Effect of Global Conflicts on the Markets

Tim, as a long time subscriber, I have never seen this question posed, but it is of great concern to me and I would imagine to your other subscribers:
 
If the situation in the middle east should turn "hot" in the near future, specifically referring to Iran, what do you think the market reaction would be? Your best guess. How would investors best protect themselves? My fear is that the U.S. Navy and Iran could get into a shooting war suddenly that would take the American public by surprise. Thanks for any comments you may have.—M. B.

Tim Lutts: Thanks for asking. I could answer this from a foreign relations or military perspective, but that's not my expertise, and I hope that's not what you're asking for. Answering it from an investment perspective is easy.

But first I must ask you to accept the premise that if your goal is to make money (or at least not lose it) by investing in stocks you must accept as fact the idea that the market is never wrong.

Think about that. Accept it. Markets are never wrong; opinions are. This doesn't mean that markets can't be irrational; they always are to some degree. But if making money is the goal (or not losing it), the market is the final arbiter, so it's never wrong.

Accepting that, you will understand that the stock market knows more than any one of us, regardless of how smart and well-informed we are. The market's actions, in fact, reflect the combined hopes and fears of all investors about everything that matters, including Iran.

Knowing that, I know my time is better spent analyzing charts (to discern the thinking of all who matter) than wondering what might happen from a political or military or economic point of view.

In short, regardless of what I think about Iran, I know that what I think is less valuable than what the totality of others think.

And what the charts tell me today is that military (defense) stocks are laggards. The market as a whole does not see that as a great area for growth in the future, and thus does not see conflict escalating.

Finally, I'll note that your question implies that armed conflict would lead to a need to "protect" investments. History suggests otherwise; that it's best to buy when the shooting starts and sell when peace breaks out.


Tim Lutts Timothy Lutts
President, Chief Investment Strategist, Editor of Cabot Stock of the Month

Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 200,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.

Editor's Note: If you want to learn more rules for growth investors and get the top growth stock picks in the market, you should check out Cabot Market Letter. The Letter is top-ranked for both one-year and long-term market timing because it follows a finely tuned system that has been perfected during the last 40 years. Click here to find out more.



 

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