Conviction

Dear Ladies and Gentlemen

Many thanks for your great help to our former assistant Cristian. He was delighted with many of you answering to his questionnaire, many thanks indeed!

I was pondering about my conviction and our conviction, i.e., the “Incrementum conviction,” i.e., the joint cutting surface of the Incrementum partners. We have many common universal principals and ideas, but as we are human beings of a rather liberal spirit, they are by no means congruent. I think this is fantastic, and it makes our asset management meetings lively and exciting, and it leads to different approaches and products for various clients’ needs. Some people do not understand that we can be of a different opinion and still share a respect for views; we do not share. The advantage of our free-thinking is that the chance of falling into an “effectiveness trap” is reduced.

“Effectiveness trap,” you may ask?

In 1968, James C. Thomson, a former Asia expert in the Kennedy and Johnson administrations, published an essay “how could Vietnam happen? An Autopsy'” Among the reasons Thomson gave for the war was “the ‘effectiveness’ trap”—the belief among officials that it is usually wisest to accept the status quo. “The inclination to remain silent or to acquiesce in the presence of the great men—to live to fight another day, to give on this issue so that you can be ‘effective’ on later issues—is overwhelming,” he wrote. The trap is seductive because it carries an impression of principled tough-mindedness, not cowardice. Remaining “effective” also becomes a reason never to quit.

I believe that in many respects, today’s reality bears traces of the effectiveness trap of the past, and I wonder how politicians but also the electorate will get out of this without losing face. Let us assume a president of a dominant economic and military power lies to the public in an absurdly blunt way and is backed by people of his party and inner circle, who must know he is lying and still do not act in any way and let us briefly think about the public, the people who gave their votes to such a president during his campaign once but maybe will even give it a second time? How will they ever get out of this retrospectively, how will they explain their inertia at times when they should have stood up for the truth?

Stepping into the effectiveness trap is easy.

Anyway, this should not turn out to be a political message but rather show my thoughts on the effectiveness trap and on investment behavior. Currently, it seems to me, many investors have no strategy and switch between one proposed opportunity and another one without having an idea of what the ultimate goal should be and without sticking to any principles whatsoever. I am fully aware that it is easier to stick to s strategy, i.e., a plan when the markets move in favor of that very strategy, but it is probably even more important to stick to a plan when markets dot not move in favor of the approach, always keeping in mind the ultimate goal.

The Crash of 1987, the bursting of the Dotcom Bubble, the Asian Crisis, 911, the Great Financial Crisis, and now Covit-19 show similar patterns. In every crisis, you have the media going crazy, experts giving all sorts of advice, investors losing their confidence in financial markets and opportunity hunters buying into solid companies that are under pressure for a few quarters. One always hears the same mantras. This time is different. This is a real crisis. It is not only a financial crisis, etc. Ladies and Gentlemen, this time is different is a pleonasm. Obviously, no crisis is identical to another crisis. However, so far, I have not seen one example of financial markets not recovering from a crisis.

While we want to avoid the effectiveness trap, we still want to stick to our conviction because we think it makes sense. What do you think?

Please share your thoughts with me, but please do not 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 good start into the day, a wonderful weekend and above all good health!

Yours truly,

Stefan M. Kremeth
Wealth Management
Incrementum AG

Tel.: +423 237 26 60
Cell: +41 79 303 48 39
Im alten Riet 102
9494 Schaan/Liechtenstein
Mail: smk@incrementum.li
Web: www.incrementum.li