A quote by Warren Buffet "Be fearful when everyone is greedy and be greedy when others are fearful" says it all. However, we often do just the opposite, especially during the outbreak of geopolitical events, terrorist attacks and wars. We tend to jump on the panic-selling bandwagon but later regret when the market recovers. We tend to forget that all these events will not put an end to business activities and a country's economy overnight. As investors, we should rather first assess the impact of such events on companies in general and the market in particular and thereafter, we should make our decisions wisely.
The recent tension between the US and Iran exemplifies the fact better. On January 3, 2020, the US launched a drone attack that killed Iran's top commander, Soleimani. In retaliation, Iran struck back on January 8. And soon after, the market took a plunge, with the Sensex falling by around 3 per cent within four trading sessions. However, as soon as the tension eased with both the nations de-escalating, the markets were fast to recover and the Sensex almost rose by more than 1.5 per cent in a single trading session on January 9.
Such market gymnastics are nothing new. The following are the market reactions to some major geopolitical and terrorist events in the past. We closely analysed the market movements during these events. What all we can say is that although the outbreak of such negative events kept the markets in the negative zone, their impact on returns remained limited, with the median Sensex returns pegging between -1.3 per cent (during the attack) and -0.6 per cent (15 days after the attack).