Throughout the year, I volunteer my time to talk with college investment clubs. Two weeks ago, I was at a university in North Carolina, not far from where our own Brad Thomas calls home.
Besides the one or two who organize it, the students are usually timid. But not this time. They were ready with a list of questions, many about the Iran war.
Today, I’ll tell you what I told those students. It’s potentially controversial.
Unlike everyone else, I won’t tell you how to think about what’s going on. Instead, I’ll tell you what not to think.
Good Programming
To start, the way these young men and women at the college perceived these issues (private credit was a hot topic, too) wasn’t by chance. Research or earnings reports had nothing to do with it. They were framed by the media. I know because I saw and read all the stories they mentioned.
The same media that engineers fear and panic for clicks and views. These students – and most investors – are told how to react. And without realizing it, most are all right in line. That’s fine in many cases, but not when it impacts your retirement or savings.
Last week I was in Portland, Oregon and Vancouver, Washington doing consulting work for a private real estate company. I have two young children at home. So, traveling like this is rare for me these days. But in years past, I’d fly to New York City and Chicago regularly.
It was my job to do due diligence on many of the top asset managers in the world, including Blackstone (BX), Apollo Global Management (APO), and Carlyle (CG). I stress-tested their investment strategies, track records, and risk management.
I mention this because I know these firms did not decide what to buy or sell based on what the news told them. If anything, they’d often do the opposite. They’d get greedy when the headlines were panicked. And they’d get cautious when they were jubilant.
They say regular investors can never beat Wall Street. What they don’t mention is that a lot of the losses are self-inflicted.
I encourage you to stay on top of global affairs. My friends and subscribers know geopolitics is one of my favorite subjects. But be wary of making knee-jerk changes to your portfolio after reading something exciting or worrying. In the moment, every crisis feels like it will last forever.
They never do.
Looking at Iran Through the Right Lens
I’ll touch on the Iran conflict strictly from an investment and risk perspective. People on TV with far better hair can handle the politics. I want you to stop and think about the next series of questions carefully.
When was the last time you saw an Iranian car? What about an Iranian-made computer or software? Matter of fact, have you seen any product or service made in Iran here in the U.S. or even during travel overseas?
Unless you’ve been on the front lines of the Ukraine war facing Shahed drones, the odds are low. Why that is (e.g., sanctions) doesn’t matter for this discussion.
Personally, I’ve never done any business with any Iranian firm pre- or post-sanctions. I bet you haven’t either. No U.S. companies of any significance do any business with Iran or Iranian companies.
Why does all this matter?
It matters because we are mostly investors in the U.S. markets. And outside of defense companies like RTX (RTX) and Lockheed Martin (LMT), the U.S. financial markets and its players don’t “engage” with Iran in the slightest.
You know the world’s most valuable companies: Nvidia (NVDA), Apple (AAPL), Alphabet (GOOG), Microsoft (MSFT), and Amazon (AMZN). If we keep going down the list, it’s other tech companies like Tesla (TSLA). Berkshire Hathaway (BRK) is at No. 10.
Oil and gas and defense companies are right behind them. Do you think Nvidia or Apple’s earnings are going to take a hit due to the Iran war? Tesla? When you think about it this way, the answer is obvious: it doesn’t matter.
The stock market is driven by sentiment and capital flows (money moving around) in the short term, but earnings are what drive the stock market medium and long terms.
But What About Oil and Gas Prices?
That all makes sense, but what about oil and natural gas prices? It’s a good question, and it touches on Iran’s only connection to the global economy that hasn’t already been severed. And for parts of Europe and Asia, this isn’t just a tax on consumer spending. It’s a serious problem.
But the story for the U.S. is different. The U.S. energy industry (exploration and production, majors, service providers, and midstream) is worth about $2 trillion by market capitalization, has about $10 trillion in asset value (refineries, proven oil and gas reserves, pipelines), and contributes about $1 trillion to the U.S. economy annually. Every $1 increase in oil prices results in roughly $5 billion in revenue and around $2.5 billion in profits. That’s roughly $100 billion in potential annual industry profits from the jump in oil prices since before the war. And that’s only half the story.
U.S. liquefied natural gas (“LNG”) exports are much more valuable after the Iranian attack on Qatar and its other neighbors took supply offline. For parts of Europe and China, this is putting real strain on their economies.
But the U.S. is a net energy (including refined petroleum products) exporter. One hundred and eleven million tons of LNG were exported in 2025 alone. Since one ton of LNG is about 50 thousand cubic feet (“MCF”) of natural gas, that comes out to $48 billion to $50 billion a year at today’s price of $8.67 per MCF for LNG exports.
Between defense and energy sectors, it’s debatable if the conflict so far is a net positive or negative for S&P 500 earnings. Firms like Walmart (WMT) will have compressed margins as consumers feel the pinch on gas prices. That’s why we stay diversified.
Interest rates are another sensible concern. Despite the U.S. economy being incredibly insulated from issues with Middle East production and logistics, we can’t say the same about higher rates. The Federal Reserve may hesitate to lower rates if they are more worried about inflation. If the Iran conflict ends sooner than later, we might end up on the old path as commodity prices tend to adjust very quickly.
Conclusion
Investors rarely lose money because of geopolitical events – they lose money because of how they react to them. The market doesn’t reward fear or greed. It rewards discipline and patience. Headlines do move markets, and it can be intimidating. Talking heads on TV don’t help. If you followed their lead, you’d buy every stock market top and panic sell it all right at the bottom of each market crash.
Whether it’s the Iran war or the next headline, I want you to ask yourself, “Does this change the long-term trajectory of the companies I own?”
The answer is “probably not.”
That doesn’t mean there aren’t real risks.
Oil prices do impact businesses and consumer spending, especially in the short term. Some sectors will have windfall profits while others struggle. But that’s how it always is, and things normalize faster than people think.
Every new development – whether a trade war or actual war – does not require a new decision. Buy great companies and let management deal with the crisis.
That’s their job, not yours.
Regards,
Stephen Hester
Chief analyst, Wide Moat Research
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