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Buy on the cannons, sell on the trumpets? Financial advisors talk war and investing

The article titled "Buy on the cannons, sell on the trumpets: Financial advisors talk war and investing" from InvestmentNews, published on October 13, 2023, delves into the complex relationship between geopolitical conflicts, particularly wars, and their impact on financial markets. The piece features insights from various financial advisors and experts who discuss strategies for navigating investment decisions during times of war and heightened geopolitical tension.

The article begins by referencing the old Wall Street adage, "Buy on the cannons, sell on the trumpets," which suggests that investors should buy stocks during times of war (when cannons are firing) and sell them when peace is declared (when trumpets are sounding). This saying encapsulates the notion that markets often bottom out during the height of conflict and rally when peace is restored. However, the article emphasizes that this is a simplification and that the reality of investing during wartime is far more nuanced.

One of the key points made by financial advisors is the importance of maintaining a long-term perspective. Despite the immediate volatility and uncertainty that wars can bring to financial markets, history has shown that markets tend to recover and even thrive over the long term. Advisors stress that knee-jerk reactions to geopolitical events can lead to poor investment decisions. Instead, they advocate for a disciplined approach that focuses on long-term goals and diversified portfolios.

The article highlights several historical examples to illustrate this point. For instance, during World War II, the U.S. stock market experienced significant volatility, but it ultimately rebounded strongly in the post-war period. Similarly, the market downturns following the 9/11 terrorist attacks and the Iraq War were followed by robust recoveries. These examples underscore the resilience of financial markets and the importance of not letting short-term fears dictate investment strategies.

Another critical aspect discussed in the article is the sector-specific impact of wars. Certain industries, such as defense, energy, and healthcare, often see increased demand during times of conflict. Financial advisors suggest that investors might consider overweighting these sectors in their portfolios during wartime, but they caution against over-concentration in any single area. Diversification remains a key principle, even when adjusting to geopolitical realities.

The article also touches on the role of geopolitical risk assessment in investment decision-making. Advisors emphasize the importance of staying informed about global events and understanding how they might affect different regions and sectors. They recommend using a variety of sources to gather information and consulting with experts who specialize in geopolitical analysis. This approach can help investors make more informed decisions and better anticipate market movements.

In addition to sector-specific considerations, the article discusses the impact of wars on currencies and commodities. Conflicts can lead to fluctuations in currency values, particularly in the countries directly involved. For example, the Russian invasion of Ukraine in 2022 led to significant volatility in the Russian ruble and other Eastern European currencies. Similarly, wars can disrupt global supply chains and affect commodity prices, particularly for oil and other energy resources. Advisors suggest that investors should be mindful of these dynamics and consider how they might impact their portfolios.

The article also addresses the psychological aspect of investing during wartime. Fear and uncertainty can lead to irrational decision-making, causing investors to sell at the bottom of the market or miss out on potential gains. Financial advisors stress the importance of maintaining emotional discipline and sticking to a well-thought-out investment plan. They recommend techniques such as dollar-cost averaging, which involves investing a fixed amount of money at regular intervals, to help mitigate the impact of market volatility.

Furthermore, the article discusses the role of alternative investments, such as real estate, commodities, and private equity, in a wartime investment strategy. These assets can provide diversification and potentially offer a hedge against inflation and market downturns. Advisors suggest that investors should consider including a mix of traditional and alternative investments in their portfolios to better weather geopolitical storms.

The article also touches on the importance of liquidity during times of war. Conflicts can lead to sudden market downturns, and having access to liquid assets can provide a safety net for investors. Advisors recommend maintaining a cash reserve and considering investments in highly liquid assets, such as money market funds or short-term bonds, to ensure financial flexibility.

In conclusion, the article emphasizes that while wars and geopolitical conflicts can create significant challenges for investors, they also present opportunities for those who approach the market with a disciplined and informed strategy. By maintaining a long-term perspective, diversifying their portfolios, staying informed about global events, and managing their emotions, investors can navigate the uncertainties of wartime and position themselves for long-term success. The article serves as a reminder that while the cannons may be firing, the trumpets of recovery are never far behind.

Read the Full InvestmentNews Article at:
[ https://www.investmentnews.com/equities/buy-on-the-cannons-sell-on-the-trumpets-financial-advisors-talk-war-and-investing/261030 ]