Never confuse normal with abnormal.
War and mayhem are market constituents and forever will be.
The Stock Market is a microcosm of the actions of billions of often irrational human beings. Thinking mayhem to be something outside the economic forces of supply and demand is a dangerous game to play.
Last week, Israel decided to destroy the nuclear capability of their arch-enemy Iran. In addition to the conflict in Gaza, a far bigger regional war is now raging.
I’ve been doing this job for a long time. Next week, I will receive calls from the usual suspects asking, “Should I revisit my vacation plans until things calm down?”
My stock response: “ Unless you’re planning a trip to Tehran, putting your life on hold while waiting for peace in the Middle East is a ticket to never leaving your house.”
Since 1948, when Israel declared its statehood, bloodshed has been the rule, not the exception, as evidenced by the following chart. These conflicts do not include three major U.S.-led wars in Iraq(Twice) and Afghanistan.
Did this regional chaos obliterate the retirement plans of the average American investor?
The answer is decidedly NO!
Israel was declared a state on May 14, 1948. As of June 2025, the S&P 500 had increased 350-fold from about 18 to over 6,000 during this period, equivalent to a 10% annual return, including reinvested dividends.
The same can be said for most “Markets in Turmoil” events.
This excellent chart from Carson Group tells the tale.
It turns out the negative market behavior wasn’t the result of the event itself but due to other exogenous factors.
What stands out from the chart is not so much the downside risk of geopolitical events, but the coincidence of drawdowns and recessions independent of geopolitical risks. If you look at the major drawdowns, most take place during or near a recession, including 1956, 1973, and 2000-2001.
Of course, all bets are off if you own a concentrated, leveraged portfolio, ignoring the proven benefits of broad diversification among asset classes, investing styles, and countries.
War is a heinous thing, but its effects on human life and property differ significantly from its impact on a diversified portfolio.
There is always a silver lining hidden behind violence and chaos. This week, I spoke to a long-time client with significantly more money than when we started working together years ago.
He mentioned that we have survived numerous extinction-level events and will likely emerge stronger from this latest conflict.
What he told me next warmed my heart.
You taught me that when things are bad, don’t look at your portfolio. Instead, take two actions: leave things alone or buy more. I wish other people would do the same instead of getting scared out of the market at the worst possible time.
From your mouth to God’s ears.
When the Dogs of War begin barking, stocks are indifferent to human misery. The Nasdaq couldn’t care less about your feelings.
Markets often rally at the peak of conflagration, sensing better days ahead.
Maybe this time is different.
I wouldn’t bet your retirement portfolio on it.
Barton Biggs perfectly sums up the ingredients for successful long-term investing.
“Staying power, faith, and a strong stomach were required.”
It’s not so easy to kill a stock market, despite how hard we may try.
