The thesis
“Defense stocks are the safest long-term bet with wars escalating.”
How buffet read it
$10,000 split evenly across three US aerospace and defence ETFs: ITA, XAR, and PPA.
Period: 2016–2026, giving a full decade of history including multiple geopolitical escalations.
Portfolio rebalanced annually.
Dividends reinvested.
Benchmark: S&P 500.
ITA 34%, XAR 33%, PPA 33% · 2,679 trading days · benchmark SPY
$10,000 became
$0
The same money in the S&P 500 would have been $45,429 over 2016–2026 — the thesis came out ahead by $5,213.
The worst stretch
−47.1%, February 2020 to March 2020 — you would have sat through one month of that, and it took until April 2021 to get back to level.
the S&P 500 fell 33.7% at its worst over the same period. The thesis moved 22.3% a year against 17.8% for the index.
Where the thesis was wrong
The thesis beat the S&P 500 by $5,213 over 2016–2026, finishing at $50,642 against the index's $45,429. That margin came at a cost: annual volatility ran at 22.3% versus the index's 17.8%, and the 2020 drawdown hit −47.1% compared with the index's −33.7%. The word "safest" in the thesis did not survive contact with the data — this portfolio fell harder and recovered later than the benchmark in its worst stretch. The 2020 calendar year also exposed a gap, with the thesis returning −2.4% while the index returned +18.4%.
Counter-test
Same money, same schedule, parked in 1–3 month T-bills instead: $12,518.
Year by year
| Year | The thesis | SPY |
|---|---|---|
| 2016 | +21.7% | +13.6% |
| 2017 | +32.8% | +21.7% |
| 2018 | −6.4% | −4.6% |
| 2019 | +36.4% | +31.2% |
| 2020 | −2.4% | +18.4% |
| 2021 | +6.3% | +28.7% |
| 2022 | +4.9% | −18.2% |
| 2023 | +18.8% | +26.2% |
| 2024 | +21.4% | +24.9% |
| 2025 | +44.0% | +17.7% |
| 2026 | +8.6% | +13.4% |
What this verdict does not include
- US-listed stocks and ETFs only, priced on end-of-day closes.
- No tax, no trading fees, no slippage, no bid-ask spread.
- Dividends are reinvested, because closes are adjusted for them.
- Survivorship is not corrected for: only instruments that exist today are held.
- Only 11 years of history exist for this. Read it accordingly.
- Three defence ETFs are used rather than one because no single ETF dominates this theme; ITA, XAR, and PPA have overlapping but distinct holdings and weighting methodologies.
- The forward claim — that escalating wars make defence stocks the safest long-term bet — cannot be settled by historical data alone; this backtest shows past performance only.
- 'Safest' is interpreted as long-term total return relative to the broad market, not as volatility or drawdown minimisation.
Keep this thesis
buffet re-runs it once a month and mails you the new number. Nothing else is ever sent.
Another thesis
Every verdict names something it could not test. That gap is usually the next thesis.
Run another thesis — $5