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Why people fear war and the effects on economy
What is it that investors fail to look at that makes them throw away stocks both because of the fear of war and the coming of war itself, even though after a war occurs or after the scare of it, the stocks start to go up much higher than they were before? It seems that a lot of people forget that stock prices are actually quotations expressed in money. One thing that modern war does is that it always makes the government to spend a lot more then they are able to collect from the tax payers during the time war is occurring. This brings about a very large increase in the amount of money, so that each individual unit of money, like the dollar, is then worth less than it was before. It then takes a great amount more of dollars to be able to buy the same amount of shares of stock and as we are all well aware of, this is the most typical type of inflation.
This means that war is always bearish on money. In order to sell stock at the threatened or actual outbreak of hostilities in order to get into cash is absolutely crazy and as a matter a fact people should do just the other way around. If there is an investor that is interested and has decided to purchase a common stock and the announcement of war has been stated which then starts to bring the cost down on that particular common stock, the investor should not pay attention to the freaked out mentality that rules over most people and should start to purchase. This is the moment when having surplus cash for investment turns into the least thing you want, not the most. With that in mind, there is one thing that an investor might ask himself and that is, how fast is he supposed to buy, and how low is the stock going to go? As long as the downward effect is a war scare and not an actual war, there is actually not any way to be able to know. If a real war were to come about, it is pretty evident the prices will continue to go even lower, and maybe a lot lower. When this occurs, the thing to be done should be buying but this should only be done in a slow way and at a scale down on only a threat of war. If the war were to come about, then buying is something that will need to be done in a faster pace. Make sure though that you purchase into companies that have products or services that provide for the demand that will be needed during the time of war or that are able to turn their facilities into wartime operations. Most companies are able to meet the criteria under the conditions of today of total war and manufacturing flexibility.
Is it the stocks that become more valuable when there is a way or is it only the cash that actually goes down in value? The answer to this question mainly depends on the situation and the circumstances. When war occurs, specifically in modern wars, the money that is on the side that has been defeated is most likely to turn into money that does not have any value or will definitely lose most of its value. If the United States were to get defeated by a country such as Russia for example, the money that we have in this country and the stocks would not be worth anything. If this were to occur, it would really not matter what decisions the investors have made.
On the other side of the coin though, if a war is won in a country or if there were a draw, what actually occurs to the real value of stocks will depend on the individual war as well as the individual stock. During World War I, when the huge before war savings of France and England were coming into the United States, most stocks most likely increased their actual worth and this probably would have continued happening if those years had been a time of peace. This nonetheless was something that occurred and that will never occur again. Spoken in steady dollars that is, in real value, American stocks in both World War II and the Korean phase definitely did a lot less well than if the same time had been a time of peace. Besides the very harsh taxes, there was too much of a distraction of effort from the more advantageous peace time lines to unusually fine margin of defence work. If the really good research that was done on these defence projects would have been geared to normal peace time lines, the profits of the stockholders would have been a lot more, assuming, obviously, that there would remain to be a free America in that any returns could have been taken advantage of anywhere in the country. The belief for purchasing stocks on war or fear because of war is not that war, as it is, is ever again probable to being advantageous to American stockholders. The only factor is that money turns into something less desirable and this causes stock prices that are said in units of money to always go up.