What to Buy In Times of War

For many of us it’s hard to imagine war. While we’re on constant alert and have soldiers in the field, we never think the carnage of war could come to us. That’s how I think anyway. However, there are still men and women among us that remember what it’s like to live through war.

On 1 February 1944 a Berlin teenager, Brigitte Eicke wrote in her diary:

The school had been bombed when we arrived this morning. Waltraud, Melitta and I went back to Gisela’s and danced to gramophone records.

It would be unthinkable to wake up tomorrow in 2017 and find that schools had been bombed from the air. Maybe I’m just naive. Maybe tensions between the US and North Korea will worsen and more than just test missiles will start flying.

Hedging Your Portfolio

Hedging your portfolio against political risks is one thing. Hedging against nuclear war is a completely different ball game.

In 2014 when tensions escalated between Russia and Ukraine, investors shuffled their money into bonds. Just after the tragedy of 9/11 investors jumped into gold.

But if things ramp up between the US and North Korea, what will be the safe haven?

Real estate? Bonds? Gold? Defence stocks? Maybe even bitcoin?

Fund manager and Australian Financial Review columnist, Christopher Joye writes:

I’ve explained before the (limited) steps one can take to insulate portfolios from these catastrophic contingencies. The first involves not blindly diversifying overseas for the sake of it. I avoid Chinese, Japanese and South Korean securities (and any managers with these exposures). The monetary upside is simply not worth the radioactive downside.

Second, I prefer strategies that are allowed to go 100% to cash and/or short. By doing so they can ameliorate risk by selling assets and/or hedging the possibility of future price declines.

Third, there is a role for investments that afford “positive skew” or explicit insurance against so-called “black swans”. This includes savings destinations of last resort, like bitcoin and gold, and long volatility or “bear” funds that rise when markets dive. BetaShares offers a variety of these protective products against both Australian and US equities.

At the end of the day, however, there is some non-diversifiable existential risk that afflicts all portfolios. If China or North Korea successfully fires nuclear ICBMs with 50 kiloton plus payloads into Sydney and Melbourne, we are all, frankly, screwed.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

PS: Hopefully it doesn’t come to war. But even if the situation simmers down, we could still see a huge decline in our share market and economic growth. To find out more, click here.


Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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