Opinion: What to do with stocks if the U.S. and North Korea go to war
By Mark Hulbert
Published: Aug 10, 2017 2:21 p.m. ET
Selling into a crisis is hardly ever a good idea
CHAPEL HILL, N.C. — If war breaks out with North Korea, we'll have bigger things to worry about than our portfolios.
But that's OK, because doing nothing is almost always the best investment strategy during a geopolitical crisis.
Such crises inevitably lead to panic selling, and it's never a good idea to sell into a panic. In fact, for the contrarians among you, the panic lows set in the wake of a crisis are far more often than not a good buying opportunity.
That is the clear conclusion to emerge from an analysis conducted by Ned Davis Research of the most momentous geopolitical crises of the last century. The firm found that far more often than not, the stock market, as measured by the Dow Jones Industrial Average DJIA, -0.69% strongly rebounds from its post-crisis panic low — so much so that within six months it is actually higher than where it stood before that crisis erupted.
To be sure, you can quibble with the list of crisis events the firm included in its analysis. The Falkland Islands War? But it included all the obvious candidates between 1900 and 2014, such as the bombing of Pearl Harbor and the assassination of John F. Kennedy — a total of 51 events.
What they found is summarized in this chart:
The stock market's reaction to the Sept. 11, 2001 attacks (which is included in their list of crises) is a good case in point. At the market's low five trading sessions after those attacks, the Dow was 17.5% lower than where it had closed on Sept. 10. By early November, less than two months after the attacks, it was trading higher than where it had been the day before the attacks.
To be sure, the Dow didn't quickly recover in all 51 cases that were analyzed to trade above where it stood before the crises hit. But even in those cases in which it didn't, the market still rallied significantly from the panic low set in their immediate aftermath.
I know it can seem unbecoming for any of us to worry about our net worth at a time of global crisis. But think about it this way: If military conflict with North Korea does erupt, we help no one by compounding the crisis by doing something stupid in our portfolios.
Posted by: sarah_oz@yahoo.com
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