The Diderot Effect In Your Portfolio

Denis Diderot was not happy with his new scarlet dressing gown. It clashed terribly with his other possessions. “My old robe matched perfectly with the rest of my tatty belongings”, the French philosopher wrote in a 1772 essay. To this day, the Diderot Effect refers to a spiral of consumption - the urge to make further purchases in order to create a harmonious whole.

Investors experienced something similar during the Covid period, when the digitalization turbo kicked in. Suddenly, new companies moved into the spotlight. Many a portfolio changed drastically at that time. How exciting were suddenly shares of corporations in cloud computing, video conferencing and gaming.

The more invested in them, the more out of place "the rest of the tatty belongings" seemed. Shares in healthcare, consumer staples and industrial companies suddenly appeared dull and outdated. Accordingly, they were sold off. But then came the difficult stock market year of 2022 and the dividend-paying classics made a comeback. Interestingly, this trend reversed again in time for the turn of the year 2023.

Where do we go from here?

No one knows the future. This immutable truth must be the starting point of any reflection. Therefore, the answer lies not in the forecast, but in the discipline of the investment strategy. At Gutmann, it is part of the investment process.

Several times a year, we buy and sell countercyclical stocks within the Gutmann Core Equities strategy. We are convinced that all selected stocks are long-term winners. But this does not change the fact that short-term fluctuations - often random - move all stocks. We use these ups and downs of the stock markets to the benefit of the portfolios entrusted to us.

This is done exclusively at the individual stock level, without consciously betting on themes and sectors. Nevertheless, patterns emerge in retrospect. In 2022, we increased our aggregate digitalization holdings and reduced healthcare. In the current year, the opposite is true: So far, we took profits in digitization and bought healthcare stocks cheaper.

Hence, Gutmann's equity strategy uses negative short-term trends to improve long-term results. In addition, our investment discipline protects against hasty chain reactions such as the digitalization euphoria during Covid.

We remain true to our responsibility, so that we don't end up like Diderot, whose beautiful new dressing gown nearly drove him to financial ruin. Our goal is to preserve and increase our clients’ wealth.

Disclaimer: This is a marketing communication. Investments in financial instruments are exposed to market risks. Past performance does not predict future returns. Forecasts are not a reliable indicator of future performance. Tax treatment depends on each client's personal circumstances and may change in the future. Bank Gutmann AG hereby explicitly points out that this document is intended solely for personal use and for information only. Publishing, copying or transfer shall not be permitted without the consent of Bank Gutmann AG. The contents of this document have not been designed to meet the specific requirements of individual investors (desired return, tax situation, risk tolerance, etc.) but are of a general nature and reflect the current knowledge of the persons responsible for compiling the materials at the copy deadline. This document does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell securities.?The required data for disclosure in accordance with Section 25 Media Act is available on the following website: https://www.gutmann.at/en/about-gutmann