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.
Brexit And The Sales Guy
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 Post Brexit
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!
Summary Post Brexit
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. Brexit put Britain on the map again.
4) During times of chaos, lik Brexit, 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.
Be More Responsible, Buy Less Car
Follow my House-To-Car Ratio guide for fiscal responsibility and buy a cheaper car. If you want to eventually reach financial freedom, you should have a house-to-car ratio of at least 50. Cars are guaranteed to depreciate in value, houses tend to appreciate in value.
As the father of the modern-day FIRE movement, I want all of you to have more wealth and more freedom. No car can match the joy you will experience once you are financially free.
Buy Real Estate Instead Of An Expensive Car
Keep your car expenses to a minimum. Instead of buying a fancy new car, use the money to invest in real estate instead. This way, you can build more wealth and achieve financial freedom, which provides way more value than driving a nice car.
To invest in real estate without all the hassle and unexpected costs, check out Fundrise. Fundrise offers funds that mainly invest in residential and industrial properties in the Sunbelt, where valuations are lower and yields are higher. The firm manages over $3.5 billion in assets for over 500,000 investors looking to diversify and earn more passive income. The minimum investment amount is only $10.
Another great private real estate investing platform is Crowdstreet. Crowdstreet offers accredited investors individual deals run by sponsors that have been pre-vetted for strong track records. Many of their deals are in 18-hour cities where there is potentially greater upside due to higher growth rates. You can build your own select real estate portfolio with Fundrise.
I've personally invested $954,000 in private real estate since 2016 to diversify my holdings, take advantage of demographic shifts toward lower-cost areas of the country, and earn more passive income. We're in a multi-decade trend of relocating to the Sunbelt region thanks to technology.
Both platforms are sponsors of Financial Samurai and Financial Samurai is an investor in Fundrise funds.
Related:
A Better Dollar Cost Averaging Strategy
The Best Asset Allocation Of Stocks And Bonds By Age
Update: Brexit doesn't look like a good deal for the Brits at all. I gotta say, I love driving my 2015 Range Rover Sport I bought in December 2016. It still only has 52,500 miles on it, partially thanks to the pandemic. However, it feels great to drive a bigger car to now protect my wife and two small children. If I could spend even more money to buy a safer car, I would!
Invest In Private Growth Companies
Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment.
Check out the Innovation Fund, which invests in the following five sectors:
- Artificial Intelligence & Machine Learning
- Modern Data Infrastructure
- Development Operations (DevOps)
- Financial Technology (FinTech)
- Real Estate & Property Technology (PropTech)
Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!
The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum. In addition, you can see what the Innovation Fund is holding before deciding to invest and how much. Traditional venture capital funds require capital commitment first and then hope the general partners will find great investments.
Sam, based in part on your advice, I’m trying to save more cash to take advantage of these market dips.
Knowing that people are terrible market timers, I’ve actually built “topping off” my 401k into my investing plans. Whenever the value of my investments and bi-weekly contributions is lower than it was at the end of the prior month, I buy up ETFs to make up the difference. This way it’s not me trying to time the market and I’m forced to buy a falling knife knowing that 1) it’ll eventually rebound 2) I’m getting a discount – and the steeper the discount (e.g., in Feb when the market dropped 10% over the prior month) the more I’m buying.
I bought a bunch of VXX via the Robin Hood app. $0 commission.
Sold a few days later for double digit profits. Again, $0 commission.
What about the 25% in tax you had to pay on the sale??
Sam, thanks for trying to support us Brits. I hope we made the right decision to get out of the EU. Better to do it now than when the euro finally collapses (which I think it will given the structural imbalances in the individual economies). Anyway, I was able to snap up some shares in Barclays which were on sale big time post brexit. The Bank of England, in similar fashion to the fed, came out with the only plan they have; more easing and a promise to lower rates. It’s given our lovely pound Sterling a good kicking. No foreign holidays for a while!!! I guess I can use the cash to maybe invest in property, as prices in the UK / London ,any finally be going lower!
I might have missed it but why do you predict housing prices will be lower in 2018? I plan on buying a condo in Seattle as an investment that won’t hit the market until 2019. Thoughts?
