Leuthold: When Bombs Fly, Don’t Play Hero

David_Snowball

The good folks at Leuthold studied market performance in the 1 - 12 month periods following the onset of 13 major conflicts since 1928. The descriptive version: your results may vary. Markets tend to get bouncy and a lot depends on what time slice (1 month, 3 month, 6 month, one year ...) you choose to sample.

On average, the one-year returns came to 2% when you'd expect 7.8% in a "normal" period. Their advice to investors, which presumably will be manifested in their own fund and ETF portfolios:

The risk today is certainly not “too much panic,” rather complacency and hubris conditioned upon decades of military supremacy and market resilience. Markets are behaving as if the distribution of outcomes is narrow and benign. When bombs fly, the reward for bravery is rarely paid on schedule. We do not think this is the time to heroically outguess geopolitics or to confuse short-term fortitude with long-term clarity. The lesson from past conflicts is quite clear: Respect the initial shock, acknowledge the widening cone of uncertainty, and remember that survival, not bravado, is what allows investors to participate when genuine opportunities ultimately emerge.

For what interest that holds, David

DrVenture

Yes, spiraling consequences. A problem that many of us may have is selling after a sharp decline. It may make sense to consider the prior returns (3-yrs?) and consider taking a 3-5% hit as the price of doing business. Maybe even avoid another 3-5% (10-20% ?) downside, and buy back at a lower price point.

It is hard to see anything but headwinds in the next 6-9 months, right now. War is weighing heavily. But jobs, inflation and trade wars are still hanging in the background.

Is there any good economic news? I may have missed it.

JD_co

DrVenture said:

Is there any good economic news? I may have missed it.

Well now that depends on which provider you choose for your daily finance news. Certain "reputable" news outlets will tell you that all is just swell and dandy in the U.S.

larryB

@DrVenture. strongly agree. Not much upside in the next 6-9 months. And lots of potential for many historically bad days and weeks and months. A perfect storm of a war that could spin out of control and as you mentioned jobs, inflation and trade wars. And EVERY DECISION is being made by a mentally ill criminal acting alone. . What could possibly go wrong? Many things.

Mark

I'm not saying this out loud but I'd almost be willing to take a 20-30% correction if it came with a giant flushing of the GOP party come the mid-terms.

Crash

+1.