The Ukrainian Invasion

The great Russian writer Leo Tolstoy wrote that “there is no greatness where there is not simplicity, goodness, and truth.” Vladimir Putin’s explanation of his invasion of Ukraine bears no truth. Over its long history, Ukraine existed as a Russian territory for only a brief period.1 Prior to 1920, except for small portions of the country, Ukraine was not part of Russia. The motives for the invasion are about power – the power of Putin and his oligarch friends. In attacking a country that is peaceful, there is no goodness.

We can all agree that the Russian invasion of Ukraine is simply a terrible thing. 

It seems trifling to write about the invasion’s implications on the stock market. But while we are not qualified to answer questions about what will happen to Ukraine, many of you are asking about what will happen to your investments right now.

Despite its position as a military superpower, Russia is much less significant as an economic power. “Russia is incredibly unimportant in the global economy except for oil and gas,” said Jason Furman, a Harvard economist who was an adviser to President Barack Obama.2 “It’s basically a big gas station.” For comparison, the economy of Texas was approximately 18% greater than the entire Russian economy in 2020.3 Its direct effect on the world economy is relatively small.

In its extremes, the stock market is driven by greed and fear. In greed, buyers cause stocks to reach levels that are not justified, driven by the need to have some of the easy money in a roaring stock market. With fear, we see the values of our life savings going down and we want to do something about it…and the urge to sell builds.

Today’s stock market valuations are not unjustified, in our opinion. Despite very good returns in 2019 thru 2021, stock valuations are nowhere near the greed driven valuations of 1999. The most common measure of valuation is the P/E ratio, which measures stock prices relative to their earnings. The stock market has already retreated almost 15% from its highs and therefore that P/E ratio today (February 24) stands at about 18. Further, the top ten stocks in the market make up a disproportionately large share of the stock market and their P/E ratio is over 30. Taking those stocks out, the stock market P/E is about 17. That price level is merely somewhat higher than average. In 1999, that measure was over 25.4

Further, we have long recommended that clients focus on dividend paying stocks. Those stocks, as represented by the Dow Jones US Dividend Index, have a P/E ratio that would be considered low, at just over 11. In fact, that index of “100 high-dividend-yielding stocks in the U.S.”5 has lagged the S&P 500 over the past three years by over 20% and, because it is still relatively cheap, is down a good deal less than the S&P 500.  We think dividend paying stocks are a good place to have money right now.

We know that many (or maybe all) of you reading this are experiencing fear. Russia has nuclear weapons. It is hard not to fear their invasion of Ukraine and a possible escalation from there. You may also be experiencing the fear of the loss of your life savings.  While that emotion is only natural, we would encourage you to reconsider the need to act on that fear by selling your stocks. We don’t know what is going to happen, and whether things might escalate. But we believe that selling your investments in response to this fear is probably not a good idea. You have trusted us with your financial well-being. We accept the awesome responsibility that comes with that trust, and lose sleep worrying about this Russian invasion. If you want to discuss your finances during this difficult time, please give us a call.

In Leo Tolstoy’s War and Peace, he wrote “everything comes in time to him who knows how to wait … there is nothing stronger than these two: patience and time, they will do it all.”

1 Wikipedia, The History of Ukraine


World Bank;

4 J.P. Morgan, Guide to the Markets, December 2021 adjusted for current levels

5 S&P Global Indices website

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