is $5,000 – $20,000 a month. But with this surprising downturn, I decided to up my dollar cost averaging limit. Don’t feel bad about taking advantage either. Without your demand, things would be worse.
2) The only way to be financially opportunistic is to have lots of cash on hand. Think about all those people who bought equities and real estate between 2009 – 2012. Now think about all those people who were forced to sell in 2009 – 2012. Cash and lack of cash were reasons for both cases. Come up with a cash savings plan already. I deployed $76,500 based on my cash review. There’s still about $150,000 left in my pre-tax investment accounts to deploy while I build my cash hoard in my money market account to buy another house in 2018.
3) The world is interconnected. Until writing this post, I didn’t realize how much I enjoy British goods. I drove a Land Rover for almost 10 years, love Corgis, watch Wimbledon, went to Wimbledon in 2014, and am a fan of Molton Brown body wash. Things that affect people around the world affect you too. Be nice. Travel the world for free. Pay attention to what’s going on around you.
4) During times of chaos, you can either invest your cash or buy goods that will provide you joy and utility. I struggle with this decision all the time. When you’re young, your mindset should sway towards investing. As you get older, you might start thinking about enjoying your money more. Every time I lose money in the stock market, I always feel some regret not spending more on life. Just remember that just because things are cheaper, doesn’t mean you have to buy it.
5) Go out there and talk to people. The more people you talk to in different capacities and industries, the more you can gauge the state of the economy. If you have a personal finance blog with hundreds of thousands of data points, even better. Don’t listen blindly to talking heads who say “the world is coming to an end” or “you must buy everything now.” Do your own due diligence!
6) All talk, no action leads to nothing. Every time I write a post about investing or cash management, there will invariably be someone who says I’m market timing, a no-no by conventional wisdom. But guess what? Whenever you decide to invest your money, you are making a timing decision. To argue about market timing is a complete waste of energy because we’ll always be investing our money. And every time I follow up and ask, “Does this mean you didn’t buy any stock in the downturn since that would be market timing?” I get crickets for answers. Do whatever works for you and keep an mind open.
7) Expect continued volatility. Even if you were able to take advantage of a sell-off, don’t be so naive to believe it’s smooth sailing after a rebound. You can easily give up all your gains and then some if you don’t properly monitor your positions, rebalance, or have someone looking out for your portfolio. Never confuse brains with a bull market. Never confuse brains with luck either! But over time, investments tend to work themselves out if you can hold on. There will be more opportunities don’t you worry. Just be patient and ready.
Updated for 2020 and beyond. Brexit is still happening, three years later!