Common Sense

Dear Ladies and Gentlemen

«I believe in common sense like a miracle, but common sense forbids me to believe in miracles.»

This quote by Erich Kästner describes a dilemma in which many people find themselves and which occurs in the most diverse social contexts and the most diverse personal relationships and, Ladies and Gentlemen, in investing.

The Investing Dilemma

I believe that investing in financial assets almost constantly leads to dilemmas. Firstly and probably most obviously, there is the never-ending dilemma between risk and reward. Can I live with volatility, or can I not live with volatility. Is the risk-free rate of return good enough for me (in the Swiss Franc currency space – to which Liechtenstein belongs – the risk-free rate of return is negative), or to the contrary, am I seeking double-digit absolute returns?

A Question of Personal Preference

I would argue that there is no right or wrong, only a question of personal preference. This personal preference may be influenced by age, social context, past experiences, professional environment, etc.
People who invest in cryptocurrencies are most probably much more inclined to embrace higher volatility for the chance of higher returns than people investing in government bonds.

No One-Way Street

However, there is no one-way street in investing, at least not in the short run. Let us quickly look at gold as an example. Over a few thousand years, gold was a proven remedy against loss of purchasing power. But, unfortunately, so far this year, gold was not a good hedge against inflation. Yet, Ladies and Gentlemen, I think this does not mean a lot. Because as we can learn from the past, gold protected investors’ purchasing power over centuries but not necessarily on a month-to-month or even year-to-year basis. The gold example goes for commodities, equities, real estate, etc. It comes and goes in cycles, different asset classes have investment cycles of different lengths, and even within an asset class, investment cycles length can differ from previous investment cycles.

So What?

Ask yourself what you expect from your investment. Only if you can answer that question will you find the hopefully right investment approach for yourself. Alternatively, in other words, if you are looking for a vehicle that helps you work your farm’s fields and you are buying a Mercedes limousine, you will most probably have bought a good car that, however, will not suit your purpose and thus not lead to much satisfaction.

Common Sense

It should be a question of common sense and not a miracle to know what you want in investing. Therefore, I recommend starting an investment only after answering what is to be achieved with the investment.

Ladies and Gentlemen

As always, please share your opinion with me, but please do not forget (instead of hitting the reply button) to send your messages to: smk@incrementum.li

Many thanks, indeed!

I wish you an excellent start to the day, a wonderful weekend, and above all, good health!

Yours truly,

Stefan M. Kremeth