Time of War - my strategy for investing during times of instability
Hello guys, this will be a more serious article, it won’t have humour, because war is never funny. We’ll take a look at the current situation with the US-Iran potential conflict, following Israel’s attack on Iran. For this article, we’ll have Capt. Scully is our character who will guide us through this wave of information.
What we, as investors, are certain of is that buying the dip is a good idea for growing wealth. However, many retail investors get scared and make emotional decisions, which aren’t at all based on the fundamentals of the company. Data shows that if investors stayed invested during times of hardship, they would get better returns than if they even trimmed a small position:
The best days in the market occur very often near the worst days. That’s why taking a long-term approach is the key to success.
We shouldn’t let the prices of our companies dictate what we do with them. Remember that you bought that company some time ago because you believed a certain premise. That they will grow. If you sell a company because you are scared that it won’t last during times of despair, you bought a weak company, and that isn’t smart, but of course, everyone makes mistakes, even me.
If we take a look at the bear case scenario, so that the US enters into war with Iran, here’s what’s possible might happen.
Quick de-escalation - if the US attacks Iran, and Iran backs off, we could see a very fast rebound of the markets.
Escalation - if Israel expands its operations, the US might get involved, and thus it could result in a short-lived conflict, which will likely finish in a peace deal.
Regime Change in Iran - if there is an uprising against Iran’s government, there could be great recovery over the long term.
Prolonged War - if the conflict is much more long-lasting, that could mean a longer recovery, but it will ultimately come.
If we take a look at historical events, we can see a pattern:
World War I: US stocks fell about 30% at the outbreak, but when markets reopened after a six-month closure, the Dow surged 88% in 1915.
World War II: The market dropped 2.9% after Pearl Harbour but recovered those losses within a month. From 1939 to 1945, the Dow rose 50%.
Recent Conflicts: After Russia invaded Ukraine in 2022, the S&P 500 fell over 7% but rebounded within a month, even as oil prices remained high
These examples show that even during times of uncertainty, investors need to stay invested true to their original strategy, not overconcertrating into energy and military stokcs, and keeping a long-term mindset, with some cash ready on the table to buy the dip, if it occurs, of course with a DCF valuation already done.
My plan:
Stay invested - research shows that selling during dips isn’t smart
Don’t buy stocks I wouldn’t originally own - a change of strategy isn’t a good idea
Have a bit of cash on hand - be ready for major dips
It’s simple because investing isn’t complicated. It’s we who can make it complicated.
I did a YouTube video on a similar subject. Here’s the link to it if you’re interested:
Stay Monopolistic.
This isn’t financial advice.