Hey Sam –
So for the European bank trading at a discount, can you speak to how you came across that deal? Had you been watching it for some time, just waiting for a dip? Are you buying for their fundamentals that were previously overpriced? Any tips or insight on your process would be appreciated.
I’m a little lost myself. Quick story: I’m 30, have around $85k net worth but almost half of that is cash that I don’t know what to do with. I wish I would have been fast enough to make a purchase on the dip like you did, but I’m just not there yet unfortunately.
Love the site.
Susan
My advise would be to focus on London based banks. By that I mean Barclays or Lloyd’s. BARC still looks cheap and you have the added bonus of the improved dollar position v the Pound which will make it even cheaper. Another two to research are HSBC and Standard Chartered. Both are London listed but derive a lot of Income from Asia.
I hate to be that person (not really :D) but Jaguar/Rover is owned by the Indian company TATA. They took it over a few years ago and shocked everyone when they invested heavily in Jag and saved the ailing brand instead of cutting jobs in the UK as expected.
I did nothing because I currently don’t have the cash. :(
I spent everything I had buying European equities Friday morning when it was down 12 just because I didn’t want to miss out on what I thought was a very fair level for the best level.
Wow buying Land Rovers, FS must be bringing in big bucks Sam! I tried ADRs once but then I noticed some $30 extra fee tacked onto my brokerage for third party custody purposes. I dream of the day when I can buy international stocks listed outside the US for a scottrade like $7 fee. Until then Im mostly using ETFs in my portfolio for anything outside of domestic equities
I tried to buy Friday but placed my orders right at the bottom and then got no takers.
Saw things dropping again on Monday and eventually bought on Tuesday morning – just bought more Vanguard Developed Europe ETF and iShares Eurozone etf, nothing complicated.
Best part about it – this was the first time my wife said “hey the markets dropping, maybe we should buy more stocks?” :)
I am getting ready to put my 2011 911 Turbo S on the market & I would happily sell it to you at a reasonable price : ). Black on black, only warning…you won’t want a normally aspirated Porsche after having a Turbo!
Awesome! 991 or 997?
I’m a cash buyer. Give me a good price!
2011 is a 997.2 it has 32,000 summertI’m miles, it’s pretty awsome…make me an offer lol!
As a long time reader, and multi millionaire, surely you will find comfort in selling the car to me for cheap who you know will take care of it and allow it spirit to live on for eternity! I’ll even post some pictures on like for you to continue to enjoy it! Simply calculate the value you have derived from this site after all these years, and subtract your realistic asking price for anybody else or the dealer trade value, and we have a deal!
I won’t want a GT3 or RS after driving a Turbo? I had a Turbo and won’t go back after being in a GT3…..At least get a 997.1 6 speed so it can appreciate in value
Wild, exciting times! I did the same thing. I loaded up on IEV and VGK. As for car offers allow me to provide some insight, I’ve been in automotive finance and sales training since 2002. Before that I was a car salesman, sales manager and finance manager. My wife is a finance manager and has been for 14 years.
Ironically, I was amused by your blog post but my wife was very annoyed. For your way of thinking, I totally get it. You are cash rich and looking for a way to exploit and economic opportunity. I did that with my recent purchase of a pre owned Rolex Yacht-master II. You have your love for cars and my loves are luxury watches and firearms (I reside in TX, hence the 14 handguns I own, LOL!).
My wife is at the mercy of discriminating consumers on a daily basis. They haggle, the have lots of money and are arrogant in her mind. When they negotiate with her employer, an X luxury car dealer; she feels the customer is robbing her livelihood. She believes you should get a deal but the dealer still needs to make a reasonable profit. Overhead is extremely high and margins and plummeting to all time lows and this is a trend that has persisted for a decade.
Just wanted to share this with you, as we’re auto insiders.
Happy 4th!
You bring up a great point and a great perspective from your wife. At the end of the day, we are all trying to make the best financial decisions possible. It is quite a tagteam you guys have there!
I’m not going to overpay for something when I could use that money to provide for a family to take care of others.
The back-and-forth struggle with vehicles never ends.
