How To Prepare A Portfolio For War With North Korea

I have received some calls asking whether and how to prepare portfolios for possible war with North Korea. Whether a war is likely is beyond my capacity to respond, but whether portfolios should be prepared for extreme market conditions resulting from any number of catastrophic situations is something on which I will comment.

Let me state right out of the gate, preparing a portfolio for a generalized Black Swan or catastrophic event is prudent. We should all have a protective component of our portfolios, all of the time – more for the older of us and less for the younger of us, based in great part on the time horizon before calling on the portfolio for withdrawals. However, tailoring a portfolio against a specific catastrophic event is generally not prudent, unless you are dead certain it will happen. And in that case, everybody else is probably dead certain too, and the event would already be substantially priced into the market.

So, while I can suggest a portfolio specifically tailored for a war between the USA and North Korea, I do not recommend implementing it. Such a portfolio would not represent your long-term strategy (which should include a protective component), and if that specific event did not materialize you could find yourself way off course.

With that caveat, let’s think about what a portfolio specifically tailored for an anticipated war between the USA and North Korea.

Don’t think me cold-hearted in discussing portfolio war preparation, because the tragic death of 100’s of thousands of people, including thousands of US troops stationed in South Korea would be horrific almost beyond imagination. According to former US Defense Secretary Cohen today, North Korea could lay waste to Seoul South Korea in about 1 minute from the 10,000 artillery pieces trained on that city at all times. But some of you asked about portfolios, not human tragedy. I am not inclined to plunge into portfolio war preparation, unless an individual should prevail upon me to do so, but I am prepared to say what portfolio might fare better in the event of such a war.

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[securities mentioned in this letter: GLD, VGIT, ITA, VWO, EEM, VEA, EFA, VGK, SPY, EWJ, XLK, AAPL]

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Bill Johnson 2 years ago Member's comment

Liked this article by you as well.

Richard Shaw 2 years ago Author's comment

Thanks Bill... at a more extreme level (and related to other hostile players), it could make sense to have asset at more than one dealer or bank in cased North Korea (or other adversaries) decide to and effectively hack a dealer or bank and disable the backup and scramble the accounts data. Even if it would eventually be straightened out, the wait might be too long.

I personally have my assets at three different dealers partly for that reason (but for other reasons too). --- I also believe that keeping PDF and/or paper versions of statements is essential in case proof of holdings ever became necessary...

... sounds silly but I have already learned the hard way. it is not just theory.

I was vested in a pension at the Travelers Ins Co many years ago. When I turned 65 I called to claim my pension, and they said they had no record of me and that I had to prove to them I ever worked there by producing copies of W2 statement (from 40 years earlier).

The SS admin doesn't store data that far back. They get data from the IRS and they don't store data that far back.

I called the ERISA people in Washington DC and they said I could file a law suit (gee thanks, with what evidence?) So I have no money from the time I spend at Travelers.

Fortunately not a big loss, but there is a specific example of electronic records being wiped (in this case by negligence of the parties who bought and sold the Travelers) that put the burden on the individual to maintain records to prove a holding or a right. Keep records on the dealers letter head.