Stefan’s weekly: Mister Warren Buffett

Dear Ladies and Gentlemen,

Many thanks for the kind messages I received on the award we obtained. Many thanks indeed!

The last weeks were rather nerve wrecking for one or the other investor. I received some messages by concerned readers asking me if this was “the crash” and if it was over now and what I did think of the markets in general. First, I would like to thank you for your great confidence and trust in my capabilities in foreseeing the future. However, and as unfortunate as it may seem, I do not know where the markets are heading. The only thing I know is that if you invest in companies with solid underlying business models, producing solid net free cash-flows, you will most probably be compensated with dividends during good and bad times for the risk you are taking, and this may be comforting for you as an investor. If you keep in addition some cash and precious metals in your portfolio, it will most probably also get hammered in a crash but should recover eventually and maybe even quickly.

Mister Warren Buffett, probably the best known and most successful fund manager in the world, having been asked the same question came up with an easy answer. He said that if something he liked was on sale he would buy more of it, same was true for equities. If equities he liked were traded at low prices, he just buys more of them and eventually they will go up again. He also said: “don’t watch the markets closely”. This is a very valid advice by Mister Warren Buffett as these markets may make investors nervous and lead to fear and fear usually does not necessarily lead to the best investment decisions and therefore returns.

Now, coming back to the question of how I am seeing markets, I can only say that we should not forget the fact that in the past, increasing interest rates always lead to decreasing appetite for equities and in the U.S. interest rates are on the rise. If investors receive decent and more normalized cash returns on fixed incomes (than during the last decade), they will switch equities into fixed incomes. Where the level of such “normalized cash returns” starts is anybody’s guess but I think investors will want to see interest levels in the range of dividend yields of solid companies. Thus, a little caution probably doesn’t hurt.

Ladies and Gentlemen, what is your opinion?

Please share your thoughts with me, please feel encouraged to do so and please don’t forget (instead of hitting the reply button) to send your messages to:

smk@incrementum.li

Many thanks, indeed!

And now, Ladies and Gentlemen I wish you a great day and weekend!

Yours truly,

Stefan M. Kremeth