Geopolitical Events and Long Term Investing

On any given day, it may seem as though financial markets may be on the verge of Armageddon. Media companies love to sell stories and what better way than to play on people’s emotions and their finances. Headlines such as “$50 billion wiped from local stocks” are common place when the ASX suffers a sell off. Most often these corrections concern some sort of geopolitical event. Whether it is war with North Korea, conflict in the Middle East, acts of terrorism or even a clueless President. People need to understand that these are normal and in fact essential to markets. Often these events present investors with an opportunity to enter certain securities at more attractive prices. For long term investors, this is an environment which we thrive in. As Baron Rothschild, member of the powerful Rothschild family once said, “The time to buy is when there’s blood in the streets”.

For illustrative purposes, I have included a chart which depicts the ASX 200 Index from 1992 to present. This chart shows the top 200 companies listed on the ASX indexed over a 25-year time period excluding the effects of dividends. During this period events such as the Recession we had to have in 1991-1992, The Asian currency crisis of 1997, The 9/11 terrorist attacks, The Global Financial Crisis 2008-2009 and the Euro Crisis of 2010-2012 all occurred. The simple message here is that life will go on and the trend is clear to see for long term investors.