Investment Managers

Dear Ladies and Gentlemen

Investment managers are strange animals, at least sometimes.

The amount of investment strategies out there is almost unlimited, and yet it seems only some of them are working. One of the most important decisions when choosing an investment manager is to understand the proposed investment strategy. Only when the investment strategy is well understood, one should choose to invest. An investment strategy that is difficult to understand may indeed deliver excellent results, but it may, unfortunately, deliver catastrophic results as well. The critical thing is to understand the strategy in order to avoid disappointment.

Usually, regulated investment managers can not derive from their proposed investment strategies without creating regulatory issues, i.e. an investment manager proposing to invest in Indian equities may not suddenly invest in Polish government bonds, even if Polish government bonds would go up in price like there was no tomorrow, Indian equities investment manager would still not be allowed to invest in them. The regulator wants to protect the average investor by forcing investment managers to deliver a product following its label

Now, if an investor seeks growth investments and after some years is disappointed to find out that the investments do not yield any cash returns, the investment strategy is probably not well chosen. Alternatively, if on the other hand, an investor invests in a cash return strategy and after some years is disappointed to find out that the strategy did not deliver any “growth”, again, the investment strategy is probably not very well-chosen.

Investment managers, therefore, may seem very stubborn at times and yet they cannot derive from the proposed strategy for regulatory reasons.

Investors sometimes compare apples with pears or growth with cash-flow strategies or Japanese equity funds with American equity funds, and this, of course, may lead to all sorts of disappointment. It is a little like buying a pickup truck and after some time being disappointed because on a race track sports cars produce better performance-results.

In addition, I believe there are not many people in the world who are good enough at making money from stock trading, because trading is a short term strategy that involves much guessing and as probably not many people can foresee the future, trading does not seem a viable strategy to most investment managers. Nevertheless, I sincerely believe there are a fair amount of money managers who can implement a proposed strategy and make money from investing if financial markets support the proposed strategy. What does this mean? If a money manager proposes an investment strategy in equities of oil-producing companies, the strategy can most probably not make any money in a period of decreasing oil prices, however, if oil prices shoot through the roof, the strategy of investing in equities of oil-producing companies has a fair chance to yield exceptional returns.

Last but not least, please do not get too excited about experts’ views on TV (CNN, CNBC, etc). So-called experts who present their strategies in the media usually only get airtime because their strategies are working at the moment or in other words, financial markets support their proposed strategies for some time. As soon as the wind shifts, however, they disappear from the public eye until their investment approach once again matches the current market situation some years down the road.

Now, Ladies and Gentlemen, I wish you a good start into the day, a wonderful weekend, and above all, good health!

Please feel free to share your ideas and 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 great day and weekend.

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