Category: Stefan’s Weekly

Good Morning Ladies and Gentlemen

«The difficulty lies not in the new ideas but in escaping from the old ones.»

By John Maynard Keynes

Credit Suisse

What happened to Credit Suisse, you may ask? I have been pointing out for years that Credit Suisse, on the one hand, was selling its real estate, writing losses, and, on the other hand, paying out billions in bonuses. This outrageous greed of obviously highly incompetent managers starkly contrasted with the bank’s performance. As a Swiss citizen and former banker, I am amazed and saddened by the fall of this traditional bank.

Taking responsibility

The indignation is suddenly very great, and guilty parties are being sought everywhere. Of course, the top management of the past 20 years bears a great responsibility and, if you like, guilt. However, the fact is that every client is responsible and should, by default, question how excessive spending on salaries, bonuses, offices, and client events can be financed. I think clients have a responsibility to question the behaviour of their bankers. Therefore, this story also depresses me because seemingly naïve customers feel flattered when bank employees greet them in meeting rooms with thicker carpets than the customers’ wallets. It feels like in sixth-grade history class when we learned how the Spanish explorers sailed to Latin America and sold the natives glass beads for their gold reserves.

The media

Interestingly, in November 2022, the former Chairman of Credit Suisse’s Board of Directors was granted a multi-page interview in a Swiss weekend magazine. This magazine is clearly positioned left of the centre; nevertheless, no critical question was asked to the ex-Chairman of a large Swiss bank, under whom the stock lost 90% of its value. So I am asking myself what is the value of such an interview?

Enough

Excuse me, Ladies and Gentlemen; I had to get rid of these thoughts. Thanks for your understanding.

Ladies and Gentlemen, please share your opinion with me, but please remember (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, joy!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

For this article, we were asked to elaborate on our view on the impact of rising interest rates on real estate investments. After a general introduction to current topics, we will outline what we consider critical factors of this popular asset class in the now-changed interest rate environment.

One year ago, when the Russian war of aggression on Ukraine broke loose, energy prices soared, and financial markets crumbled. Interest rates went up and are still increasing. Stagflation was one of the keywords used excessively by the media and even by economists. Stagflation is a business cycle characterised by slow growth, high unemployment, and inflation. For economic policymakers, this combination is challenging to manage, as any attempt to correct one of the factors may aggravate another. However, one year later, stagflation is still nowhere to be seen, and as often, things develop differently than predicted by the masses; the term “stagflation” was sent back to sleep, at least for the time being and seems to have disappeared from the media altogether. Instead, today’s buzzword is “soft landing”.

We will see in what direction economies went in twelve or twenty-four months. However, we can learn from the old “Austrians” that societies and economies with constantly unbalanced budgets and accompanying market interventions inevitably lead to a consistent misallocation of resources. Over time, the loss of purchasing power due to a lack of budgetary discipline is significant, and during the last twelve months, global economies suffered heavily from this effect. At times inflationary pressure can be pushed back on the timeline, but eventually, an outbreak is unavoidable. Therefore an investment strategy tailored to one’s needs and which helps to diversify inflation makes enormous sense.

Balanced and cash-flow-producing strategies have proven resistant and shown impressive inflation diversification potential. Furthermore, those who can afford to invest in real estate and physical precious metals and want to add them to their portfolio can expect an additional diversification effect, maybe leading to lower volatility but not necessarily any better long-term performance.

Volatility always seems to be an issue, and as inconvenient as it may seem for investors, volatility nevertheless represents an intrinsic part of investing, and any investor should know that. We usually tell our private clients that volatility is a price to pay for any consistent long-term performance. Now, many people would like to see a fully insured society, with its economy in total equilibrium, which on top of everything, is tailored to the individual needs, fears, etc., of each individual. But, unfortunately, this is not realistic. Just as we cannot always expect perfect solutions from science, we cannot expect our society, the state, monetary policy, individual politicians, fellow human beings, doctors, teachers, gurus, family members, friends, and acquaintances to always have the adequate and tailor-made solution ready for an individual problem of each individual. How should that be possible? Economic cycles come and go, economic crises come and go, political cycles come and go, and political crises come and go. This may seem unreasonable, out of date, exhausting and at times unfair, but it is nevertheless constantly the case that all sorts of crises affect our daily interactions. Societies and their financial markets are pretty complex systems, and complex systems are unfortunately not always fair or in balance.