Perhaps this is a strategy devised by your subconscious to save some cash. Go through the entire process of searching and even making an offer to satisfy the yearn. However, offer a low probability offer so that hopefully you’ll get pissed off enough (loss is stronger than gain) to do something else with the money and tie it up!
It is good to remember during the holidays to be grateful for what we already have though, so I’m glad you touched on that. The Porsche GTS is sweet though!
I have to admit, I really find it thrilling to negotiate with sales people and other people on things that I do not need but I like.
I’m the type of person who likes to window shop but not buy anything. It is very enjoyable topretend on these things without actually having to pay for them. Is this weird? Or is this pretend on these things without actually having to pay for them. Is this weird? Or is this a blessing to be able to be happy daydreaming? I don’t know. But what I do know is that post and think about some important takeaways.
Nope, not weird at all, and I’m the same way. I like to not only go to open houses but talk at length with the agent to learn all the details. I like going to the dealership and chatting it up with the sales rep to see all the terms. I feel bad though as it might be selfish knowing that there’s only a 1% it’ll lead to a purchase most of the time…but I guess they know that too.
Our portfolio didn’t go down enough to require rebalancing during Brexit, but there will be more volatility and buying opportunities going forward.
Those jerks not taking your car offer was a blessing in disguise. The Brits have 2 years to pull the trigger and I suspect they’re going to chicken out…and when that happens, who’s gonna get paid? YOU, that’s who!
I didn’t quite have enough spare cash to get into VTSAX after the Brexit thing like I wanted.
However, Vanguard has an option with my company 401k where I can use a portion to invest as I choose. Sadly, Vanguard creating this sub-account has taken 4+ business days now and I may miss out on the Brexit sale. I guess we’ll see what the long weekend gives us.
I am however going to take advantage of the lower mortgage rates and refinance at 3.25% and save $300 a month.
Well done taking the initiative to refinance your mortgage. That is a no-brainer for everybody who has one right now. I’m sure there will be other buying opportunities this year, so keep your cash stash ready.
I work for an Asian Bank in the PE Field. Don’t want to get too specific but u can email directly. I have been on your site for a bit, really like it a lot. Only PF Blog I remotely agree with and read…..Oh, and buy the Porsche (just change the S in the GTS to a 3)
I would prefer to see you buy DVY in taxable accounts otherwise you are losing the tax savings on dividends. Buy “interest” in tax-deferred and buy “dividends and capital gains” in taxable.
Just my .02
You make a good point. This is called tax location. When I was thinking about buying all I was really thinking about it as the market moved violently down was to get some index equities exposure. I didn’t really have time to think about the specific individual stocks for positions. And I didn’t want to b I didn’t really have time to think about the specific individual stocks for positions. And I didn’t want to do nothing either, given the 5% decline in the US breached my -2% indicator to add more. But I did buy a European Bank stock because the European banks were the most crushed.
What did you do post Brexit and what is your investment back room?
I was holding RWR, TLT, VCSH, and VGM (love closed ended Muni Funds – buy when discount is big – sell when the get close to NAV).
When the 2nd day happened sold TLT and VCSH and rotated into SPY. Sold all SPY yesterday and have a large cash position. Not feeling good here. Will hold the Muni’s (getting close to selling) and definitely hold RWR as I think M&A is on the horizon. I work in Finance so really can’t hold individual securities of companies and I have also learned i am a much better Macro than Micro guy. Off to HK on Tues and always come back with great ideas after speaking to my clients there. Best capitalists in the World…..
I spent Honda Fit level money (20k in an IRA) on Tuesday on an emerging market fund. I sold Friday for an $1100 gain.
I selected “other” in the survey. I wanted to buy and had two different ETFs that are heavy on European exposure selected but the prices didn’t come down as much as I would have liked.
You advised us to hold cash this week and I am doing that. It is going to have to be a steeper dip for me to buy.
I was in the camp that viewed Brexit with a ho-hum attitude. As you said, Sam, the long-range impact is hard to predict and could be pretty rough on all of us.
Even in the absence of Brexit, I think I would continue on my current path: building my cash position while keeping an eye out for good opportunities.
