BEN HARVEY: The war in Iran doesn’t have to torpedo your investments. Now is the time to hold your nerve

This week saw the first proper day of old-school stockmarket panic since Operation Epic Fury began.

The bomb footage from Tehran could well have been the trading floor of the Australian Securities exchange on Monday morning.

It was down close to 4 per cent in early trade that day. A full $115 billion in wealth evaporated in barely 90 minutes. Australians’ retirement dreams were being downgraded at the rate of $33 million a second.

Investing in times of war is not for the faint-hearted; Rain Man may well have said “Qantas never crashed” but try telling that to those who hold shares in the national carrier.

There are some obvious stocks that are killing the pig — petroleum equities, for example, courtesy of the world’s sudden realisation that oil is in pretty much everything.

Don’t take it from me, take it from Bill Bob Thornton’s character Tommy Norris in Landman: “It’s in tennis rackets and lipstick and refrigerators, antihistamines, pretty much anything plastic, your cell phone case, artificial heart valves, any kind of clothing that’s not made of animal or plant fibres, soap, fucking hand lotion, garbage bags, fishing boats, you name it. Every fucken thing.”

War, what is it good for? Oil.

Qatar’s energy minister, Saad al-Kaabi, gave the world a wake-up call about the longer-term impact of the Iran war.

He told the Financial Times that the US Navy couldn’t protect oil tankers in the Strait of Hormuz and that his country’s LNG industry — which produces a fifth of the world’s supply — would remain shut until the war was over.

Even when that happens it will take weeks, if not months, to resume normal shipping because Qatar’s fleet of 128 tankers is all over the place.

It will take days to get them back to port and once there the loading process is painfully slow. The Qataris are very efficient but it still takes them at least 48 hours to fill a tanker and bottlenecks mean only six or seven ships can be loaded at any one time.

And then there’s the two to three-week travel time to the export destination, where more time is spent refining the raw product into useable fuel.

Needless to say, it’s a good time to be in the hydrocarbon game if you have spare capacity (few do, unfortunately) and can get product to market.

The other equity class that (obviously) does well in times of war is military stocks. But investors should be mindful that hostility is good for the arms industry only up to a point.

If things really kick off, governments are prone to arbitrarily renegotiating their contracts to screw down prices. Washington, in particular, has had no problem with screwing down prices, and therefore the corporate profits of military contractors.

If you paid top dollar for shares in, say General Dynamics, which makes the Abrams tank and the F-16 fighter jet (the workhorses of the US military) a contract renegotiation could see you could end up giving a little value back to the market (which is a stockbroker’s euphemism for a paper loss).

When the market does slip because of uncertainty over the direction of the Iran war, punters should remember the words of British financier Nathan Rothschild, who advised “buying on the sound of canons”.

An analysis of the last dozen or so war-triggered stockmarket crashes shows the bourse rebounds, with gusto, just about every time.

With the exception of Gulf War One, markets were more than 11 per cent higher a year after the sound of canons was first heard.

Investors intuitively know that the best time to buy is when everyone else is selling but putting money on the table when everyone else is taking it off is nerve-racking.

It’s also how rich people get richer. They buy the dip — investing when the rest of us lose our nerve and cauterise the wound by crystallising our losses.

Not for them the fog of war.

The self-destructive psychology that drives the investment decisions of most people was on show this week with Qantas.

If you thought the red roo was good value at $10.18 on January 15 (that’s before Epic Fury kicked off) why wouldn’t you have bought in at Monday’s close of $8.52?

Because you were worried the stock might not come back, right?

But why wouldn’t it? This isn’t the first war in the Middle East, and Allah knows it won’t be the last.

Consider Qantas’ trading history since it listed 30 years ago.

In that time, we had 9/11 (when nobody flew because we were worried about ploughing into a building), the “shock and awe” of Iraq War Two (when nobody flew because we were worried Saddam would mistake QF1 for a B52 bomber), the global financial crisis (when nobody flew because we had no money) and COVID (when nobody flew because we weren’t allowed out of the house).

Every time, Qantas’ share price eventually came back to the pre-crisis trading price so why would now be any different?

Because this feels different, right?

It always feels different when you’re in the moment but is it any more “different” than when the Twin Towers came down or during the pandemic?

People who invest with their heads not their hearts (which is to say rich people) buy when everyone else is panic selling because they don’t suffer from a particular neurological disorder that afflicts the rest of us muppets.

We have a condition called myopic loss aversion. For us, the fear of losing money is so great we require a massive upside to take that risk.

We need the possibility of making $100,000 to justify the outlay of $5000. And because those kinds of returns are inherently risky, we end up doing our dough.