We live in turbulent times. But stay calm. They will also be counter-intuitive times. The initial shock of a conflict breaking out may cause stocks to fall and investors to feel justly pained, but history shows that, over a prolonged period of war and strife, those who have invested in traditional ways come out with their portfolios enhanced.
The house that I live in I bought years ago from an extremely elderly widow whose husband, decades before, had bought it, along with other houses, during the Second World War. During wars, houses go cheap. In that era, many who were not involved in the conflict bought houses very cheaply and lived off the rental income for years after, until the frail old widow sold it on to me, income and capital growth having done them fine.
Against expectation
Sir William Burrell, whose vast art collection is now the pride of Glasgow’s Burrell Collection, was part of his family shipping company when the First World War started. Governments suddenly needed ships. He had ships. And the price of ships rocketed astronomically. Long years later, Glasgow received the huge, and unforeseen, cultural bonus. Wars can have strange long-term effects – and, mostly, the results go against popular expectations.
While his chums were fighting in Burma, North Africa or Italy, he was able to build a tidy financial success
When the First World War started, even though the US was not involved initially, the main US stock market fell more than 30%. Activity dried up and the stock market was closed for several months. Then it reopened and during 1915 it rose 88%, the highest annual return on record – and across 1914 to 1918 it rose more than 43%.
The same thing happened in the Second World War. Hitler invaded Poland on the first day of September 1939. When the US stock market reopened on 5 September, it rose by almost 10%. And from the first day of that war until the last, 1939 to 1945, the US stock market was up by 50%, more than 7% a year. The same was true of the Korean War, up by 60% by the end, and the Vietnam War, up by almost 43%.
You could understand why a respected and successful accountant I knew well years ago never gained the reputation that his achievements should have given him. He didn’t serve abroad during the Second World War and, while his chums were fighting in Burma, North Africa or Italy, he was able to build a tidy financial success at home. That was never properly forgotten, or forgiven.
Long-term impact
And wars bring different long-term effects. In the Second World War, New York escaped unscathed. The lights remained on. There were no food shortages. They could still dance to the music of Louis Armstrong in the evenings.
In Paris, the city was occupied by a foreign army. People were shot or deported to the gas chambers of concentration camps. The hotel where people had danced until dawn became the headquarters of the Gestapo, the terrifying enforcers.
The use of the supply of oil as a weapon can bring about as much economic mayhem as war
London remained free but suffered the destruction of much of the city through bombing. Food shortages were continuous. The post-war economic recovery of each of these cities was very different. You could argue that much of the present lack of growth in the UK economy is still a throwback to those grim and pessimistic times.
But conflicts of a different sort bring economic chaos, too. The use of the supply of oil as a weapon can bring about as much economic mayhem as war, as has happened at roughly 20-year intervals across the past 60 years. Investors may find that, perversely, wars do not damage portfolios in the long term and the continuing growth in renewables may ease the use of oil shortages as a threat. As ever, sort out today but keep your eye on the future.
