Don’t Fall for This Wartime Investment Mistake

Ken Fisher opens by introducing his long-standing concept of the stock market as 'The Great Humiliator' — an entity designed to embarrass as many investors as possible, for as much money as possible, for as long as possible. He notes that wealthier investors are more attractive targets for this humiliation, and that navigating markets without falling for its tricks is a constant challenge.

Fisher then addresses a specific and recurring investor mistake: the knee-jerk impulse to buy defense stocks when geopolitical conflicts emerge. He explains that while there is typically a brief, sharp rise in defense stocks at the onset of conflict, this rise is short-lived and defense stocks usually underperform thereafter — often underperforming even relative to the start of the conflict. He cites the Iranian conflict as an archetypally normal example of this pattern.

He argues that the real driver of sustained defense stock appreciation is not the existence of a war, but rather an unexpected and material increase in defense spending — globally, not just in the U.S. — that exceeds prior market expectations. This kind of surprise spending increase is what would genuinely support long-term gains in defense stocks, and it may or may not accompany any given conflict.

Finally, Fisher makes the counterintuitive point that military conflicts are less economically impactful on defense budgets than commonly assumed, because much of what occurs in conflict — munitions use, equipment destruction, accidents — would have happened anyway during routine military training. He notes that far more U.S. military personnel die annually in training than have been lost in the Iranian conflict, suggesting the incremental cost of the conflict is smaller than perceived. He frames the conflict as 'real-time training' that actually reduces the need for simulated training exercises.