Fix It Friday Ep. 21 - Fix It Friday - Oil’s Well That Ends Well: What Markets Really Do After Oil Spikes

• Successful investing is based on goals and a solid plan and fear should not dictate investment decisions.
• Long-term returns are not controlled by current events.
• Companies respond rationally to crises, often strengthening their positions.
• The media often misrepresents the impact of geopolitical events.

Disclaimer: [00:00:00] The following podcast by Fusion Family Wealth, LLC Fusion is intended for general information purposes only. No portion of the podcast serves as the receipt of or is a substitute for personalized investment advice from Fusion or any other investment professional of your choosing. Please see additional important disclosure at the end of this podcast.

A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www.fusionfamilywealth.com.

Jonathan Blau: Hello everybody and welcome to another episode of the Fix It Friday edition of the Crazy Wealthy Podcast. Today I wanted to talk to you about, uh, a topic that is.

[00:00:30] Top of mind, I'm finding among, uh, investors, colleagues, and, and almost, uh, all of the general public. And that has to do specifically with geopolitical crises. What that means to, to investors, uh, as [00:00:45] it relates to their investments, should they make changes and. And so forth.

Voiceover: Welcome to the Crazy Wealthy Podcast with your host, Jonathan Blau. Whether you're just starting out [00:01:00] or are an experienced investor, join Jonathan as he seeks to illuminate and demystify the complexities of making consistently rational financial decisions. Under conditions of uncertainty, he'll chat with professionals from the advice [00:01:15] world, entrepreneurs, executives.

And more to share fresh perspectives on making sound decisions that maximize your wealth. And now here's your host.

Jonathan Blau: I'm not just gonna talk about [00:01:30] geopolitics. I'm, I'm gonna talk specifically, uh, about the war in Iran and, and more specifically about the resultant spike, uh, in oil prices that went up 20% in two days in the beginning of March on the fourth and [00:01:45] fifth.

So when that happens. The media, of course, catastrophizes with all kinds of headlines designed to, uh, induce everybody to click on on the stories so that they can increase their ad revenues. They're not trying to [00:02:00] help anybody become better investors. They're just trying to, uh, advance their business objectives at the expense of the investor.

And this is a, a, a premise you've heard many times. So what really happens when oil spikes to the stock market, [00:02:15] we do have. A pretty well established history to explore, but in the short run, there's, there is volatility. There's no question about it. But while geopolitical events do have an impact in the short run on stock [00:02:30] prices, in terms of making them more volatile, moving up and down more frequently in the long run, these type of events have had almost no impact at all in the long run.

Things like pandemics and recessions and tariffs, [00:02:45] uh, impact stock prices to almost no extent in the long run. The one thing that drives stock prices, as I've said in prior podcasts, is earnings companies earnings growth and it's earnings and only earnings. That is the [00:03:00] signal. All of the other things I mentioned, the pandemic's, recessions, geopolitical, uh, shocks, those are just noise.

We always want to focus on the signal. Let's take a look at, at the recent spike, uh, of 20% in energy, the s [00:03:15] and p 500 may be down a few percent, uh, for the year, so nothing dramatic has happened, but what investors envision is they envision higher gas prices, higher inflation. Recession and ultimately a market [00:03:30] crash.

In other words, the assumption is simple oils up, stocks have to go down. So the reality is a little different or a lot different than what investors' narratives created by the media in their minds. What we don't do, if fusion is we [00:03:45] never tell investors to suppress the fears that they're feeling. As a result, what we simply en ensure that they do is not reflect those fears by changing their long-term investment portfolios.

That were carefully designed to meet their most [00:04:00] important objectives. Let's start by examining the long history relating to the times when oil prices spiked 20% or more in a two day period. 'cause it tells a very different story than what the narratives sell. So [00:04:15] here's the data. Since 1986, we've had seven times when oil prices surged more than 20% in just two days.

They always lead to catastrophic media headlines and almost always to short term volatility. [00:04:30] But what happened after that, believe it or not, on average, in the 12 months following the two day spike, the s and p 500 gained about 24% for the next 12 months. Not just [00:04:45] different than what people think would happen.

But the opposite of it. So moments that felt like crises often turned out to be very good entry points for long-term investors. This feels very counterintuitive, and the reason is when [00:05:00] oil spikes, the news cycle focuses on the higher energy costs, the inflation, the war, and the supply shock. All of these are very real concern, but the key here is their only short term concerns in the short term, [00:05:15] just.

