Peter and the Wolf

Dear Ladies and Gentlemen

Thank you very much for all your feedback to the video interview. My friend Robert made me laugh when he wrote in response to my quote that wine may become currency, that he just invested in some excellent “currency” during his recent trip to Slovenia and is enjoying it very much.

I also received some feedback to my views on equities and on gold and this is why today I would like to look at a phenomenon which is bothering me to some extent.

Do you know the story of Peter and the Wolf? I guess you do.

As most of you know, I am a reasonably humble investor. I am aware of the fact that sometimes I make mistakes when investing and I am also aware of the fact that we live in a world of increasing government debt and I can’t say I like it and on top of that I am also a humble gold bug, knowing about the positive and specific core features of gold as a means for very long-term value, i.e. capital preservation.

However, I also really don’t want to pay the opportunity cost of only investing in one asset class and I really like cashflows and gold doesn’t deliver those. Now, since I want cashflows but can’t find them on the fixed income (bonds, etc) side, I am constantly forced to screen the markets for equities of cashflow producing companies with solid and sustainable business models, whose valuations are not too stretched. Clients sometimes ask me why I would buy equities of companies when they just had missed their quarterly results. Well, Ladies and Gentlemen, to explain this in a very simplified manner, if the underlying business of such a company is solid and the cashflows are even coming in during difficult market periods and the company gets hit because it missed quarterly results estimates produced by some financial analysts, I usually look at it as a gift by the market and buy into the company at somewhat lower prices, wait, see and collect dividends for my clients and if over time market participants start to forget the fact that the company had missed their targets or the company even beats some quarters down the road unexpectedly analyst’s forecasts, the stock usually starts climbing again and the investment delivers a capital gain next to the dividends. It is not always that simple, but I think you get the idea.

But now you may ask, what this has to do with Peter and the wolf? The thing is that I share some of the views of gold bugs but unfortunately many gold bugs are behaving like Peter, they are shouting “wolf”, “wolf”, “wolf”, a little louder year after year, but there is no wolf coming. In the beginning people (investors) are concerned and are (still) listening but over time less and less people are concerned and at the end no one believes in the wolf anymore, they begin neglecting protection – and that may be the moment the wolf is arriving.
The phenomenon I see is that some gold bugs have the right intention but instead of staying humble, they do get bored or even frustrated because the wolf is not quite arriving yet and so they start shouting louder and louder. At Incrementum AG we try to avoid this by producing the Incrementum “In Gold We Trust” gold report only once a year because in the end any very long-term “protection” shouldn’t be influenced by monthly or quarterly market noise and/or chatter.

To sum it up, Ladies and Gentlemen, I believe the wolf will be coming one day and this is why my tool box approach offering a combination of various asset classes makes so much sense to me. But paying the opportunity cost of a dogmatic investment style doesn’t make sense whatsoever.

Please do not hesitate to share your thoughts with me on the interview or on whatever seems interesting or bothering to you. Please feel encouraged to do so but 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.
Kind regards.
Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG