What the Iraq War Can Teach Investors

On Tuesday, March 19, the country marked the tenth anniversary of the start of the war in Iraq. There wasn’t much of a celebration among attention-hungry politicians, a curiosity that I found quite welcome.

Although I was U.S. Army paratrooper in my youth, I was out of the military well before the commencement of the war. I did, however, have several friends who were still in the Army during Operation Iraqi Freedom and who paid the ultimate price and died in the conflict. I also had several friends who will wear their battle scars, both physical and psychological, for the remainder of their lives. So for me, the legacy of the war is quite personal.

What does this have to do with investing, you ask?

Well, actually, there is a huge lesson all investors can learn from the groupthink that led us into a conflict that left nearly 4,500 Americans dead, and that, according to a new report from the Watson Institute for International Studies at Brown University titled “Costs of War,” has killed more than 190,000 people in the 10 years since the war began. The report also said that the war will cost the U.S. $2.2 trillion, far more than the government’s original cost estimate of $50 to $60 billion.

Now, if you remember the political climate back in the months leading up to the war, it’s easy to understand how everyone was so gung ho to go to battle and to take out the evil dictator Saddam Hussein. Virtually every major intelligence agency, as well as every major U.S. politician — Democrat, Republican, liberal and conservative — was convinced that Saddam had reconstituted his weapons of mass destruction (WMD) programs and that he was willing to use them on the West and/or sell them to our mortal enemies in Al Qaeda.

Given the fact that the country still harbored the fresh wound of the 9/11 attacks, it was understandable that the Iraq war was just something that had to be done.

Unfortunately, we all learned that there was no WMD in Iraq and that Saddam Hussein was essentially bluffing about his ability to threaten the West in any real fashion. Now, I am no fan of Saddam Hussein, but did all of those Americans, coalition troops and Iraqi and other civilians need to perish because we needed to remove a despicable dictator?

The verdict here largely depends on your perspective; however, the facts are that 10 years later, Iraq remains a fractured nation with Iranian influence on the rise. Al Qaeda’s influence in the country also is strong and growing stronger, and there continues to be heavy sectarian violence that, on the eve of the ten-year anniversary, saw a wave of bombings across the country that reportedly killed 65 people.

For investors, it is the run up to the war and the near unanimity among politicians that needs to be questioned. You see, as it is so many times with investing, when everyone is bullish on the market, that’s just the time when everyone gets it wrong and when the market begins to sell off.

In the case of Iraq, nearly everyone — President Bush, British Prime Minister Tony Blair, Rep. Nancy Pelosi (D-Calif.) and then-Senators John Kerry (D-Mass.) and Hillary Clinton (D-N.Y.), the current and former Secretaries of State — was bullish on the war. When so many politicians from all sides of the spectrum agree on something, I say that’s the time to be skeptical and the time to question everything.

Just like in the financial markets, groupthink in Washington usually gets it wrong. In the case of Iraq, the groupthink was dead wrong.

Unfortunately, there may not be much that you, as an individual, can do to change the decisions made in Washington (other than to organize, vote, write op-eds, etc.). But as an investor, it’s a different story. In this battlefront, you are in control, and you make the decisions about your own money.

So, when it seems as though everyone is beating on the bullish war drums (much like the pundits are now), that’s the time to question everything again — and the time to act in defense of your own money.

Follow Jim on Twitter: @Woodsish.