Author: Felix Prehn 🐶

Translation: Deep Tide TechFlow

Deep Tide Introduction: The author is a former investment banker. The value of this article lies not in predicting the direction of the conflict but in dismantling a three-phase institutional capital flow model that spans the Gulf War, the Iraq War, and the Russia-Ukraine War. Individual investors losing money during conflicts is nearly a systemic error; this article points out specific causes and corresponding strategies, with logic being much clearer than emotion-driven analysis.

The full text is as follows:

Now news about the United States and Iran is overwhelming.

If you are wondering whether you can make money from this conflict—the answer is yes. Let me tell you how to do it specifically.

I have worked in investment banking for many years, specifically looking for what Wall Street coldly refers to as "event-driven opportunities." That is their refined term for war. In every major war—the Gulf War, the Iraq War, the Russia-Ukraine War—a similar three-phase market model emerges, determining where institutional capital flows next.

Phase One: Shock—individual investor panic selling. Phase Two: Repricing—the market calms down and reassesses. Phase Three: Rotation—institutional capital flows into new sectors.

The Israel-Iran conflict is now following the same pattern. The shock phase has already begun. What will happen next, where the real money flows—once you know what to look for, it can be predicted.

This is what I’m giving you here.

What individual investors do vs what institutions do

When a conflict arises, individual investors usually do one of three things.

Convert everything to cash—thinking this is safe, but in reality, it guarantees being eroded by inflation.

Freeze—staring at a sea of red, immobilized, doing nothing.

Or chase after things that have just surged—oil, defense stocks, gold—buying in at completely the wrong time because fear drives them to act while they have no plan.

Meanwhile, there isn't a single institution managing billions of dollars that does any of this. They are restructuring based on decades of research into the patterns of conflict. It's not emotion; it's pattern.

Let me teach you the same thing.

Patterns that repeat every time

In the first 10 days after a geopolitical conflict erupts, the S&P 500 typically drops by 5% to 7%. About 35 days later, it is flat. 12 months later, it rises by 8% to 10%—this is roughly the market's average performance in any ordinary year.

Real historical examples:

During the Gulf War, the S&P annualized return was 11.7%. After the war ended, it rose 18% in the following 12 months.

During the 2003 Iraq War, the market rose by 13.6% within three months.

During the 2022 Russia-Ukraine war, the S&P initially dropped by 7%, then rebounded above pre-invasion levels within a few months.

Wars rarely destroy markets. They create uncertainty, and uncertainty creates downturns. Downturns create opportunities.

Why Iran is particularly important

Iran produces 3.3 million barrels of oil daily.

Any escalation—even just a perceived escalation—will increase supply risks, which will affect everything.

The market won't wait for actual supply interruptions; it will price in the risk of interruptions ahead of time. Traders will assume that some oil production might be halted, meaning supply decreases while demand remains the same, which means oil prices rise. Oil is an input for almost everything—transportation, manufacturing, shipping, food production, fertilizers, heating, and cooling.

Rising oil prices mean rising overall costs. Higher oil prices lead to higher inflation. Higher inflation means that the Federal Reserve may maintain high interest rates instead of lowering them. Higher rates mean more expensive mortgages, auto loans, and corporate borrowing. More expensive borrowing means lower corporate profits. Lower profits mean lower stock valuations.

The three phases of every conflict

Every geopolitical conflict drives capital through three distinctly different phases. Understanding what phase you are in will completely change what you should do.

Phase One: Shock.

This phase is fast, intense, driven by emotions and algorithms. Oil surges. The VIX—market fear index—soars. Risk stocks plummet. Biotech, high-growth tech, speculative stocks—all are sold off as capital flows into safe-haven assets. Gold rises. Financial media enters 24-hour rolling coverage mode, designed to make you as fearful as possible.

This phase lasts several days, sometimes extending for weeks. If you buy oil, gold, or defense stocks during this phase, you can almost bet you are buying at the top. The impulsive emotional action peaks at this time, which is why acting now is the most expensive mistake.

Phase Two: Repricing.

Fear subsides. The market begins to think rather than feel.

The questions shift from "What happened?" to "What will happen next?" Is this temporary or structural? Will inflation remain high? What will the Federal Reserve do? Is the supply chain permanently disrupted or just temporarily under pressure?

This is the stage where institutions begin to restructure. Not in the chaos of the first few days—but in the clarity that follows. This is where smart money makes profits—in the calm after the storm, not in the storm itself.

Phase Three: Rotation.

Funds flow out of the sectors hit by the shock and into the sectors that benefit in the new reality.

Where does the money actually flow

First: Energy—but not in the way you think.

The obvious play is oil; indeed, oil outperforms in the short term. Bank of America’s study of 90 geopolitical shocks shows that oil is the best-performing asset, rising by an average of 18%. You want to hold companies that benefit from sustained high oil prices. Pipeline companies. Storage terminals. Energy infrastructure. Companies that can charge tolls on oil flows regardless of the direction of oil prices.

Second: Defense—but look at structural, not headline-driven.

Yes, defense stocks will surge immediately. Some stocks have already risen by over 30% since tensions escalated. But defense spending isn’t a single-quarter event. The government signs 10-year procurement contracts. Large contractors have backlogs worth hundreds of billions. Look for companies that have strategized spending cycles for years.

Third: Gold and silver—longer-term plays.

Gold soars in the first phase, but unlike oil, it tends to stay at high levels. Bank of America data shows that six months after a shock, gold continues to outperform by an average of 19%. The conditions that drive up gold—higher inflation, central banks printing money, institutional hedging—do not simply dissipate with the headlines. If this conflict drags on, oil stays high, and inflation remains sticky, the Federal Reserve won't be able to cut rates. That environment is when gold is at its strongest.

Fourth: Companies with pricing power.

This is the point most people miss. If inflation remains high for a long time, you want to hold companies that can pass on higher costs to customers without losing them. Strong brands. High margins. Companies for which customers have no cheaper alternatives.

Which sectors will be hurt: During such times, utilities and real estate typically underperform. Prolonged high interest rates compress the valuations of these two sectors. If you are overweight in these two sectors, it’s worth examining your positions.

What you should actually do

Do not panic sell. The data over decades of conflict is very clear—selling in the initial shock locks in losses and guarantees that you miss the rebound. Do not chase after things that have already surged. If it’s already on financial media, you are too late. Do not watch war coverage.

Keep your core portfolio unchanged—those high-quality companies with strong brands, high margins, and pricing power.

Then examine your holdings and ask two questions: Which ones are the most vulnerable in this environment? Where is institutional capital flowing in that I have not yet exposed?

You are looking to tilt your portfolio—restructuring into the sectors that institutional capital is already moving into, cautiously, before the headlines catch up.

This is about your livelihood. Your retirement. Your family's financial security.

Get risk management right, and you can make money. This is the least sensational thing I can say. But it’s the truth.