Hey Millennials, here’s how being too conservative with your money could cost you in the future.
Kim Jong Un has been even busier than Arya Stark—one of the heroines of HBO’s wildly popular fantasy series, Game of Thrones. Where the warrior princess has spent this season hunting down and killing her enemies, Kim has spent his summer testing intercontinental ballistic missiles, making nuclear warheads and threatening America. Three-quarters of Americans call him a “critical threat.” But this isn’t reason to flee stocks. Despite the hype, this isn’t World War III.
Stocks have a long history of dealing with secondary conflict. None brought huge downturns. The Spanish Civil War wrecked Spain in 1936, but global markets topped 19%. Russia exploded an atomic bomb in 1949—early in the Cold War—and world stocks gained 5%. A bull market wasn’t killed due to 1967’s Six Day War among Israel, Syria and Jordan. Global stocks soared 21% that year. Stocks also rose through both Iraq Wars, Israel’s spat with Hezbollah in 2006, the 1990s’ Balkan War and many others.
Only world wars ever started bear markets. World War II’s onset in 1938, when Hitler invaded Czechoslovakia, cut short a rebound from a credit crisis. Stocks sank until 1942. The first World War was similarly crushing. But that’s it. Tragic as wars of any size are, regional conflict is usually too small, affecting too little of the world economy, to disrupt commerce in America and globally.
Tensions can bring volatility, but it usually ends fast, even when armed conflict breaks out. As with Game of Thrones, the building suspense is the story—fighting resolves it. It’s a “sell the rumor, buy the news” thing. Investors quickly realize it isn’t World War III, market life goes on, and stocks rally in relief. Stocks sank 14% as the Korean War dawned but recovered fast, rising nearly 26% during the entire conflict. U.S. stocks fell 6.5% in the run-up to the Six Day War but rose every day during combat. Eight weeks after bullets started flying, we were at new highs.
Stocks wobbled before Operation Desert Storm but began recovering before troops fired. During the military operation, they rose 12%. We saw similar heading into 2003’s Iraq invasion: an early-year dip, then a 39% gain from March 11 (8 days before the invasion began) through year-end.
Same goes when America is threatened. Stocks fell as 1962’s Cuban Missile Crisis escalated, bottoming the day after President Kennedy announced the naval blockade. But they rose as the Soviet ships approached. When the ships turned around, stocks were 9.1% higher than the low. Markets didn’t wait for Khrushchev’s U-turn.
Is it different this time? Maybe, but markets move on probabilities, not possibilities. If North Korean nuclear Armageddon were probable, would South Korean stocks be up 30% this year, beating the world? Would non-military-related South Korean firms like LG Electronics, Samsung Biologics and SK Telecom be even higher? Seoul is in the firing line. If the danger was real, South Korea would be down and lagging the world.
This is a chess game, with Kim the likely checkmate. He plays the murderous madman in his feudal court, an unpredictable figure the West just can’t curtail. But if he were a Game of Thrones character, he wouldn’t be one of the warrior heroes. He’d be Joffrey Baratheon, the petulant, unwise, spoiled brat king who was never much of a leader—always posturing, flailing and ultimately murdered. Whether or not a similar fate awaits Kim, he is increasingly isolated on the world stage. He doesn’t even have China—its foreign minister just scolds him.
Then too, North Korea is tiny. The world acts like it’s as big as Westeros, the main continent in the Game of Thrones universe. In reality, the country is puny. Its active troops roughly equal Iraq’s available forces in 2003. Total population—25 million—also matches Iraq’s back then, but with millions undernourished. This isn’t a nation of White Walkers, Game of Thrones’ ancient race of warrior ice creatures who can massacre anything living. Kim might have nukes, but having ICBMs doesn’t mean he can penetrate U.S. missile defenses. He’d do better trying to kidnap Game of Thrones’ Daenerys, the exiled queen who controls fierce fire-breathing dragons. They’d probably have a better shot at squeaking through than any rocket Kim can fire. People fear his arsenal is bigger than advertised, but that’s always the case. It’s impossible to pinpoint what any adversary has and where it’s stored. This hasn’t doomed us (or stocks) in the past.
I don’t mean to sound uncaring—I have South Korean family and care a lot. But stocks are callous. That’s why they’re so good at figuring this stuff out. So trust the unfeeling market. Don’t let Little Kim scare you away.
Ken Fisher is the founder and executive chairman of Fisher Investments, author of 11 books, four of which were New York Times best sellers, and is No. 184 on the Forbes 400 list of richest Americans. Follow him on Twitter @KennethLFisher.
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