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Lessons about investing, learned from war

14/03/2022

Just as the world was beginning to recover from COVID-19, a new threat emerged in the form of Putin’s attacks on Ukraine. Many investors are understandably concerned: while the UK may not be getting involved in terms of having troops on the ground, sanctions and trade restrictions (in both directions) are affecting certain markets. 

It is likely that many have seen the value of their shares and other assets plummet in the early days of the Ukraine conflict. The Morningstar team highlights that “Periods of sharp price movements tend to trigger an emotional response from investors as we perceive such movements as a threat…we tend to display a ‘fight, flight or freeze’ response”. 

What Investment adds that “it can be hard to be rational in times like these”. However, they also note that financial assets appear to be following similar patterns now as they did during previous wars (like Iraq) and financial crises (like 2008). 

 

The “G.O.D assets”

What Investment states that the G.O.D assets – gold, oil and the dollar – are “three assets which do well in periods like this”. They describe gold as a “safe haven” in troubled times. They highlight that oil prices tend to increase in times of conflict, and will tend to retain these high prices for a while afterwards. They also recommend investing in “resilient dollar-based companies” in the form of global equity funds or similar. 

 

Thinking long-term

Because of the emotional reaction many have in response to times of crisis, say What Investment, it can be tempting to sell assets as soon as prices start to fall. Morningstar, though, suggests it may be wise to focus on an asset’s intrinsic value, rather than its current price movements.

They cite the example of Mr. Market – an allegory coined by influential investor, Benjamin Graham. Mr. Market “approaches his investing as a reaction to his mood”. Thanks to investors like Mr. Market and their emotional approach, certain assets may see huge sell-offs, driven purely by emotion and not solid investing principles. At times like this, says Graham, prudent investors can benefit by buying assets that their analysis suggests will rebound and perform strongly in the longer term. 

Military conflict is always worrying – especially when it’s so close to home. For investors, though, industry experts seem convinced that assets are likely to follow patterns that have already been seen before in previous conflicts and global financial crises. 

 

“Stable Rise Limited is not authorised or registered by the Financial Conduct Authority. The marketing materials are not intended to provide financial advice nor promote any individual financial products.”

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