[Desk Column] War and Stocks

[Asia Economy Reporter Jeon Pil-su] “One should not be afraid to buy because of war fears.”

This is a famous quote from Philip Fisher, who first introduced the concept of growth stocks in the 1950s. Recently, more people have been repeating this phrase. This is because the world's strongest countries, the United States and Russia, are pointing their guns at Ukraine, a place most Koreans have never been to.

War is usually a source of fear for ordinary people. Not only property but even life can be lost in an instant. Moreover, the prospect of a showdown between superpowers makes the impact even more frightening. Due to this fear, global stock markets have also plunged together. While some are considering leaving the stock market out of terror, others, like Fisher, see crisis as an opportunity.

Fisher focused on the fact that stock prices are expressed in nominal currency value. The value of currency tends to fall compared to before the war. This is because war always acts as a factor for currency expansion. Fisher argued that selling stocks to hold cash at the time when war threats escalate or actual war breaks out is very wrong from a fund management perspective.

Looking at past cases, war was often a crisis for investors but also a greater opportunity. (Of course, this applies when the main battlefield is in another country.) During major wars since 1990, stock markets temporarily fell but eventually rose higher than before the war within less than a year.

In fact, many wealthy people were born as a result of wars. After World War I, 21,000 millionaires and billionaires emerged in the United States. Sir John Templeton, a legendary investor representing the 20th century, also achieved great success investing in stocks during World War II, the largest war in history.

Among investors in our country, which has lived under armistice for 70 years, there is even a saying. Ordinary people stockpile essentials like ramen, but smart investors buy related stocks. Even when shells fell on Yeonpyeong Island, the stock market remained firm, and some war-related stocks showed strong prices.

There are many analyses that this time will be different due to alarming international oil prices and inflation, but in the stock market, there has never been a time when the phrase “this time is different” was true, whether in crisis or bull markets. Since wars since the 1990s mainly occurred in the Middle East, where oil-producing countries are concentrated, international oil prices have been unstable during wars. It is also hard to say that current inflation concerns, caused by excessive money supply, are more serious than just before World War II, when the Great Depression was still ongoing.

The worst variable called war has acted as a great opportunity for some investors and is likely to continue to do so. However, it is also clear that such opportunities arise on top of unbearable sacrifices by the majority. As a result of World War I, which created more than 20,000 new wealthy people in the United States, the U.S. government had to bear a debt of $25 billion. General Smedley Butler, a former U.S. Marine Corps commander who wrote the book “War is a Racket,” criticized, “As the cost of war, American citizens must pay taxes from sons to grandsons to repay the debt.” In the case of World War II, which laid the foundation for Templeton to become a legendary investor, tens of millions died. The Soviet Union, which suffered the most casualties, lost 30 million people, 15% of its population, due to the war.

“When the rich start wars, it is the poor who die.” (Sartre)

This content was produced with the assistance of AI translation services.