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When a terrorist attack happens such as the one that hit Orlando Saturday, the human devastation and loss are almost incalculable. Lives are changed forever when loved ones are taken as the result of such tragedy.

Terrorism takes a financial toll as well. Although it pales in comparison to what happens to victims and their families, the financial toll on business and on investors is significant.


The Financial Toll

A 2006 study at The Ohio State University determined that the average loss per attack, per company attacked was $401 million in market capitalization. It can likely safely be assumed that the figure has risen in the decade since that study was done.

Although the study concluded that little is known about the financial or economic consequences of terrorism, it is reasonably certain terrorism will continue into the foreseeable future. For that reason, alone, investors need to be aware of what is known and prepare accordingly.

Sectors At Risk

Sectors affected include some obvious targets such as oil and banking. Others, such as tourism and travel also feel the impact when attacks happen.

The OSU study identified others as well including airlines, the automotive industry and in some cases companies involved in the Internet and telecommunications.

Defense As A Defense

Companies that manufacture weapons, military aircraft and ammunition can provide a safety net for investors whose portfolio contains “at risk” stocks. Other areas include security, including Internet and Web security, along with any company seen as a natural defense against a terrorist threat.

Adding defense and security stocks to a portfolio to protect investors who have concerns about terrorism may be a good move, and many of these stocks hold up well on their own, too. They may be good investments even in an environment where terrorism is not an issue.

Stop Loss Tactic

In addition to creating a balanced portfolio, you can always put stop-losses on vulnerable stocks. The idea here would be to create a mechanism that reacts to share price since actual terrorist attacks can’t easily be predicted.

Stop losses won’t keep you from losing money but they can mitigate the loss and minimize the damage when something happens that causes a particularly vulnerable stock to tank.

Stocks To Buy

Following the attack in Orlando, Smith & Wesson Stock not found SWHC stock rose 11%. Sturm, Ruger & Co. (NYSE:RGRC) stock was up 8%. Both companies manufacture firearms and the connection to fears people have when an attack happens is obvious.

Not surprisingly, other recommended stocks following a terrorist attack include Lockheed Martin Corp. (NYSE:LMTB), Raytheon Company (NYSE:RTNC) and L-3 Communications Holdings (NYSE:LLLC). All three are defense stocks and seen as natural investments when the world is at war as is the case with terrorism.


Stocks To Avoid

Although indications are that the negative impact on the stock market when a terrorist attack occurs is both minimal and short-lived, some stocks are more vulnerable than others.

Immediately following the Brussels attacks, for example, shares of American Airlines (TSX:AALA), Delta Airlines (NYSE:DALB), Starwood Hotels (:HOTN/A) and Marriott International (NYSE:MARC) all took a hit.

One airline that saw a dip in stock prices following the recent attack in Orlando was Southwest (NYSE:LUVC).

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