The headlines on the major newspapers across the country say it all. Hurricane Sandy is on its way, it's real, and, at the very least, it's bound to cause significant disruption to the daily lives of people in its path as well as the businesses that will be affected. Hundreds of thousands of coastal residents have already been evacuated, roughly 9,000 flights canceled, and all domestic financial markets, save the futures exchange, closed.
To say that the latter, and particularly for weather-related reasons, is a rarity in the annals of financial history would be an egregious understatement. Check out this list of stock market closures since 1885. As you can see, it's populated principally by closures due to two things: the death of presidents or vice presidents, and world war. The last time weather caused the New York Stock Exchange to close was in 1985, in preparation for Hurricane Gloria.
These are the times that try investors' souls
It can't be denied that seemingly devilish and enterprising traders, and particularly those of the high-frequency variety, are licking their chops at the prospect of disruption and thus increased volatility in the markets. For them, volatility is simply a code word for profitability, as they cut their teeth in the speed and magnitude at which prices change.
What's important for the average retail investor to remember, however, is that responding like this is a zero-sum game. And it's one in which most of us don't have a competitive advantage. To be blunt, in situations like this, your capital is nothing more than their liquidity.
Will companies such as Home Depot (NYSE: HD ) and Lowe's (NYSE: LOW ) profit from the misfortune? Probably. But if history is any guide, then the impact isn't sustainable. Following Hurricane Katrina, shares in these companies shot up in the short-term only to then suffer down the road as a decrease in aggregate demand spread throughout the country. Along the same lines, while airline companies such as United Airlines (NYSE: UAL ) and insurance providers such as Travelers (NYSE: TRV ) will feel a negative impact on their bottom lines, the long-term picture remains the same.
The Foolish bottom line
Warren Buffett once claimed that temperament is the most important trait of successful investors. It's times like these that remind us why this is. In other words, beyond keeping yourself out of harm's way, protect your portfolio from any Hurricane Sandy-induced irrational temptation to trade. You'll ultimately thank yourself for doing so.