Conflict

I don’t like war at all. It’s important I get that out of the way.

This post is about what happens to investors who deploy their capital during geopolitical crises.

I minored in history. I preferred historiography (believe it or not!) and I loved economic history, but 20th century history will always hold a special place in my heart.

Here’s a list of fifteen major conflicts and invasions over the last 76 years.

Had you invested your life savings into the S&P 500 the month any of them started (I use the S&P 500 because it has the most reliable data*), would it have been a bad investment ten years later?

The Korean War (June 1950). 4x gain in real, inflation-adjusted terms with dividends reinvested
Soviets into Hungary (November 1956). 2x gain
The Six-Day War (June 1967). Bad investment.
Soviets into Czechoslovakia (August 1968). Bad investment.
The Arab-Israeli War (October 1973). Bad investment.
Soviets into Afghanistan (December 1979). 3x gain.
Martial Law in Poland (December 1981). 3x gain.
The Falklands War (April 1982). Almost 3.5x gain.
S. invades Grenada (October 1983). 2.7x gain.
Gulf War, U.S. into Kuwait (January 1991). 4x gain.
Serbians into Kosovo (March 1998). Just barely a loss.
9/11 (September 2001). Just barely a gain.
S. invades Iraq (March 2003). 1.7x gain.
Russia invades Crimea (February 2014). 2x gain.
Russia invades Ukraine (February 2022). To be seen.

In real, inflation-adjusted terms with dividends reinvested, four instances left you worse off a decade later: the Six-Day War, Czechoslovakia, the Arab-Israeli War, and Kosovo in 1998.

Of those, the first three were hammered by the inflationary 1970s. The conflict wasn’t the issue. The macro environment was. And investing at the outset of the Kosovo War was just terrible timing. You bought near the peak of the dot-com bubble and your ten-year mark landed in the Global Financial Crisis.

Now extend the time horizon to thirty years. You know, the typical time horizon for accumulators and decumulators.

Every entry is a winner. And not marginally. Here’s the list again:

The Korean War (June 1950). Almost 6x gain in real, inflation-adjusted terms with dividends reinvested
Soviets into Hungary (November 1956). Over 4x gain.
The Six-Day War (June 1967). Almost 6x gain.
Soviets into Czechoslovakia (August 1968). Almost 7x gain.
The Arab-Israeli War (October 1973). 3x gain
Soviets into Afghanistan (December 1979). Almost 8.5x gain
Martial Law in Poland (December 1981). Over 9x gain.
The Falklands War (April 1982). Over 10x gain.
S. invades Grenada (October 1983). Over 9x gain.
Gulf War, U.S. into Kuwait (January 1991). Almost 11x gain.
Serbians into Kosovo (March 1998). To be seen.
9/11 (September 2001). To be seen.
S. invades Iraq (March 2003). To be seen.
Russia invades Crimea (February 2014). To be seen.
Russia invades Ukraine (February 2022). To be seen.

With a 30-year time horizon, all instances were good investments. And sorry but I must add this part: history is not indicative of the future, and ‘good’ is subjective.

There’s one important thing I need to point out, though: had you invested when the Soviets marched into Afghanistan, your thirty-year anniversary falls close to the low in the Great Financial Crisis—the single worst exit point in a generation. And your investment still grew 8.5 times.

Geopolitical risk matters. There is an enormous, depressing, and terrifying human toll.

But for long-term investors, it’s just one more thing that tests your patience. The market prices fear immediately but eventually looks past it.

What determines your real outcome over decades isn’t the headline that scared you. It’s your time horizon.

History is no guarantee of future results. But it does have a way of throwing it all in your face.**

*I used Nick Maggiulli’s S&P 500 calculator. Link here.

**With thanks, as always, to Gregory Alan Isakov’s lyrics.