Hey Folks,
Every major geopolitical crisis in the last century has followed the same playbook. Conflict breaks out, retail investors panic, Wall Street buys the dip, and markets recover.
Looking at the last 29 geopolitical crises dating back to World War I, markets were higher roughly 66% of the time three months later — and over 90% of the time when extended out to a full year. The current US-Iran conflict is no exception...
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Fear Creates the Opportunity
Most investors play defense instead of offense. They buy during periods of positivity and sell during periods of negativity — usually after stocks have already fallen substantially. That means they are buying high and selling low in perpetuity.
And while that dynamic is frustrating, it is also an opportunity. The extra selling pressure during doom-and-gloom periods creates even more alpha for those willing to lean in rather than retreat.
Why This Window Is Closing
The valuation gap will not last forever. Three forces are working to shut it:
✔️ Conflict resolution rerates markets fast. When the Gulf War ended in 1991, markets ripped. When the US-Iraq conflict wound down, defense and energy names repriced almost overnight. Even during COVID, markets bounced while shutdowns were still widespread. The moment a credible ceasefire, diplomatic channel, or even a pause in hostilities emerges, capital will flood back into risk assets — and it will not wait for anyone to feel comfortable first.
✔️ Earnings will catch up to the fear. Investors are discounting potential future pain — slower growth, supply disruptions, oil-driven inflation — but as companies report and confirm their fundamentals are intact, that fear discount erodes. Analyst upgrades follow, new buyers enter, and the gap closes quickly.
✔️ FOMO eventually kicks in. There is always a lag between when smart money starts buying and when retail figures out what happened. By the time the bears on social media retire their fear-mongering content, stocks will already be trading significantly higher.
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The Discounts Speak for Themselves
The repricing across big tech has been dramatic. Meta has gone from 26x forward earnings back in October to 20x. Microsoft dropped from 33x to 19x. Amazon fell from 38x to 27x. Nvidia went from 35x to 21x. Broadcom moved from 32x to 27x. These are not broken businesses — these are world-class companies trading at steep discounts almost solely because of macro uncertainty tied to the US-Iran conflict.
How to Separate Opportunity from Trap
Not every beaten-down stock is a bargain. A simple framework helps distinguish between the two:
1. Identify the gap. Pull up 5-year and 10-year PE and PS ratios for any stock of interest. If it is sitting 20-40% below long-term averages on both metrics, that is a starting signal worth investigating.
2. Ask why it is down. A broken business at a discount is a trap. A solid business repriced because of temporary macro fear is a potential opportunity. Those are two very different situations.
3. Name the catalyst. What has to happen for the market to rerate the stock back toward fair value — a conflict resolution, a strong earnings report, an analyst upgrade, a contract announcement? If the catalysts are identifiable and realistic, the thesis has legs.
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History Repeats the Same Lesson
During the Gulf War, markets bottomed in October 1990 — before the war even started. Investors who bought in that fear window made extraordinary returns over the following twelve months. The 2003 Iraq War followed the same pattern. Fear built, markets fell, smart money accumulated, conflict began, and markets recovered sharply. The psychological dynamic is remarkably consistent — fear creates an uncertainty discount, and resolution or even just a reduction in uncertainty causes a massive recovery.
The key insight is that nobody needs a crystal ball. Buying quality companies at discounted prices during a fear cycle is not a coin flip. If things get worse, patient investors hold quality through volatility and eventually come out fine. If things resolve, they capture a 30-50% rerating on the names that got crushed. Compare that to sitting in cash earning 3-4% while waiting for certainty that never arrives on schedule — and then watching the entire move happen without them.
This US-Iran conflict has created a genuine time-sensitive valuation window. Fear has repriced strong companies well below their historical ranges — not because their businesses are broken, but because uncertainty is doing what uncertainty always does. That window is going to close. The only question is whether investors are positioned to take advantage of it while it is still open.
Anyways...
That's all for now!
Until Next Time,
-ZT Team
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