The Fog of Risk — Investing in an Age of Geopolitical Noise
In 1974, Warren Buffett gave a rare television interview during a time of deep market pessimism. The oil crisis was in full swing, inflation was spiralling, and geopolitical tensions ran high. When asked if he was worried about the state of the world, Buffett calmly replied, “I try to invest in businesses that would be fine if the market shut down for ten years.”
That line has stuck with me — because it isn’t just about temperament. It’s about recognising how little we control and how much of what feels urgent is, in fact, noise.
Geopolitical fear is one of the most enduring forces in financial markets. But it’s also one of the most misunderstood.
A World Always on Edge
History is littered with geopolitical flashpoints that, in the moment, felt like the end of the world. The Suez Crisis in 1956 threatened to upend global oil flows. The Berlin Blockade in 1948 brought the world perilously close to a third World War just three years after the second ended. The 1962 Cuban Missile Crisis was arguably the closest we’ve ever come to a nuclear war — and yet the S&P 500 rose over 15% that year.
Go further back and the picture is no less volatile. In the 19th century, the Napoleonic Wars reshaped Europe and global commerce. The American Civil War threatened the entire cotton trade and brought bond markets in London to their knees. Even the Dutch tulip mania of the 1600s occurred in the shadow of Eighty Years’ War and the plague.
If anything, the lesson is this: geopolitical risk is not a new phenomenon. What’s new is how we react to it.
The Problem with Instant Fear
We live in an age of hyper-information. A single military strike, diplomatic snub, or election result is broadcast instantly to billions. Reactions are shared in real time, often before facts are verified. Fear spreads virally — and markets move with it.
This isn’t just about faster news. It’s about how our brains respond. The human mind evolved for survival, not investing. We’re wired to react quickly to perceived threats — to run, not to analyse. In the modern world, where information comes fast but context comes slow, this tendency makes us prone to panic.
Investing requires a different kind of brain — or at least, a conscious override of our ancient instincts. It asks us to pause. To ask what really matters. To weigh facts over feelings. It’s not easy.
As Daniel Kahneman and Amos Tversky showed in their work on behavioural finance, humans consistently overestimate rare but dramatic risks — especially when the outcome feels catastrophic. A nuclear war, a revolution, a market collapse. These feel emotionally charged in ways that slow, creeping risks (like demographic decline or regulatory erosion) often don’t.
Pricing the Unpriceable
This leads us to a major challenge: how do you price geopolitical risk? Especially when it involves binary or catastrophic scenarios?
Take South Korea, a country we admire for its dynamism, innovation, and corporate excellence. It’s home to globally competitive firms like Samsung, Hyundai, and LG. Its stock market is worth around $2 trillion. And yet, it sits under the constant shadow of a nuclear-armed neighbour with erratic leadership.
How does one rationally price the risk of a missile attack on Seoul? Or an invasion? The reality is: you can’t. Many Korean investors know this — which is why they’ve simply stopped trying. They focus instead on what they can control: valuations, business quality, and earnings growth.
In fact, what’s often called the “Korea discount” — the fact that Korean equities trade at lower valuations than peers — is more about poor governance structures than bombs. Geopolitical risk, in many markets, is simply too ambiguous to meaningfully integrate into long-term valuations. It’s either a zero or a one. And markets, like humans, aren’t good at binary outcomes.
What We Can Control
This is why we, at AXIYA, don’t build portfolios based on geopolitical forecasts. It’s not that we don’t care about these issues — we care deeply. We track China-Taiwan tensions. We think about Middle East spillovers. We worry about an increasingly fragmented global order.
But we also recognise that our edge lies elsewhere.
We spend our time finding high-quality businesses with wide moats, ethical leadership, strong balance sheets, and clear value propositions. Businesses that serve fundamental human needs. These companies have endured wars, crises, and revolutions before. They’ll likely endure the next ones too.
The only “hedge” we believe in is this: own great businesses at fair prices, with a margin of safety. That margin — of valuation, of resilience, of customer loyalty — is what allows us to sleep at night.
Noise vs Signal
Ben Graham’s metaphor of the market as a voting machine in the short-term and a weighing machine in the long-term is as useful today as it was in the 1940s.
In the short run, markets vote on popularity — on narrative, emotion, and immediacy. When geopolitical news hits, that voting machine becomes a frenzy of fear. Prices detach from fundamentals. Sentiment rules.
But over time, weight is restored. Earnings, returns on capital, and business quality start to assert themselves. The weighing machine begins its slow and quiet work.
Our task is to stay focused on that weighing machine. That means not reacting to every flare-up, not jumping in and out of positions based on today’s headlines, and not pretending we can model complex, fast-moving geopolitical risks with any degree of precision.
Historical Parallels: Risk and Resilience
Let’s remember how investors have fared in past periods of geopolitical turmoil:
In 1941, the US entered WWII after Pearl Harbor. Markets collapsed. But investors who bought then — when fear was at its highest — saw enormous returns by the end of the war.
In 1979, the Iranian Revolution triggered oil shocks and global panic. US inflation surged. But companies with pricing power, like Coca-Cola and Procter & Gamble, managed through.
In 2003, the invasion of Iraq began. Oil soared. Defence stocks surged. But most long-term winners were not those who timed the conflict, but those who held quality through it.
In 2022, Russia’s invasion of Ukraine shocked the world. Energy markets were thrown into chaos. But the market adapted. Europe restructured gas supply chains. Capital flowed to alternative energy.
The constant in all these episodes is not the risk — it’s the resilience.
A Philosophical Perspective
It’s worth borrowing a page from Stoic philosophy here. Epictetus taught that we should focus only on what is within our control, and accept — with courage — what is not.
For us, as investors, that means resisting the urge to build castles in the sand of geopolitics. We don’t know what’s coming. No one does. And even if they did, knowing the event doesn’t mean knowing how business earnings will be affected and how markets will react to them. Often, markets climb the wall of worry — or price in fear only to recover once the worst happens.
Instead, we focus on what is durable: the quality of a business, its alignment with long-term societal needs, its ability to navigate change, and its price relative to intrinsic value.
These are things we can study, debate, and learn from. Geopolitical prediction, on the other hand, is often little more than informed guessing — and sometimes not even that.
Calm Amid the Storm
As long-term value investors, we build our portfolio with the full understanding that the world is messy, uncertain, and occasionally terrifying. That’s not a bug — it’s a feature of the world. The reward for long-term thinking and calm decision-making exists because most people can’t help but react emotionally in turbulent times.
So when the next crisis hits — and it will — remember this: don’t ask whether the world is ending. Ask whether your businesses are strong enough to thrive through it.
Because in the end, we are not in the business of reacting. We are in the business of enduring.
