The standard advice for personal investing is relentlessly sensible: index funds, low fees, long time horizon, don’t try to be clever. I believe most of that advice. I also think it understates how much geopolitical risk is currently mispriced in the way most retail investors are positioned.
This isn’t a post about predicting events. It’s about having a framework for thinking about scenarios and then asking whether your current allocation has any exposure to the upside of those scenarios — and whether it’s overexposed to the downside.
Why most retail investors ignore geopolitics
The honest answer is that geopolitical risk is uncomfortable to think about and hard to model. When analysts talk about tail risk events — energy supply shocks, regional conflicts escalating, major shipping routes disrupted — the natural response is to either catastrophize or dismiss. Neither is useful.
Index fund advocates correctly point out that the market has recovered from every major geopolitical shock in history. That’s true. But “the market recovers” is an argument for not panic-selling, not an argument for having no view at all on sector allocation. The S&P recovering over a 10-year horizon doesn’t help you if your near-term cash needs coincide with a sector downturn, or if you’re not actually exposed to the sectors that benefit from the scenario that plays out.
The framework I use
I’m not a professional investor. I manage my own portfolio with a day job and limited time. What I’ve found useful is maintaining a small number of explicit scenario theses — geopolitical or macroeconomic scenarios that I think are underpriced by the market — and having intentional, sized positions that would benefit if those scenarios unfold.
Currently I’m holding positions around an energy volatility thesis. The specific scenario involves potential disruption to Strait of Hormuz transit, which would spike global oil prices and benefit domestic energy producers and certain European defense plays. I hold energy sector exposure (XLE), European defense (EUAD), and some developed markets exposure that would benefit from a realignment of energy relationships (EZU/VEA).
These aren’t large positions relative to my total portfolio. They’re sized to matter if the scenario plays out, not sized to hurt badly if it doesn’t.
The important discipline is treating these as thesis-driven positions with explicit exit criteria, not as trades you’re managing emotionally. Know why you’re in. Know what would make you wrong. Have a rough timeline. When the thesis resolves — either because the scenario plays out or because the underlying conditions change — get out, regardless of whether you made money.
What I got wrong earlier
I spent too long treating macro scenarios as intellectual exercises without committing to actual positions. This is a form of analysis paralysis — you convince yourself you need more information before acting, and the window closes.
The other mistake was conflating “this is a smart thesis” with “this will play out on my timeline.” Geopolitical theses can be correct and still take much longer to resolve than you expect. Position sizing matters a lot here. If you’re sized correctly, you can hold through a long wait. If you’re over-concentrated in a single scenario, the psychological pressure to exit will increase long before the thesis resolves.
The part I find genuinely interesting
What I’ve come to appreciate about macro-driven portfolio thinking is that it forces you to pay attention to things that affect real outcomes — energy flows, military posture, trade relationships — rather than just reading earnings reports. It’s not the only way to invest well, but for someone with a policy and legal background, it’s a way of bringing a different analytical lens to a domain that’s otherwise dominated by financial modeling.
I don’t think I have an edge over professional macro traders. But I don’t need one — I just need a framework that’s better than “set it and forget it” on a mix of index funds that, as currently weighted, have almost no exposure to a significant class of scenarios I think are reasonably probable.
These are personal reflections on my own investment approach and do not constitute investment, financial, or legal advice. Manage your own money thoughtfully and consult appropriate licensed professionals.