Let the market do the talking
In recent months, the stock market surprised downwards first and then upwards. It seems that the market always behaves like a bucking horse ready to throw off as many investors as possible. At the beginning of the financial crisis in 2008, the first 20 percent drop took five months and that was not the end, it was just the end of the beginning, as Churchill would have said. By March 2009, the market had halved itself in size and even the last optimists bit the dust in the stock market rodeo. This time the market chose a fast and wild ride to throw everyone off. Within a month, concluding with a setback of over 30 percent, everything was done.
Since 23rd of March, the markets have been rising. To still define it as a bear market rally, some mental gymnastics would be necessary. Therefore, the bear market is hereby terminated. If Mr. Bear does come back, we will welcome him again. Admittedly, the welcome will not be too friendly. If one wants to highlight one factor for the bear's quick departure, it was the enormous stimulus from the US Federal Reserve. The Fed pumped over three trillion US dollars into the market in just a few weeks. This buried any skepticism in a sea of money. The liquidity crisis was thus under control? The solvency crisis remains.
Looking back, everything is always simple and obvious. The philosopher Kierkegaard put the challenge concisely:
"Life can only be understood backwards, but it must be lived forwards.”
How do we as investors want to move forward? No one can predict what the market will do. A few always pat themselves on the back and say, "On March 23rd, I told you to buy." (note: at the bottom). Every day, thousands of people tell you what will happen. That a crash is imminent or that the stock market will explode upwards. The only people we'll hear and read about are the ones who score. Hailed as new gurus, they write market letters, appear on CNBC and find new followers on Twitter. Astonished, the disciples soon realize that even gurus are in reality just cheap snake oil sellers.
Warren Buffett wrote an article in 1984 entitled "The Superinvestors of Graham-and-Doddsville". The text has a different theme but one thought from it is very helpful. Buffett talks about a national coin-flipping contest. 225 million Americans participate and bet one dollar a day on heads or tails. The losers drop out and the winners bet the dollar plus previous winnings the next day. After ten rounds, about 220,000 people have correctly predicted ten results in a row and won just over $1,000 (2^10). They are already feeling pretty good ("we are the top 0.1%!"). After another ten days, 215 people have predicted the correct result 20 times and are millionaires (2^20). This exclusive group is extremely satisfied with themselves and some are already writing books with titles like "How I turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning. “
Buffett tells this story because he wants to show that certain investors are not coin-flipping lucky ones. Nevertheless, we can apply it to the so-called stock market gurus. Just because someone predicted a development, he or she is not particularly blessed. They just had "coin flipping luck".
Nobody knows what the stock market will do next week, next month or next year. If we accept this statement, suddenly everything is much easier. Why? All you have to do is focus on one question: "How much can I take?" You can do that in percentage terms or actual amounts. It's easy to observe this variable and adjust it over time to suit your long-term circumstances.
If your investment approach cannot avoid actively managing the equity ratio, the bandwidths should be narrow. A lower equity quota can make sense if there are few attractive stocks in your investment universe. Going completely out of the stock market never makes sense. No matter what development you expect.
#investmentphilosophy #warrenbuffett #marekttiming
This is a marketing communication. Investments in financial instruments are exposed to market risks. Past performance or forecasts are not reliable indicators of future results. 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://gd.gutmann.at/en/imprint