Don’t Fall for This Wartime Investment Mistake
Ken Fisher warns investors against the common impulse to buy defense stocks when military conflicts begin, calling it a 'head fake' from what he terms 'The Great Humiliator.' He argues that sustained defense stock gains require unexpected increases in global defense spending, not the onset of conflict itself. Fisher also contends that military conflicts cost less than assumed because they partially replace normal training expenditures.
Summary
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.
Key Insights
- Fisher argues that defense stocks typically experience only a brief, sharp rise at the onset of conflict and then underperform — often ending up below where they started when the conflict began, as exemplified by the Iranian conflict.
- Fisher claims that buying defense stocks at the start of a conflict is a 'head fake' from 'The Great Humiliator,' exploiting a predictable emotional reaction in investors.
- Fisher contends that the actual driver of sustained defense stock gains is an unexpected, material increase in global defense spending above and beyond what markets had already priced in — not the existence of a conflict itself.
- Fisher asserts that U.S. military training activities result in far more deaths annually than the Iranian conflict has produced — by orders of magnitude — suggesting the conflict's human and material cost is not as extraordinary as perceived.
- Fisher argues that military conflicts partially substitute for normal training expenditures, meaning the incremental cost to defense budgets is lower than assumed because munitions use, equipment losses, and accidents would have occurred in training regardless.
Topics
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