Like you, I woke up Tuesday morning to horrific news of twin terrorist attacks at the Brussels Airport and the Maelbreek Metro Station that have killed at least 34 and wounded hundreds more. My heart is heavier than I can convey as I think about the lives savagely cut short.
Still, the world will go on.
Whatever we wish would be the case, war, terrorism, and ugliness are not going to go away any time soon. Unfortunately, all three are “growth industries” at the moment, and that means every investor needs to understand how to navigate his or her money through a world that will be increasingly shaped by terrorism.
Admittedly, that sounds callous. But I learned something during the 2011 Tohoku earthquake and tsunami that helps me keep things in perspective – the best way to honor those who have perished is to redouble your efforts to live fully and to the best of your abilities.
From an investing perspective, that means seizing on opportunity, even if it’s barbarity that creates it.
Today I want to share with you one such recommendation that terrorism will NOT beat into submission, contrary to what most people think.
Let’s get started.
Terrorism and cyberwarfare cost the global economy an estimated $452.3 billion last year alone, according to Bloomberg, causing many investors to cut and run from financial markets that are obviously at risk.
What they don’t realize is that for every single dollar destroyed by terrorists plying their deadly trade, $100 gets spent trying to prevent future attacks and overcome the risks associated with survival.
Anybody who can navigate the new reality stands to a) protect their hard-earned retirement funds and, b) make enormous profits.
When Markets Shrug Off Terrorist Threats
In January 2015, when terrorists raided the offices of Charlie Hebdo, a French satirist weekly publication in a murderous effort to suppress speech, observers fretted that it was the first salvo of a radical terror movement that could eventually impose its will over the Western world. But I saw things very differently.
On a Jan. 9, 2015 appearance on CNBC‘s “Street Signs,” I pointed out that the global markets had greeted the news of the attack, and the swift threats by ISIS for more to come, with a collective shrug. I observed that the Dow’s 23-point gain alongside the S&P 500’s 37-point surge didn’t represent indifference, either. Rather, the rally signaled resolve.
“That says to me that the collective psyche of the markets is stronger than individual terrorists want to believe and that they will not win at the end of the day,” I noted at the time.
Fifteen months later, despite two historic attacks in Europe, ISIS and other terror groups are no closer to winning than they were in January 2015. Tuesday the Dow and S&P 500 both made small but symbolically important gains as Belgian and French authorities pursued terror suspects and world leaders pledged renewed resolve in overcoming the threat.
Still, not all sectors faired equally. America Airlines, Expedia, Delta, and other “travel stocks,” for example, suffered short-term dips driven by the commonly held wisdom that terrorism tamps down on traveling and tourism, and therefore the bottom line of any company tied to it.
And that’s your entry for reasons that will become clear in a moment.
To be clear, terrorist events are awful, horrible things that nobody should have to witness, let alone live through. Yet, they’re a fact of life at the moment, which means you’ve got to confront them head-on if you want to build your wealth and live the life of your dreams.
That sounds like a tall order, but in reality doing so successfully comes down to two things we talk about all the time at Total Wealth.
First, you’ve got to take emotion out of the equation.
Doing so allows you to think clearly when everybody else around you isn’t. That’s important under normal conditions but doubly so when there’s a terrorist event.
That’s because what you’re actually counting on is the fact that taking emotion out of the equation is something the majority of investors won’t do. In fact, what you want to see is everybody else’s emotions running unchecked in the heat of the moment because that’s how you will make your move… calmly, coolly, and with absolute clarity… and buy stocks that are temporarily on sale based on nothing more than a knee-jerk reaction.
And, second, the markets have a defined upward bias over time.
The vast majority of investors cannot put two and two together when it comes to understanding this nuance. They think about investing as a one and done activity meaning that they tend to freeze frame whatever’s happening at a specific moment, often in complete ignorance of the bigger picture.
The fact that their emotions are running unchecked when this happens only makes the problem worse. Coincidentally, though, this also makes the opportunities you find potentially that much more lucrative.
Let me give you a few examples that will put this into perspective.
A third-rate terrorist named Umar Farouk Abdulmutallab tried to blow Northwest Airlines Flight 253 out of the sky by lighting his explosive-packed underwear on fire back on Dec. 25, 2009. When the news broke, other airline, travel, and hotel stocks took hits ranging from JetBlue Airways Corp.’s (Nasdaq: JBLU) 3.3% loss over the next few days to a 6.6% slump in the case of American Airlines Group Inc. (Nasdaq: AAL). Yet, only 10 days later, both were trading higher than they had been in the days before the terror attacks. Even more significantly, they were on their way to gains of 694.80% and 256.91% as of March 22, versus only 67.13% from the Dow over the same time frame.
My point is that airline, travel, and hotel stocks can get creamed in terror-stricken moments as nervous investors panic and hit the sell button. But the fear-driven sell-off always passes. And, not surprisingly, share prices rise in the following days as cooler-headed investors (like us) exploit the emotional mistakes made by others.
Or, how about last November, the world gasped in horror as terrorists assassinated more than 130 people in Paris and injured another 368 in combined attacks at the Bataclan theatre, the Stade de France, and several restaurants.
Predictably, the markets fell when the headlines hit and the first graphic pictures crossed the wires. Yet, by the end of the day, the DJIA rose 1.4% to close up 238 points, while the S&P 500 and Nasdaq tacked on 1.5% and 1.2%, respectively.
Contrary to what a lot of people think, history shows beyond any shadow of a doubt that terrorist events, horrible though they are, result in a short-term hit that sees losses quickly recouped.
You owe it to yourself and to your money to analyze the risks professionally – and rationally.
An Ideal Stock for the Moment
Right now I’m inclined to look to Ryanair Holdings Plc. (Nasdaq ADR: RYAAY), a low-cost airline based in Dublin, Ireland.
That name may ring a bell – this was the company that made worldwide headlines in 2011 when CEO Michael O’Leary contemplated charging passengers to use the sole remaining toilet on Ryanair flights (after he took the rest out). A “fat tax” and taking away seat pockets – two ideas discussed but never implemented – didn’t help them win any favors in pursuit of profits at all costs. And neither did charging passengers an extra £40 to print boarding passes at the airport – I remember because I swore there was no way that I was gonna pay that at the time!
Then, in 2014, the company decided to play nice and get serious about dominating European airline travel while charting a course to industry-wide domination by achieving a milestone of 180 million passengers by 2024. Now I can’t wait to fly Ryanair when I’m in Europe and I’m not alone.
The company carried more than 101 million passengers in 2015, an industry first. And the rate at which it’s growing its yearly passenger load – up 16% last year alone – makes me believe that the company will reach its goal of 180 million passengers years ahead of schedule. Earnings, no doubt, will follow, as will share prices.
In closing, make no bones about it. Terrorism is ghastly, but it’s not the end of the world, nor the financial universe as we know it. If anything, it strengthens resolve.
And that’s your opportunity.
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