Looking at recent history over the past six years or so, we went down 34% in 33 days during the pandemic, uh, shutdown in 2020. In 2022, we saw a 40 year spike [00:05:30] in interest rates and inflation coincidental with Russia's invasion of Ukraine, causing a 25% drop just a couple of years after the COVID crisis.

And then in 2025. In one day, [00:05:45] we saw a 20% drop because of tariff fears. But in that same period from the end of 2019 through today or the end of 25, the s and p 500 went from 3,200 to about 7,000. [00:06:00] The only people who got hurt. Because of the events I mentioned from COVID Forward are the ones who turn temporary declines or volatility into permanent losses.

The only way possible by humanly manufacturing [00:06:15] them as a result of selling into them, out of fear. So it's okay to feel fear, but once you act on it by changing your portfolio, that's when the real trouble sets in. So we have to just embrace the idea that long-term [00:06:30] returns to repeat are not controlled by current events.

They follow earnings. And earnings historically grow because companies when they're faced with crises are led by fiduciaries management whose responsibilities to maximize shareholder [00:06:45] value. So they always respond rationally to whatever the crisis is. They might lay off workers and they might pay down debt.

They do the opposite of what. Irrational governments do during crisis, our government will loan more money, take on more debt. [00:07:00] Companies do the opposite, so they get stronger and they buy lesser capable competitors businesses at pennies on the dollar, and then they continue to grow earnings over the long term.

That's important to remember what broader research shows done by [00:07:15] JP Morgan. Looking back at crises, geopolitical shocks over more than 80 years. Is that while short-term volatility. Always follows the shocks. Six and 12 month returns are typically positive after all these [00:07:30] shocks. And what their research actually showed, which is very interesting, is over time the average 12 month returns following all the shocks they looked at over the 80 years, and those following periods of relative calm looked almost [00:07:45] indistinguishable.

In other words, the 12 months returns following the shock periods and the non shock periods were on average about the same. So when we saw oil surge earlier this month, 20% on March 5th and sixth, no one knew what markets would do [00:08:00] next. We can't know that. And even though history is not a predictor, and it may not even always be a perfect guide, it's the only guide we've got.

So we look at history and we see that. What people expect from these oil [00:08:15] shocks is not just different than reality, it's the opposite. So that's today's message, but I wanna close by saying something very important. We get a common question during periods like this from professionals, accountants, we work with lawyers, [00:08:30] et cetera, and other clients who might be considering a new, uh, investment advisor.

They say, given the current environment, what portfolio moves does your firm advise your clients to make right now? And our answer was always the same. Our clients don't have any new [00:08:45] portfolio moves to make. When we established their plan many years ago, they made all their decisions. They decided that in order to meet their most important goals, because their biggest threat is inflation, that they needed to have investments that grew past [00:09:00] inflation, which are ownership of great companies.

Not bonds. And they understood that stocks over the last a hundred years made 7% a year after inflation, more than two and a half times. What Bonds made? Bonds made 3% a year after inflation. So in other words, [00:09:15] we knew that they needed a lot more sevens stocks than threes bonds. That doesn't change because we have a spike in inflation or because we have a spike in oil prices or because Trump is elected or Biden's elected, those [00:09:30] needs stay the same.

And I'm gonna, I'm gonna, um, leave you with, with one final thought, which is my company's credo. All successful investments in our experience are goal, focus and planning driven. They're based on goals [00:09:45] and then they're accomplished by following a plan. All successful investors continuously follow their plan, all failed investments in our experience.

All failed investments are current events and market focus. While all failed, investors [00:10:00] continually react to current events and short-term performance. So history reminds us something important. The scariest headlines from the catastrophes media often arrive right before markets stabilize and move higher.

[00:10:15] Don't confuse short-term shock with long-term damage, and always stay adhered to your plan in spite of the scary headlines. Hope you enjoyed this week's version of Fixed It Friday.

Voiceover: Thank [00:10:30] you for tuning into another episode of The Crazy Wealthy Podcast. For more insights, resources, and to sign up for our newsletter. Visit Crazy Wealthy podcast.com. Until then, stay crazy wealthy.[00:10:45]

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