Geopolitical conflicts, why do institutional funds always follow the same path?

Author: Felix Prehn 🐶

Compiled by: Deep Tide TechFlow

Introduction: The author is a former investment banker. The value of this article isn’t in predicting the conflict’s outcome 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 a much clearer logic than emotion-driven analysis.

Full Text:

There is now overwhelming news about the US and Iran.

If you’re wondering whether you can make money from this conflict—yes, you can. I’ll tell you exactly how.

I have worked in investment banking for many years, specializing in identifying what Wall Street calls “event-driven opportunities.” That’s their refined way of describing war. In every major war—the Gulf War, Iraq War, Russia-Ukraine War—a consistent three-phase market pattern emerges, determining where institutional funds will flow next.

Phase One: Shock—Retail panic selling.

Phase Two: Repricing—Market calms and reassesses.

Phase Three: Rotation—Institutional funds flow into new sectors.

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

That’s what I’m here to share with you.

How Retail Investors vs. Institutions Act

When a conflict erupts, retail investors typically do one of three things:

Convert everything into cash—thinking it’s safety, but actually just ensuring inflation erodes their assets.

Freeze—stare at red, become paralyzed, do nothing.

Or chase the recent surge—buying oil, defense stocks, gold—at the worst possible time, driven by fear and without a plan.

Meanwhile, institutions managing billions of dollars are not doing these. They are repositioning based on decades of studying conflict patterns. Not emotion, but rules.

Let me teach you the same.

Repeating Patterns

In the first 10 days after a geopolitical conflict erupts, the S&P 500 drops 5% to 7%. About 35 days later, it stabilizes. After 12 months, it rises 8% to 10%—roughly the average market performance in any normal year.

Real historical examples:

During the Gulf War, the S&P annualized return was 11.7%. One year after the war ended, it rose 18%.

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

During the 2022 Russia-Ukraine War, the S&P initially fell 7%, then rebounded to above pre-invasion levels within months.

Wars rarely destroy markets. They create uncertainty, which causes declines. Declines create opportunities.

Why Iran is Especially Important

Iran produces 3.3 million barrels of oil daily.

Any escalation—even perceived—raises supply risk, which affects everything.

Markets don’t wait for actual supply disruptions; they price in the risk in advance. Traders assume some oil might stop production, meaning reduced supply while demand remains, pushing oil prices higher. Oil is an input for nearly everything—transportation, manufacturing, shipping, food production, fertilizers, heating, cooling.

Rising oil prices mean rising costs across the board. Higher oil prices lead to higher inflation. Higher inflation may cause the Fed to keep interest rates high instead of cutting. Higher rates mean more expensive mortgages, car loans, corporate borrowing. More expensive borrowing means lower corporate profits. Lower profits mean lower stock valuations.

The Three Stages of Every Conflict

Every geopolitical conflict drives capital through three distinct stages. Understanding which stage you’re in will completely change what you should do.

Stage One: Shock.

This stage is fast, fierce, driven by emotion and algorithms. Oil surges. The VIX—market fear index—soars. Risk stocks plummet. Biotech, high-growth tech, speculative assets—selling off as funds flock to safe havens. Gold rises. Financial media runs 24-hour rolling coverage designed to maximize fear.

This stage lasts days, sometimes weeks. If you buy oil, gold, or defense stocks during this phase, you’re almost certainly buying at the top. Emotional impulses peak here, which is why acting at this moment is the most costly mistake.

Stage Two: Repricing.

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

The question shifts from “What happened?” to “What’s next?” Is this temporary or structural? Will inflation stay high? What will the Fed do? Are supply chain disruptions permanent or just temporary?

This is when institutions start repositioning. Not during the chaos of the first days, but in the subsequent clarity. This is where smart money makes money. In the calm after the storm, not during it.

Stage Three: Rotation.

Funds flow out of impacted sectors and into those benefiting from the new reality.

Where the Money Actually Flows

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

The obvious play is oil. Yes, oil outperforms in the short term. Bank of America’s research on the 1990 geopolitical shock shows oil was the best asset, averaging an 18% rise. You want to hold companies that benefit from sustained high oil prices—pipelines, storage terminals, energy infrastructure—those that can charge tolls regardless of oil’s direction.

Second: Defense—but focus on structural, not headline.

Yes, defense stocks spike immediately. Some have risen over 30% since tensions escalated. But defense spending isn’t a one-quarter event. Governments sign 10-year procurement contracts. Major contractors have backlog orders worth trillions. Focus on companies with long-term expenditure cycles.

Third: Gold and Silver—longer-term positioning.

Gold surges in the first stage, but unlike oil, it often stays high. Bank of America data shows that six months after a shock, gold continues to outperform by an average of 19%. The drivers—higher inflation, central bank money printing, institutional safe-haven demand—don’t disappear after headlines fade. If the conflict prolongs, oil remains high, and inflation stays sticky, the Fed can’t cut rates. That environment is gold’s strongest.

Fourth: Companies with pricing power.

This is a point most miss. If inflation remains high long-term, you want companies that can pass higher costs to customers without losing them. Strong brands, high margins, pricing power—companies with no cheaper substitutes.

Which sectors tend to underperform during these periods? Utilities and real estate. Longer-term high rates compress their valuations. If you’re overweight in these sectors, reconsider your positions.

What You Should Actually Do

Don’t panic sell. Decades of conflict data are clear—selling during the initial shock locks in losses and guarantees you miss the rebound. Don’t chase already surging assets. If it’s already on financial media, you’re late. Don’t watch war reports obsessively.

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

Then review your holdings. Ask two questions: Which are most vulnerable in this environment? Where is institutional money flowing that I haven’t yet captured?

You’re tilting your portfolio—reallocating cautiously into sectors already moving with institutional flows—before headlines catch up.

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

Manage risk properly, and you can profit. That’s the least exciting advice I can give, but it’s the truth.