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Equity investing in times of war

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TheMotorcycleBoy
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Equity investing in times of war

#493037

Postby TheMotorcycleBoy » April 9th, 2022, 11:43 am

Are there many folk on TLF who were actively investing in the 1980s, in the period when Soviet-Afghan war was waging?

I'm curious as to how the markets, particularly equities, performed over that time. I'm also also suspicious that the current war in Ukraine could possibly drag on for many years, in fact only to end when Putin dies.

Does anyone else here have any comments about whether we are now entering a period similar to the Afghan war in the 80s and whether the war will last for years not months, and in which case whether equity investors should make special considerations or just carry on regardless?

Matt

ursaminortaur
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Re: Equity investing in times of war

#493042

Postby ursaminortaur » April 9th, 2022, 12:05 pm

TheMotorcycleBoy wrote:Are there many folk on TLF who were actively investing in the 1980s, in the period when Soviet-Afghan war was waging?

I'm curious as to how the markets, particularly equities, performed over that time. I'm also also suspicious that the current war in Ukraine could possibly drag on for many years, in fact only to end when Putin dies.

Does anyone else here have any comments about whether we are now entering a period similar to the Afghan war in the 80s and whether the war will last for years not months, and in which case whether equity investors should make special considerations or just carry on regardless?

Matt


The Soviet-Afghan war lasted from 1979 to 1989 covering pretty much the same period Margaret Thatcher was in power and thus encompassing recession and high unemployment during her first term, subsequent recovery leading to the Lawson boom and subsequent bust. During that time we also had the big bang reforms of the stock market and privatisation of many nationalised imdustries. I personally wasn't investing much at the time* but with everything else going on I don't think the Soviet-Afghan war had any great effect one way or another on equity investments.

https://en.wikipedia.org/wiki/Soviet%E2%80%93Afghan_War

24 December 1979 – 15 February 1989

* Apart I think from a very small amount in a couple of Unit Trusts in a Personal Equity Plan (introduced by Lawson in 1986) and taking part in a couple of the privatisations.

TheMotorcycleBoy
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Re: Equity investing in times of war

#493046

Postby TheMotorcycleBoy » April 9th, 2022, 12:20 pm

ursaminortaur wrote:
TheMotorcycleBoy wrote:Are there many folk on TLF who were actively investing in the 1980s, in the period when Soviet-Afghan war was waging?

I'm curious as to how the markets, particularly equities, performed over that time. I'm also also suspicious that the current war in Ukraine could possibly drag on for many years, in fact only to end when Putin dies.

Does anyone else here have any comments about whether we are now entering a period similar to the Afghan war in the 80s and whether the war will last for years not months, and in which case whether equity investors should make special considerations or just carry on regardless?

Matt


The Soviet-Afghan war lasted from 1979 to 1989 covering pretty much the same period Margaret Thatcher was in power and thus encompassing recession and high unemployment during her first term, subsequent recovery leading to the Lawson boom and subsequent bust. During that time we also had the big bang reforms of the stock market and privatisation of many nationalised imdustries. I personally wasn't investing much at the time* but with everything else going on I don't think the Soviet-Afghan war had any great effect one way or another on equity investments.

https://en.wikipedia.org/wiki/Soviet%E2%80%93Afghan_War

24 December 1979 – 15 February 1989

* Apart I think from a very small amount in a couple of Unit Trusts in a Personal Equity Plan (introduced by Lawson in 1986) and taking part in a couple of the privatisations.

Hmm... So indeed this "time is different".

Matt

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Re: Equity investing in times of war

#493055

Postby SalvorHardin » April 9th, 2022, 12:39 pm

I can't recall the Afghan-Soviet war having any major influence on the markets, or affecting how I invested, except for a rise in the price of gold.

Afghanistan had almost zero influence on the global economy, but it became a very useful anvil on which to break the Soviet Union (which was an economic backwater back then).

Ukraine-Russia on the other hand has had a huge influence on global markets, in particular commodities and defence. European dependency on Russian gas.and having a war on your borders has a major influence on the European economy, as opposed to that of a landlocked third world country a long way away.

My two best performers in 2022 have been heavily influenced by the war. Farmland Partners (owns farms in America, mostly row crops) and Thales (defence, its NLAWs are lethal against Russian tanks and AFVs, whilst its Starstreak SAMs should wreak havoc against the Russian's aircraft).

