Advise to Investors: Shun War Headlines
NEW YORK — PERIODS of military conflict - including subsequent peace conferences - are times when individuals should take particular care to protect their financial position, analysts caution. It is only right to ``manage one's investments at a time of crisis, whether that situation is a stock market crash, as occurred in October 1987, or a military conflict, such as the Gulf crisis,'' says James Stack, publisher and editor of InvesTech, a financial newsletter published in Whitefish, Mont.
The reason is all too clear: In the case of major conflicts, stock markets tend to react swiftly to what happens on the battlefield or at the peace table. After the initial bombing raids last Wednesday night, for example, world markets quickly rallied, buoyed by upbeat reports from the Gulf. By noon Thursday, the Dow Jones industrial average had climbed about 81 points.
In the case of the Gulf war, no one knows with certainty how the oil-rich region will look in political and economic terms after a cessation of hostilities. ``If I had only one piece of major advice to give, it would be to turn your back on the Gulf and the stock market - in terms of financial considerations - and come back to it a week or so later,'' says Mr. Stack. In other words, base your planning on long-range financial goals, not on what's happening in the Gulf on any given day.
``A person should position [their assets] based on the underlying US economy, not what's happening in the Gulf,'' says Eric Hanson, a financial consultant with Fraser Management Associates, in Burlington, Vt.
In the case of new assets, Mr. Hanson believes that as much as 30 to 50 percent could be put into equities; the rest could be held in cash or its equivalents to ``see what happens in the weeks ahead.''
Although the Gulf war could add $28 billion to $86 billion to US military expenditures, according to a Congressional Budget Office report, not much of that will actually come from US taxpayers. Saudi Arabia and other US allies will cover most of the costs. Thus, Stack doesn't believe that the Gulf will have a significant impact on the US economy. Some analysts, assuming a jump in oil prices, predict that a long war could could deepen the recession. But Stack is assuming that the conflict remains localized, and Israel and Iran are kept on the sidelines.
Stack is wary of buying ``crisis'' commodities, such as gold or oil stocks. But it is time, he maintains, to start buying carefully selected equities for reasons irrespective of the Gulf - particularly falling interest rates. ``The Gulf crisis,'' he says ``has been a terrible diversion to the most dramatic shift in US monetary policy over the past month since the stock market crash of 1987.''
``Separate your investment strategy from the political turmoil and the stress regarding the military conflict,'' he adds.
George Jacobsen Jr., chief investment officer and one of the founders of Trevor Stewart Burton & Jacobsen Inc., an investment management firm here, also holds that individuals should take a long-term view. The Gulf crisis ``does raise the risk of higher inflation on a short-term basis.'' So some long-term, top-quality, bonds could be attractive. He also favors buying selective equities, including some stocks in the energy energy-service sectors. He cautions against ``waiting for the Gulf conflict to be over before getting back into the market,'' noting that investors who did that during the Korean War turned out to have a long wait.
What individuals most certainly should not do is play the market based on day-to-day war news, says Thomas O'Hara, chairman of the National Association of Investors Corporation, Royal Oak, Mich. ``If you try to shift assets back and forth [between various investments] you're more likely to make a mistake,'' says Mr. O'Hara. His recommendation: Stick with stocks of the better-performing United States corporations. The managements of those businesses, he argues, will change their policies during periods of crisis to best protect their own market performance, and, in doing so, he notes, they also protect the assets of their investors.