Traders like to cite the age-old maxim that “the time to buy is when there’s blood in the streets.” With war drums beating in Ukraine, now could be a good time to review this advice.
This phrase has been heard on stock exchanges for more than 200 years. Legend has it that traders in England made a fortune buying after the Battle of Waterloo, as the public learned of the horrific casualties.
Even Warren Buffett offers similar advice, although he used a less-warlike statement. Buffett has said that investors “should try to be fearful when others are greedy and greedy only when others are fearful.”
While there could be examples of how buying on bad news worked, there are other times when stocks sold off on bad news.
One of the potential warring parties in Ukraine is Russia. VanEck Vectors Russia ETF (BATS: RSX) is an exchange-traded fund (ETF) that tracks Russian stocks. The chart below shows that RSX remains well below its 2008 highs.
Performance of the RSX
Source: Optuma.
War Can Be as Unprofitable as It Is Profitable
RSX is priced in dollars and shows that U.S.-based investors who bought the high would lose more than 55%. The S&P 500 Index delivered a gain of more than 160% over that time.
If an investor bought Russian stocks in rubles, they would show a gain of about 81% based on the MOEX Russia Index ($MICEX). However, converting the gains to dollars would have resulted in a loss for Americans.
Turkey is another global hot spot. ETFs tracking Turkish stocks are also below their 2008 high.
These are two examples when buying when there is blood in the streets failed to work. There are other examples. In fact, during World War II, several countries’ stock markets suffered losses of 100%.
With global tensions rising, expect to hear that the time to buy is when there is blood in the streets. It could be best to ignore that advice or to buy put options on ETFs tracking stocks tracking in countries where war is possible.
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Michael Carr is a Chartered Market Technician for Banyan Hill Publishing and the Editor of One Trade, Peak Velocity Trader and Precision Profits. He teaches technical analysis and quantitative technical analysis at the New York Institute of Finance. Mr. Carr is also the former editor of the CMT Association newsletter, Technically Speaking.
Follow him on Twitter @MichaelCarrGuru.
