Lord Nathan Rothschild –a savvy investor if there ever was one–famously advised in 1810 to "Buy to the sound of cannons, sell to the sound of trumpets." The rationale? Instability makes investors nervous and consequently stock prices decline. Then, when the trumpets sound and investors can exhale, stocks begin to rise. So, scoop up undervalued stocks in times of chaos and sell them in times of stability. In other words, buy low and sell high. Basic investor common sense, right?
Well, yes and no. For instance, after the Persian Gulf War began in 1991, the Dow Jones rose 24.5 percent over the next year. But after the U.S. declared war on Germany in 1917, the Dow fell by 16.6 percent that year.
So, the historical data provides a mixed and complicated picture. The real question investors should ask during the tumultuous times of war is this: who specifically stands to benefit most from a loss or drawn out stalemate, and who specifically stands to lose the most? In other words, just betting on the major indices of the nation you expect to prevail is sloppy investing. Look to the specific companies and/or commodities to be most affected by the war and invest wisely.
In the case of the Russian incursion into Crimea, investing in Putin and his companies is a good bet. Unpopular as it is politically, Russia's oil and gas giants stand to benefit from Putin's imperial power play. First, investors always gravitate towards commodities like gold and oil in times of instability, two of Russia's strongest commodity exports.
While sanctions will hurt Russia and its markets in the short term as foreign investment capital will leave the country (as we have already witnessed), any investor flight toward precious metals or oil will benefit Russia and her companies, either directly or indirectly. In fact, just about any rise in commodity prices (the typical result of conflict) will benefit the commodity empire that is Russia.
The truth is that betting on Putin might be hard on the soul, but it will most likely be good for the pocket book. For when the trumpets finally sound in the East, chances are they'll be Russian hands. And even if they're not, investors who looked to gold and and other Russian-strong commodities will have benefited anyway.