Even the best political system, economic theory, and investment approach have their limits and cannot answer all the questions, identify all the unknowns (hence the name) and take into account the complexities and interdependencies of politics, the macroeconomic environment, central bank policies and scientific innovation, to name but a few. Against this backdrop, and for purely common sense reasons, it seems arbitrary to us to focus on one asset class or, even worse, one single asset.

Karl Popper pointed out more than 80 years ago that science can never produce absolute truths but rather approaches the truth in constant processes (also thanks to trials and errors), i.e. every theory is only considered good until it can be replaced by a new and better and tested one. Now, we all know that theories often leave out certain aspects; the developers of such theories deliberately limit themselves to core topics and usually do not claim to be all-encompassing. So when investing, we should keep that in mind and not expect the impossible from any investment or other theory.

After this introduction, let us focus on the main topic of this article, real estate and the impact of higher interest rates, opportunities and threats on this asset class.

Over the last decades, real estate investments have enjoyed immense popularity against low or negative interest rates and steady economic growth. Prices knew only one direction – up. However, the changed interest rate landscape also leaves its mark on the real estate market. The days of continuously rising valuations are over, at least for now. Moderation is the order of the day.

Our thoughts relate to the market for investment properties. For owner-occupied residential real estate, some arguments are less relevant because not only economic factors play a role in the respective purchase decisions.
Rising interest rates influence the performance of investment properties in three ways. First, rising financing costs and the declining relative attractiveness due to higher yields on alternative investments (bonds) harm the price level.

In addition, the discount rate is the most critical factor influencing the valuation of an existing real estate portfolio. Real estate companies and pension funds use the discount rate to determine the present value of their portfolios. This rate is usually derived using models and is conceptually based on a risk-free interest rate (yield on long-term government bonds). In addition, the general real estate risk and property-specific surcharges are considered when determining the discount rate. Steadily falling discount rates have been the main driver of rising valuations in recent years. Accordingly, real estate portfolios have appreciated significantly. For example, the largest Swiss real estate company, “SPS”, has recognised more than CHF 1 billion as income from revaluations since 2017. Therefore, the need for adjustment due to the changed interest rate landscape will likely not be insignificant. However, due to the inertia and long-term nature of the real estate market, the impact of these adjustments will probably only become apparent over the coming years. From an investor’s perspective, therefore, there is no reason to rush into investing in existing real estate portfolios.

For real estate to become more attractive again from an investor’s perspective, property yields must rise (significantly). This means that property prices must fall and/or rents must rise. Rents for space in commercial properties are determined by supply and demand. Here, both the economic environment and structural factors impact pricing. Because of current trends in the labour market (home office) and retail trade (online shopping vs stationary retail), high-quality offers in central locations will likely remain in demand. On the other hand, properties in geographically peripheral regions and properties of inferior quality will become significantly less attractive. As a result, the market will become increasingly differentiated again in the future.

Regarding investment strategy, the time for “buy and hold” is also over in the real estate market. An active strategy that focuses on quality and valuations seems more promising. It is essential to monitor current trends on the demand side. Structural changes are occurring due to demographics (immigration and urbanisation), the labour market (home office) and shopping habits (online vs stationary retail). This structural change is likely to accelerate further.

Nevertheless, selected real estate investments are to remain interesting. This is because they may offer a diversification contribution and deliver significant cash flows based on a reasonable valuation. This opens up exciting investment opportunities in the medium and long term for disciplined investors with experience who can handle investments in non-liquid asset classes.

Your Copy
If you feel like reading through the online version of the current Global Executive issue, please feel free to click on the following link.

