As I write this email, we are working through the latest and inevitable market shock to portfolios.
I have put together a quick snapshot of my thoughts and have included a link to the recent article from a financial commentator I have great respect for – Nick Murray. I hope both offer some perspective and comfort to you.
Summary
History shows that not every conflict causes lasting market damage. In many cases, the initial market reaction is sharp but short lived. Markets often stabilise once investors gain confidence that the fighting will stay contained and oil supplies will continue to flow. The greatest danger arises when elevated energy prices persist long enough to fuel inflation while dampening economic growth. The chart below shows oil prices shocks through GFC, to Covid to the Iran conflict of today.
All of this is occurring against the backdrop of a multi-year rally in equity markets. Entering 2026, share market valuations were already high following a very strong run, with investors still expecting solid gains. When assets are priced aggressively for good news, they tend to become more sensitive to bad news or even small changes in expectations. Conflict can be the catalyst that exposes this vulnerability. Expensive growth shares, cyclical companies, and businesses with high energy or transport costs often come under pressure more quickly than they would in a cheaper market.
The key lesson is not to panic in response to every geopolitical shock.
Conflicts matter, humanitarian loss matters, but the share market impact depends on whether it translates into broader economic problems. A well-diversified portfolio is still the best defence. Moving in and out of markets in reaction to breaking news is extremely difficult. For you, staying calm, diversified and focusing on the bigger picture is important.
Other key notes:
- We are not running portfolios off current events.
- Investment policy is dictated by long-term financial goals, as expressed in the plan we’ve made together. Unless your goals change, we don’t alter the plan. And if the plan isn’t changing, neither will our investment policy. These are really the only variables in a lifetime of investing over which we have any control.
- Clients invested in equities should view any and all market declines as an opportunity to acquire ownership of great businesses at reduced prices through the specialist fund managers we hold and direct equities we advise.
- In the short term no one ultimately knows how AI will play out or when the situation in Iran will be resolved. You cannot make rational investment policy out of unknowns.
- All the companies/businesses we own are actively seeking to capitalise on the development of AI in ways that will most directly benefit shareholders, not just AI developers and AI service providers.
- Our plan continues to anticipate that at least 20% of our invested capital will appear to disappear temporarily about every five years or so. Neither the onset of those declines nor the resumption of the permanent uptrend can be timed. Hence we ride them out, thereby capturing the benefits of uninterrupted compounding.
- Whether the current weakness turns into the next one of these drawdown events is unknowable in advance. Trump tariff talk of 1 year ago saw markets fall 19/2/2025 to intraday 7/4/2025 approximately 21%, the similar correction prior was in 2022. On both occasions, the market has strongly recovered to make new highs.
- When the war in Iran ends, and as the ultimate shape of AI in the real world becomes clear, we believe the capital markets will continue to price corporate earnings and dividends essentially as they have over the long term
If you have any further questions, please do not hesitate to contact our office on 02 9899 6077 or email MNAM@matrixnorwest.com.au
Regards,
Matthew Stevenson
Head of Advice