On February 9, 2024, I launched my Defense Industry Investment Strategy and published this white paper:
Image 1: Defense Industry Strategy Deck Cover Page
In this presentation, I argued two primary points:
That the world was set for a massive increase in defense spending; and,
That where the money was spent was going to change dramatically (shifting to drones, autonomous, and AI).
It was the most compelling investment setup I had seen in my life.
NO ONE INVESTED IN IT. Not. One.
In the accounts that I manage on a discretionary basis, I took defense equities to 50 percent. Those did very well.
Chart 1: Defense Investment Percentage Performance Since February 9, 2024
Chart 1, above, compares the performance of defense industry names I owned (colored lines) to the S&P 500 Index (white line - SPY). The S&P 500 was up 20 percent over that period. The defense industry names were up between 48 and 896 percent, with all but one more than doubling. The average was 278 percent, or 13.9x the S&P 500 Index.
Am I blowing my own horn here? Hell yes. If I’m going to own my losses, then I’m damn sure going to celebrate my wins.
The Russian Pearl Harbor
The Ukrainian strike on Russian air force bases all across the continent has not been fully appreciated by the media. This is one of the biggest events in military history and completely validates my investment thesis.
It should be apparent that everything about how war is waged has now changed.
The Ukrainians used a few hundred cheap drones and took out $2-3 billion worth of Russian strategic bombers (41 of them). These are the ones the Russians would conceivably use to deliver nuclear payloads and they are one of the key ways that Putin projects power out of Russia.
The return on that investment is essentially infinite.
Russia has not been mortally struck, but it is seriously injured, and now has to allocate a significant amount of resources to protect every military base it has, no matter how far behind enemy lines it is.
Remember, the Ukrainians are basically taking commerical drones and modifying them for their own purposes in a garage. These were not General Atomics Reaper Drones costing $33 million per copy (the ones you see in all the movies).
In fact, the days of $33 million drones may also be coming to an end. We’ll have to see about that.
It turns out that Zelensky was holding the right cards… and he played them well.