Author: Felix Prehn ?

Translation: Shenchao TechFlow

Abstract: The author is a former investment banker, and the value of this article lies not in predicting the direction of the conflict, but in breaking down a three-stage institutional capital flow model that spans the Gulf War, Iraq War, and Russia-Ukraine War. Retail investors losing money during conflicts is almost a systemic error; this article points out the specific reasons and corresponding strategies, with logic being much clearer than emotion-driven analysis.

The full text is as follows:

There is an overwhelming amount of news about the US and Iran right now.

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

I worked at an investment bank for many years, specifically looking for what Wall Street coldly refers to as "event-driven opportunities." That's their sophisticated way of talking about war. In every major war— Gulf War, Iraq War, Russia-Ukraine War— a similar three-stage market pattern emerges, dictating where institutional capital flows next.

First Stage: Shock— retail panic selling.

Second Stage: Repricing— the market calms down and reassesses.

Third Stage: Rotation— institutional money flows into new sectors.

The US-Iran conflict is now following the same script. The shock phase has already begun. What happens next, and where the real money flows— as long as you know what to look for, it can be anticipated.

This is what I'm giving you here.

What retail investors do vs what institutions do

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

Exchange everything for cash— thinking it’s a way to stay safe, but in reality, it ensures being eroded by inflation.

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

Or chase after what's just surged— oil, defense stocks, gold— buying in at completely the wrong time, driven by fear, without a plan.

Meanwhile, institutions managing billions are not doing any of this. They are repositioning based on decades of research into the patterns of conflict. Not emotion, but patterns.

Let me teach you the same thing.

Recurring patterns

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

True historical cases:

During the Gulf War, the annualized return of the S&P was 11.7%. After the war ended, it rose by 18% in the subsequent 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.

War rarely destroys markets. It creates uncertainty, and uncertainty creates declines. Declines create opportunities.

Why Iran is particularly important

Iran produces 3.3 million barrels of oil daily.

Any escalation—even just a perception of escalation—will increase supply risks, and that risk will affect everything.

The market won't wait for an actual supply disruption; it'll price in the risk of a disruption in advance. Traders will assume that a portion of the oil might be taken offline, meaning less supply with unchanged demand, which implies rising oil prices. And oil is an input for almost everything— transportation, manufacturing, shipping, food production, fertilizers, heating, cooling.

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

The three stages of every conflict

Every geopolitical conflict pushes funds through three distinctly different stages. Understanding which stage you're in will completely change what you should do.

First Stage: Shock.

This stage is quick, violent, driven by emotions and algorithms. Oil prices surge. The VIX— the market fear index— skyrockets. Risky stocks plummet. Biotech, high-growth tech, speculative assets— all are sold off as funds rush to safe-haven assets. Gold prices rise. Financial media enters a 24-hour rolling news mode, designed to make you as fearful as possible.

This stage lasts for days, sometimes weeks. If you buy oil, gold, or defense stocks during this phase, you can almost guarantee you're buying at a peak. The emotional impulse to act peaks at this time, which is precisely why acting now is the most expensive mistake.

Second Stage: Repricing.

Panic subsides. The market starts to think rather than feel.

The questions shift from "what happened" to "what happens 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 start to reposition. Not in the chaos of the initial days— but in the clarity that follows. This is where smart money makes money. In the calm after the storm, not in the storm itself.

Third Stage: Rotation.

Funds flow out of impacted sectors and into sectors that benefit from 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. Research from Bank of America on geopolitical shocks over 90 years shows that oil is the best-performing asset, averaging an 18% increase. What you should hold are companies that benefit from sustained high oil prices. Pipeline companies. Storage terminals. Energy infrastructure. Companies that can charge tolls on oil flows regardless of oil price direction.

Second: Defense— but look for structural plays, not headline plays.

Yes, defense stocks will spike immediately. Some individual stocks have risen over 30% since tensions escalated. But defense spending is not a one-quarter event. Governments sign 10-year procurement contracts. Major contractors have backlogs in the hundreds of billions. Look for companies that have positioned themselves over years of spending cycles.

Third: Gold and silver— a longer-term play.

Gold surges in the first stage, but unlike oil, it tends to hold its high levels. Data from Bank of America shows that six months after a shock occurs, gold continues to outperform by an average of 19%. Because the conditions that drive gold prices— higher inflation, central bank money printing, institutional safe-haven— do not disappear with the headlines fading. If this conflict drags on, oil stays high, inflation remains sticky, the Federal Reserve won't be able to cut interest rates. That environment is when gold is strongest.

Fourth: Companies with pricing power.

This is the point most people miss. If inflation remains high for a prolonged period, you want to hold firms that can pass on higher costs to customers without losing them. Strong brands. High margins. Companies for which there are no cheaper alternatives available to customers.

Which sectors will be hurt: During such periods, utilities and real estate usually lag. Longer-term high interest rates compress valuations in these two sectors. If you are overweight in either of these sectors, it may be worth reassessing your positions.

What you should actually do

Don't panic sell. Decades of conflict data is very clear— selling in the initial shock locks in losses and ensures you miss the rebound. Don't chase after what's already skyrocketed. If it’s already on financial media, you’re too late. Don't watch war coverage.

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

Then assess your holdings, asking two questions: Which are the most vulnerable in this environment? Where is institutional capital flowing in that I don't yet have exposure to?

What you're doing is tilting your portfolio— making controlled repositioning toward sectors where institutional capital is already moving, before the headlines catch up.

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

If you manage risk correctly, you can make money. This is the least stimulating thing I can say. But it is the truth.

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