At a time when many investors have become nervous about the stock market, one thing we did not need was an aggressive military incursion in Europe. But that’s what we got, and as the Russian annexation of parts of Ukraine dominated the headlines, it is drowning out any positive news about the actual companies being traded. You are probably not hearing that earnings for companies in the S&P 500, in aggregate, rose 22% last quarter, or that overall economic growth in the U.S. continues to be unusually robust.
Veteran investors tend to scratch their heads when eye-grabbing world events trigger market downturns. Why? Because it’s hard to see how troop movements in Ukraine materially impact the underlying value of the companies they’re invested in. History tells us, quite clearly, that once these times of headline panic have passed, stock prices tend to migrate back to what they were worth all along. This has happened through some events that were much more dramatic than what we’re facing today: World War II, the Cuban Missile crisis, the Kennedy assassination—and, more recently, the sudden realization that the Covid pandemic was a real threat to our collective health and safety.
The best prediction we can make is that only those who panic and sell will suffer permanent losses and miss the rebound. Unfortunately, it requires unusual discipline to ignore even moderately scary headlines, which means that many investors will suffer real financial damage as they try to outwit whatever the market is going to do next. It’s been said the stock market is a systematic transfer of wealth from the impatient to the patient investor. Indeed, as Warren Buffett famously stated, “The most important quality for an investor is temperament, not intellect.”
Of course, the real concern should be for the people who are suffering the impact of military aggression and in harm’s way. We can hope and expect that our world leaders will successfully navigate this crisis as they have so many others. What we can’t do is predict how the markets will behave in the next few weeks or months—taking some small comfort in the fact that nobody else can either.
Canopy Commentary - Russia and Ukraine
February 23, 2022