Executive Global Magazine – Staying Ahead in a Fast-Paced Environment – Incrementum

Enjoy the read, Ladies and Gentlemen!      

Ladies and Gentlemen, please share your opinion with me, but please remember (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, joy!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

Many thanks for all your messages and participating in the Incrementum year-end competition. We all know it is seemingly impossible to forecast the future and that we are doing this for fun.

S&P

So far, the highest bet on the S&P stands at 4’634 and the lowest at 3200.

Gold

So far, the highest bet on gold stands at 2’600 and the lowest at 1’910.

Silver

So far, the highest bet on silver stands at 38 and the lowest at 21.13.

My bets

As every year, I like to be transparent. So my bets are as follows: gold 2’090, silver 21.425 and the S&P 4’116. I keep my fingers crossed for all of you and look forward to sending this one-ounce silver coin to the winner at the end of the year.

Interesting aspect

Some weeks ago, I read a piece of research. The producers were speculating about a technology shift corresponding to a workforce demography shift favoured by retiring baby boomers worldwide. The idea of the article was that while baby boomers from the combustion sector retire, younger workers increasingly develop into the renewable energy sector; this aspect, according to the writers of the research, is receiving too little positive attention. Interesting, no?

Next week

Next week I will share an article on the impact of rising interest rates on the real estate sector my partner Dr Christian Schärer and I produced with you.

Ladies and Gentlemen, please share your opinion with me, but please remember (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, joy!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

All about fun!

For those who have joined our readers recently, every year, I organise a year-end competition in guess, for example, the price of gold, silver, crude oil, the SMI, a cryptocurrency or the S&P 500 Index.

Predictions

Regularly, I receive emails from readers asking me where I think the price of gold would be at the end of the year, the SMI or interest rates, or the price of silver. Those who follow my weekly emails frequently will know that I would not say I like making predictions.

Invitation

However, from time to time, I am happy to tell you what I think may happen just for fun, and since we are in March already, it is time for our traditional year-end competition. As I did in the past, I invite you to compete with all the other readers, my partners Christian, Mark, Hans and myself, and as always, the winner will receive one ounce of silver in the form of a silver coin. Suppose the winner stems from within Incrementum or my family, I am happy to also send a one-ounce silver coin to the second in place. As your bets will be coming in, I will publish ours. To start with, I give you the ranges of the Incrementum partners. For gold, the range is USD 2’090 to 2’350; for silver, the range is 21.425 to 27.5; and for the S&P, the range is 3’500 to 4’421.

Former Winners

The list of former winners includes an old friend from university, two clients, a former fund manager and value specialist from London and regular readers. So far, none of my family members or partners was close enough to be called a winner. It is impossible to guess the future, yet I look forward to receiving your bets! It is all about fun!

Gold, Silver, S&P 500

Now, Ladies and Gentlemen, I suppose we try to guess the year-end price for one ounce of Gold in USD, the S&P 500 and one ounce of Silver in USD. All cash, no futures. The closest one wins the silver coin. The year-end prices will be taken from this page:https://marktdaten.fuw.ch/.

Ladies and Gentlemen, what do you think? What is your best guess for the year-end prices of gold, the S&P 500 and silver? 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, joy!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

«We all should want to stay ahead in a fast-paced environment yet always incorruptible and sensitive.»

Michael from California won our quick competition. He sent the correct answer, i.e. Fourth Turning by Neil Howe, and William Strauss, 27 minutes after Stefan’s weekly was sent out. He certainly was quick! I posted the one-ounce Incrementum silver coin yesterday. Congrats, dear Michael, and please let me know once you have received the coin.

What we do with our investments

Since some of you asked me what I was doing with our client’s investments, I am happy to let you know. I believe that in times like these, patience is needed. Now all our companies are starting to pay dividends, and many are even increasing them. This means that for us, and for this current “interim period” we are in, we do nothing because there is nothing clever to do. In my opinion, this patient opportunism is also part of investing. Avoiding mistakes, not trying to be too clever, waiting, cashing in dividends, and trying to avoid the daily noise. The cash flows from the dividends we are going to harvest over the coming weeks and months; will be able to be reinvested in due course. This will provide new opportunities and probably future additional cash flows.

