The Hazards of Defense Industry Investment

by David Jenyns on December 3, 2008

Like any industry, the defense industry as an investment has a lot of pitfalls the number one pitfall being excessive disclosure.

“Recommendations for stock purchases” said E. F. Hutton & Co… “Are obliged to include explanations of the innate hazards involved, and contract renegotiation considerations deserve particular mention when discussing the defense industry. Consequently, defense contractors have been subject to the uncertainties of possible refunds, aggravated by the fact that sometimes the Renegotiation Board consumed a long time in determining excess profits. “Our weapon plan is like a cornfield,” said a Pentagon official.

The possibility of future refunds by North American Aviation and others, including Martin and Lockheed, should be recognized as one of the speculative aspects of the industry.
The industry, however, is hopeful of some favorable alterations in this practice. Another hazard inherent in the defense industry is the rapid shift in weapon emphasis—there is such a thing as weapon obsolescence.

It is no secret that defense planners have, from time to time, examined what they call marginal weapons, especially those which would involve heavy spending in future years as they reach advanced stages of development.

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