In the minds of modern American politicians, war is a dirty word.
You won’t be hearing it too much from President Obama or any of his cabinet members in the coming weeks, despite the fact we’ll be dropping bombs on foreign soil.
Instead, they’ll be using toned-down rhetoric in an effort to maintain a false legacy of anti-war leadership.
In an effort to reassure the American public that this is not the W-word, Secretary of State John Kerry made claims last week that the military action in Syria is a “very significant counterterrorism operation…” but war? Of course not — that’s the “wrong terminology.”
Of course, Kerry has failed to provide us a clear definition of the word “war” and how exactly us bombing Syria wouldn’t constitute one, but Obama was able to shed a bit more light on the branch’s warped definition:
“I want the American people to understand how this effort will be different from the wars in Iraq and Afghanistan. It will not involve American combat troops fighting on foreign soil. This counter-terrorism campaign will be waged through a steady, relentless effort to take out ISIL wherever they exist, using our air power and our support for partner forces on the ground.”
In other words, a war is not a war anymore unless American boots are on the ground. We can drop bombs, send in military advisors, and supply allied ground forces, but until we send in the troops, everything is sunshine and rainbows.
War No More?
If we’re to follow this perverted and egocentric definition of war, we may just be on our way to everlasting world peace. After all, recent advancements in military technology have continuously decreased the necessity for ground infantry in military conflict.
More so than ever before, machines are fighting our battles, which, by Obama’s and Kerry’s logic, could mean we’ll soon never have to go to war again. Robots will disarm the IEDs, and drones will drop the bombs. So long as American troops aren’t on the ground, we can be a nation at peace.
The truth, of course, is that the war in the Middle East isn’t anywhere close to finished. It’s been raging for nearly 1,000 years and could go on for 1,000 more. Just because military technology now allows us to fight our enemies without mobilizing an entire army doesn’t mean we’re not going to be fighting a war.
Additionally, the belief that ground troops will definitely not be deployed in Syria at some point is naïve at best. Based on recent reports from Peter Baker of the New York Times, President Obama is openly prepared to overthrow al-Assad should American planes face any opposition from the president of Syria:
“Mr. Assad might order his forces to fire at American planes entering Syrian airspace. If he dared to do that, Mr. Obama said he would order American forces to wipe out Syria’s air defense system, which he noted would be easier than striking ISIS because its locations are better known. He went on to say that such an action by Mr. Assad would lead to his overthrow, according to one account.”
Not to say the events are identical, but Obama’s rhetoric towards al-Assad has become quite similar to Bush’s challenges against Saddam prior to the invasion of Iraq and Afghanistan.
The only notable difference is that instead of using the pretext of WMDs and al-Qaeda, the president’s cabinet has used chemical weapons and ISIS as justification for military action.
If past is, by any means, a form of prologue, we can see exactly where this situation could be heading.
War and Markets
Ultimately, whether American boots end up on the ground or not, the events in Syria are undoubtedly leading towards some form of military conflict. Call it war or call it an effort — the effects on the market and the economy will be all the same.
For many investors, this kind of political unrest is a scary thought. War can’t be good for the economy or the stock market, right?
Surprisingly, this common sentiment is simply wrong. As it turns out, capital return from equities during times of war has historically been larger than normal, and volatility has been lower as well.
In 2013, the CFA Institute looked at market performance leading up to and during various American wars, finding out that both large- and small-cap stocks fared better during wartimes while cash, notes, and bonds all performed worse.
Credit: CFA Institute
Between 1926 and 2013, large- and small-cap stocks brought investors annual returns of 10.0% and 11.6%, respectively. During times of war, those figures increased to 11.4% and 13.8%.
The difference is small, but the takeaway here is not to sell when war breaks out. As a matter of fact, this can be considered the perfect time to buy.
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The person originally accredited for this line of thinking is none other than 18th century British nobleman Baron Rothschild.
Rothschild is well known for making a fortune by buying the panic that followed the Battle of Waterloo against Napoleon. The famous contrarian thinker was quoted as saying, “Buy when there’s blood in the streets, even if the blood is your own.”
Following the tragic attacks of September 11, 2001, McClellan Financial put out a telling piece titled “Wars, Disasters, and Their Impact on the Market,” highlighting the fact that crises involving the U.S. have uniformly been buying opportunities once public panic is exhausted.
The charts below were taken directly from this research and highlight the flash sales presented in multiple crises, including:
The Onset of WWI:
The Assassination of JFK:
The Korean War:
When a crisis occurs, your best course of action is to profit off the fear and panic of those around you, not to sell with the rest of the herd. In the end, it’s all a matter of controlling your emotions and canceling out the noise of the crowd.
Playing off investor psychology is just one strategy for making money from stocks during wartime. Investors can also do quite well by investing in companies that profit from war, such as those located in the defense sector.
As it currently stands, U.S. involvement in the Syrian conflict extends no further than air-based conflict. This bodes incredibly well for aerospace and defense companies including Lockheed Martin (NYSE: LMT), Boeing (NYSE: BA), Raytheon (NYSE: RTN), and Northrop Grumman (NYSE: NOC) over the long term.
Likewise, drone-makers stand to benefit greatly from the ongoing conflict in the Middle East and, in particular, the desire of our political figures to avoid putting troops on the ground.
It’s worth pointing out, too, that you don’t have to be pro-war to profit from these sorts of events. The vast majority of us don’t want this conflict to escalate, but at the same time, we don’t have much control over what happens. After all, we elected a president running on an anti-war platform, and we’re right back in the same position we were two terms ago.
When it comes to money, you ultimately have to be a realist. Ignoring “blood in the streets” opportunities won’t turn you into Gandhi, and taking advantage of them doesn’t make you some kind of war criminal.
In other words, be practical, and don’t let idealism stand between you and your investments.
Until next time,
Jason Stutman
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