Year-end competition

Ladies and Gentlemen, you sent me many emails with requests, and as I mentioned last week, the winners are silver, gold, and the S&P. Mark suggested a fourth one, and I do understand and feel tempted; however, for me, it would mean additional work, and I do want to keep the work limited. Thanks for your understanding!

Be prepared

My next Stefan’s weekly will be all about the year-end competition, so be prepared. I will try to convince my partners to let us know their estimates.

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!

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

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

I have a quick competition for you. The first one to answer wins a one-ounce silver coin. Below you will find a sentence fragment from the beginning of the first chapter of a brilliant book, which still has a certain topicality even after having been published initially 25 years ago.

«Though we live in an era of relative peace and comfort, we have settled into a mood of pessimism about the long-term future…»

Competition

If you are the first to name the book’s title, the one-ounce silver coin is yours, and your first name will be published in my next Stefan’s weekly.

Your thoughts

I picked two of your emails and allowed myself to publish the writer’s thoughts and my replies in slightly condensed versions.

David’s thoughts

«Good point, Stefan! We increasingly worship at the altar of celebrity. How is a punk entertainer with a mob following qualified to offer advice on investment products or pharmaceuticals? Or climate change? It is apparently very effective.»

Adrian’s thoughts 

«However, what is impressive and unfortunately often not done, every investor should ask himself the following questions:

1. What do I know others do not know?

2. Is the investment in my area of expertise?

If you can answer both with yes, you are already on the right side but not yet ready. After that, you have to ask yourself, what if I am wrong with my assumptions?»

My response

One of the problems I see lies in the growing gap between people who actively accumulate knowledge because they like doing so and people who do not because it bores them. Many of the population cannot find the concentration to read books or an article exceeding the length of headlines. Their attention span is too short, and their knowledge is mainly built from watching T.V. and social media and discussing issues with peers from the same socio-cultural cohorts.
If we now consider that different perspectives on most social issues are pretty permissible, but we see how vehemently, intransigently and sometimes primitively our seemingly sensible and somewhat educated political elites defend their positions, we should not be surprised if the average citizen proves incapable of abstracting. If their superstars, idols from sports, fashion, film, and music, keep telling them what to do, they will.
Maybe the trained adoption of different perspectives at school, high school, and university, as well as a school development that is as permeable as possible, can bring about an improvement under certain circumstances. But, on the other hand, we must not harbour any illusions; the probability is very high that we will have to live with the status quo.

Asset classes

From the feedback I received, the asset classes you wanted to include in this year’s year-end competition are crude oil, gold, silver, Bitcoin, Dow Jones, S&P, Tesla, and others. Now, Tesla is, of course, an individual stock, and Bitcoin is a particular cryptocurrency, and therefore I would like to choose gold because we are the gold experts, silver because we very much like silver and the S&P because the by far most prominent part of assets managed by Incrementum is of course invested in equities.

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!

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

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

One of the issues I see when speaking to investors, something I do a lot and genuinely like doing, is what I would call their «assisted thinking».

«You must not run after money; you must go towards it.»
Aristoteles Onassis

Influence

Our surroundings, family, friends, the media, social contacts, gurus, religion, books, tv, radio, politicians, bankers, a former Swiss tennis superstar, an actor playing a former FBI agent and analysts, you name it, do influence us all. But, of course, this is nothing new; I have written about it many times.

Assisted thinking

What do I mean by assisted thinking? I mean that too many investors are adopting the ideas and arguments of people (who are perhaps even long dead) without questioning how these people arrived at their ideas (economic and political environment, time period, level of education, personal beliefs, religious background, spirituality, etc.). For example, a former Swiss tennis superstar was promoting Credit Suisse as an Asset Manager for years. I suppose the main reason was that Credit Suisse offered him a frivolous amount of money for doing it, not because he was known to be a skilled selector of asset managers and chose Credit Suisse because of their excellency. What do you think the people feel that invested due to that ads campaign in all the Credit Suisse products that went bust over the last years? Alternatively, an actor that crosses my mind, a very cool actor indeed, promoted cryptos just before the previous crypto crash. I imagine he did this promotion (which was very well done, by the way) because he was paid well and not because of his expertise in blockchain and digital assets.