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Re: Equity investing in times of war

#493210

Postby tjh290633 » April 9th, 2022, 10:45 pm

TheMotorcycleBoy wrote:Are there many folk on TLF who were actively investing in the 1980s, in the period when Soviet-Afghan war was waging?

I'm curious as to how the markets, particularly equities, performed over that time. I'm also also suspicious that the current war in Ukraine could possibly drag on for many years, in fact only to end when Putin dies.

Does anyone else here have any comments about whether we are now entering a period similar to the Afghan war in the 80s and whether the war will last for years not months, and in which case whether equity investors should make special considerations or just carry on regardless?

Matt

Guilty, m'lud.

The best thing I can do is show you how my portfolio performed at that time:

.        Change in                                          
. Cost @ Value @ Income IRR to RPI
. 31 Dec 31 Dec Date Inflation
Year to Date
Dec-71 0.00% 0.00% 0.00%
Dec-72 -7.25% 8.60% -17.07% 31.42% 9.10%
Dec-73 7.25% -20.60% 1.17% -0.26% 16.69%
Dec-74 -1.06% -36.61% 24.81% -16.77% 39.91%
Dec-75 23.15% 118.96% 3.00% 6.49% 72.58%
Dec-76 5.72% 3.00% 22.35% 2.33% 101.17%
Dec-77 -32.06% -10.48% 16.57% -1.12% 121.12%
Dec-78 8.56% 15.72% -24.94% 8.23% 141.77%
Dec-79 11.82% 10.45% 27.23% 7.85% 186.23%
Dec-80 23.92% 34.35% 27.17% 9.72% 223.57%
Dec-81 15.02% 6.05% 3.69% 8.38% 265.50%
Dec-82 2.35% 1.66% 5.98% 7.05% 280.23%
Dec-83 7.44% 31.72% 0.31% 9.50% 299.56%
Dec-84 14.79% 23.54% 12.87% 10.23% 319.82%
Dec-85 14.55% 19.31% 19.64% 10.50% 342.83%
Dec-86 13.07% 30.70% 8.46% 11.54% 360.33%
Dec-87 76.27% 13.93% 16.49% 11.55% 375.52%
Dec-88 23.13% 12.37% 14.59% 11.20% 447.09%
Dec-89 19.63% 30.04% -8.98% 12.02% 497.96%
Dec-90 33.41% 6.72% 7.04% 11.98% 524.66%
Dec-91 4.11% 10.20% 36.37% 10.89% 540.77%
Dec-92 3.43% 20.00% 3.53% 11.30% 553.20%
Dec-93 68.91% 71.61% 57.94% 13.99% 572.08%
Dec-94 1.00% -9.65% 3.36% 10.47% 593.71%
Dec-95 -4.85% 15.52% 4.98% 11.08% 610.74%
Dec-96 22.89% 24.28% 22.39% 12.11% 636.52%
Dec-97 14.31% 29.86% 18.11% 12.44% 656.78%
Dec-98 14.92% 12.62% 6.82% 12.26% 670.13%
Dec-99 6.26% 16.86% 22.06% 12.62% 692.68%
Dec-00 1.90% 1.35% 15.06% 11.97% 698.21%
Dec-01 4.84% -5.77% 11.94% 10.94% 721.68%
Dec-02 3.81% -18.11% 3.26% 9.14% 744.70%
Dec-03 2.09% 23.25% 20.55% 9.72% 774.16%
Dec-04 0.15% 18.05% -0.74% 10.06% 793.49%


I have show the data from the start, and some of the changes in cost reflect major investments such as from maturing endowments, while the major reduction in 1977 relates to a house purchase. You will recognise the effect of various events during that time period.

TJH

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Re: Equity investing in times of war

#493267

Postby Gerry557 » April 10th, 2022, 11:02 am

"in fact only to end when Putin dies."

It depends on who replaces him. An even harder liner might make it worse.

He does not seem to care about losses on either side so the current destruction looks likely to continue for some time and sounds like another big push is coming from them soon.

We have to hope that some "real" information filters through and some of the moderate members are able to gain a holding. Even if the shooting stopped today it will be a decade or two to recover and that still leaves some issues to be resolved.

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Re: Equity investing in times of war

#493283

Postby TheMotorcycleBoy » April 10th, 2022, 12:04 pm

tjh290633 wrote:Guilty, m'lud.