I’m not sure I did much to help support the British or Europeans other than drink a few British and European beers.
Honestly, I was a little surprised at how rapidly the markets rebounded after the vote. I expected a little more downtime. But the drop on Friday was so severe that it seems to have captured the majority of the correction. The vote caught the markets by surprise and as such, the markets reacted swiftly. Had there been more indication that this was how the vote would go, we might have seen a more gradual sell off leading up to and following the vote.
We have extended family in Italy and have discussed with them the poor state of affairs over there. I certainly do not think things will improve in the EU with Britain exiting. In fact, logically you would expect it to worsen. The same problems of immigration and economic challenges persist.
But with that said, there are still buying opportunities that exist. I assume having a background in international equities probably benefits you in situations such as this. I will be doing a little more research to identify future opportunities if they present themselves over the coming months.
I was thinking the same that it would be a great time to analyze stocks in Europe and go long term monthly investing in a few stocks.
To be safe, I invested some cash into some p2p lending platforms for the moment.
Do you invest in stocks for dividends or for the stock price ? Considering that I want to invest for long term 10+ yrs, I think I shouldn’t even look that close at the stock price, but rather the PE and the dividends paid over the last decade. What do you think about this ?
That’s really smart, taking advantage of uncertainty not just in investing but in buying expensive items and using that as leverage. I guess I was a month and a half too early in buying my Nissan Versa Note but no regrets. I can’t wait until the next downturn to deploy my capital!
During Brexit, I should have bought more shares of VYM and VNQ instead of doing nothing..
I added more cash to my IRA and re-balanced my timeline so that it would stay incredibly stock heavy for years. Then I added a tiny amount to my taxable account in straight S&P and total market funds. Felt like good moves for a novice investor. I’m still planning to keep a lot of cash on hand since my work is so erratic.
Omg corgis are so darn cute! Sorry to hear the car deal didn’t work out for ya but great job investing in the markets. I was buying positions myself too. I had thought about buying a few weeks back, since I try and leg into the markets a little bit every month, but decided to wait until the Brexit vote because I had a feeling it would pass.
I totally agree with your points about managing cash and having enough for optionality and flexibility, especially when the economic outlook is dicey. I just finished running my net worth numbers (will be publishing on Monday) and my latest asset allocation after my recent stock purchases. Right now I’ve got 21% cash and CDs, which is up from 12% six months ago so I feel pretty good about that.
I sold cars for about 5 years – you handled that perfectly. A good rule of thumb when buying from a dealer is to get out the door for their asking price. If you can pull that off then you’re getting a good deal.
Post Brexit I’m currently on an 8 states in 8 days road trip with my wife and our 4 kids. This taste of the FI life is quite nice. Can’t wait to get there for real. Being away from work makes me realize how much I enjoy being away from work!
Good to know! I didn’t know the asking price pre-tax and fees was a good rule of thumb to shoot for. So I guess I was close at $63,000 versus ultimately $61,000. The problem w/ living in a denser city is that there is a lot more demand. It takes a while for this demand to peter out, if ever at all. I couldn’t believe people were paying markup prices w/ the RR Sport came out! Crazy.
Awesome roadtrip! Love to hear about it when you return.
well it’s just a numbers game, eventually u will find someone willing to shave off a couple grand from their asking price.
We have been supporting Europe since April when we arrived in Portugal. We’re currently in Budapest and are thrilled we chose to come to Hungary.
We purchased 100 shares of VTI on Friday the 24th and another 100 shares on Monday the 27th.
Another wise decision Sam. It’s almost as if someone is looking out for your net worth during all of these car negotiations. Looking forward to seeing what midlife crisis car you end up purchasing someday.
You’re in Budapest! I was just there! Please, please, spend an afternoon at the Gellert Hotel at the natural springs pools! I spent four hours there my last day and loved it.
Who knows what my purchases will do in the long run. But I have been sitting on cash to take advantage of -10% down moves, so I figured why not deploy a percentage of it. I have no doubt the market will vomit on itself again this year.
It is funny how no matter how hard I drive to buy something, folks won’t accept my money. Enjoy Europa!