War & Investing

War and conflict have been intrinsic to the human narrative since the dawn of our existence. What were once disputes over land or resources have now evolved into cultural wars, often fueled by governments and the military-industrial complex. You have probably heard the adage, "War is good for business," but who truly profits from wars? How can you, as an investor, take advantage of it?

While defense contractors such as Lockheed Martin and Northrop Grumman may see an immediate surge in stock prices during conflicts, their long-term performance doesn't always outshine the broader market. Over the past five years, Lockheed has risen about 33%, Northrop has climbed about 55%, and S&P has appreciated about 57%. This suggests the potential pitfalls of betting heavily on single stocks when the market, in general, can offer better returns.

Mark Armbruster, president of Armbruster Capital Management, analyzed the timeframe from 1926 through July 2013 and discovered that during wartime, stock market volatility was often lower than in peacetime. Furthermore, J.P. Morgan Funds' Chief Global Strategist, David Kelly, noted that investors today are somewhat desensitized to geopolitical events. Having witnessed recoveries post-9/11 and after the Great Financial Crisis, investors tend to view disturbances in distant lands as less impactful. For instance, US markets rebounded a mere eight days after the onset of the Ukraine conflict and even rose on the day of the Hamas assault on Israel.

Commodities such as oil and gold might see a spike during conflicts, but these surges are typically temporary. The Middle East, previously the epicenter for oil reserves and production, no longer holds that undisputed title. With oil and energy production now distributed across various nations, the US, among other countries, is less susceptible to abrupt energy price fluctuations.

So, circling back to our initial inquiry: how can one profit from wars? The honest answer is that unless you possess confidential intelligence about an imminent conflict or have stakes in cutting-edge defense tech firms like Anduril, such speculative strategies might be best left to hedge fund managers. However, if major global tensions rise, bolstering your portfolio with some defense, energy, and semiconductor stocks might be a prudent move. Still, don't be taken aback if the broader market continues its upward trajectory.

Please note: This is not financial advice. Image: https://www.wita.org/atp-research/war-reshaping-world-trade/