Indeed. But it wouldn't have been fair had I directly singled you out!

The best thing I can do is show you how my portfolio performed at that time:

Yes, thanks for sharing this. I'm pretty sure that I can see the oil crisis shocks, a period of growth when Maggie turned up and the reduced growth post dot-com. It's a very interesting chronicle, I also found the RPI column an interesting comparative.

There is, in terms of your foli, no obvious impact due to the Sov-Afghan conflict. Indeed as Salvor points out now is markedly different:
SalvorHardin wrote:Ukraine-Russia on the other hand has had a huge influence on global markets, in particular commodities and defence. European dependency on Russian gas.and having a war on your borders has a major influence on the European economy, as opposed to that of a landlocked third world country a long way away.

And we have the additional worry, that we have recently stacked up a vast quantity of sovereign debt and by virtue of lockdowns (supply shortages) and QE (demand excess) created a big inflation train.

Added to this we (UK, Europe, and others) will quite possibly see a decoupling from Russia gas and metallic commodities, generating more inflation, along with the immediate effect of Ukrainian exports being blocked at Black Sea ports.

Matt

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Re: Equity investing in times of war

#493648

Postby odysseus2000 » April 12th, 2022, 12:15 am

The big potential short term effect of the Ukraine war is on food availability and prices. Prior to the war Ukraine was a major exporter of grain and other staples:

https://www.reuters.com/markets/us/ukra ... 022-01-26/

This year, Ukraine is predicted to account for 12% of global wheat exports, 16% for corn, 18% for barley and 19% for rapeseed.

Few things drive inflation like the fear of empty bellies and as wheat and corn are both human and animal food it seems likely that food prices will rise. Complications are that the production of fertilisers is also heavily dependent on gas and that has risen and so farmers need higher prices just to cover the fertiliser. It has the makings of a very ugly situation. I am personally ramping food production on my little organic farm as it would not surprise me if there are shortages and much higher prices this winter. Being organic saves me from the ramp in fertiliser costs.

Generally wars show humans for the stupid creatures we can be, but stupidity often bring opportunity. The war in Afghanistan lead to the break up of the Soviet Union and a huge peace dividend as the wall came down and many countries that had been under Soviet control since the 2nd War were liberated, Germany united, Poland freed etc. This might all end the very differently or similarly, I have no idea.

After the war is over there will be many re-building opportunities and all the construction firms and suppliers will do very well. While the war rages the main arms makers get a new order when every bullet, bomb, missile, drone etc goes bang and they will do very well. One danger is that the Russians are a super resourceful people who will likely develop defences against western technology and force the arms makers into a lot of expensive R&D in an arms race to stay ahead. Given how vulnerable tanks, helicopters and jets have proven to guided weapons it looks like the war if it continues will move to far more use of drones and that will add to the current chip shortages as the fabs get big orders for weapon components etc. There are those in the drone arms field who argue that a large drone cloud of self guided terminator drones is as effective as a nuke in killing soldiers and civilians but leaves most of the building undamaged. There is some data from Libya to support this belief.

An additional, hopefully low probability, possibility is that by calculation or accident the west and Russia exchange nukes. Russia has about 1400 operational nukes, 10% getting through is 140 big fires with lots of high altitude smoke and a following nuclear winter that will likely last for several years, wrecking global agriculture. If either side goes down this route their battle plan will almost certainly involve high altitude nuclear explosions to create electromagnet pulses that will down most of the world's internet and with it much economic activity.

All of this sits on a macro picture where most of the Western nations (not Germany) have excessive debt and all of them are loving the inflation that is reducing the debt piles but anyone who is living on a fixed income or who does not have an index linked pension is likely going to find it hard to pay for necessities like fuel and food and that can lead to civil unrest.

Meanwhile strong secular themes like the move to electric cars, renewable energy, AI in many professions will likely be made stronger by the events.

As I see it, if you know what you are doing, wars can provide opportunities for equity investors, but inflation as we have now can eat most of these opportunities, those who don't/can't invest are often broken by these levels of inflation. Traditionally gold was the hedge for inflation and it may work again, but crypto currencies are a new and unknown factor.

Additionally AI is beginning to replace humans and that will add secular disruption and luddite behaviour to society.

One has to be careful that one is not fighting the new war with the tactics of previous wars and there are very many new things happening in a world that has never before been so interconnected with all manner of counter party risk below the surface.

Regards,


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