Fair enough

If corporates are happy to pay big heaps of money to well-known people to help them promote their products, this is all fine and if the famous people cash in handsomely, fair enough. But why on earth would investors conclude that a tennis player or an actor, a priest, guru, neighbour, taxi driver, hairdresser or a long-dead economist, if you want, i.e. people with limited academic records or limited knowledge of today’s rather complex financial environment, would be suitable in giving them any advice on choosing a bank or an investment?

Context

Ladies and Gentlemen, this beats me! I do not understand, yet I am confronted with it regularly. Please always try understanding the context of statements, advice, news, information, and research. Always ask yourself why they said, concluded, wrote, or recommended what they did. Because even the greatest of all times have their very personal views, thoughts, ideas and agendas. It would be a coincidence if they matched perfectly with yours. Come to your own conclusions, limiting assisted thinking to the max.

Next week

We are getting close to the beginning of March. Time to start another year-end competition. Let me know what you would like to include. I am aiming at three different asset classes.

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!

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

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

On Tuesday, I looked at the 10-year performance of various asset classes. Today I want to share them with you. Again the numbers stem from Tuesday, but even if they should have changed slightly over the last few days, I do not think this will significantly change the performance over the entire 10-year period.

Silver

The 10-year performance of silver was negative and comes in with a big minus of  25.43%.

Gold

Gold did better. The 10-year performance comes in with a plus of 15.8%.

EuroSroxx 50

Let us look at some equities; the 10-year performance of the EuroSroxx 50 stands at plus 52.6%.

SMI

Next is the SMI, with a 10-year performance of plus 52.8%.

U.S. Stoxx 500

The U.S. Stoxx 500 10-year performance comes in with a plus of 62.9%.

DAX

The 10-year performance of the DAX stands at plus 94.46%.

Dow Jones

Furthermore, the Dow Jones Industrial, probably one of the best-known indices globally, 10-year performance stands at plus 143.7%.

Nasdaq Composite

Last but not least, the 10-year performance of the Nasdaq Composite comes in with a plus of 262.3%.

Style versus theme

What can we learn from this? A style-based or theme-based approach may make sense, depending on your investment goals. What else can we learn from this? Theme-based methods may yield extraordinary results at times. However, if you are invested in a theme during the wrong cycle, performance can be meagre and lead to frustration.

The example of silver

If you had acquired your silver investment ten years ago and did not change it, it lost roughly 25% in value. Over the same time, you had opportunity costs of over 50% versus an investor who had invested in a EuroSroxx 50 ETF.

…but who knows, after ten years of underperformance, silver may be ripe for serious outperformance?

Please feel free to share your ideas and thoughts with me, but please remember (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, joy.

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

“The end of the world is the delusion of grandeur of the depressed”.
Matthias Horx

Since you asked

I received an intriguing question about the likelihood of a disappearance of the Euro or U.S. dollar, and I am happy to give you my take on it.

All about trust?

In the end, many things are based on trust, including the global monetary system. If people no longer have confidence in their currency or the currencies of other economies, then the corresponding currency disintegrates.

What do you expect from money?

Let us say goodbye to the idea that money is a store of value. There are investments for this purpose in companies, commodities, real estate, art, collector cars, precious metals, etc. In my opinion, and I did mention this many times before, money should primarily be understood as the lubricant of an economy. It ensures that the economy’s engine is not stalling even during difficult times. This is important insofar as the economy in which the money circulates also determines the intrinsic value of the corresponding money to a certain extent.

I am not afraid

I am not afraid, not even concerned about a possible collapse of the global monetary system. However, I know, and this is a little unfortunate, these thoughts have been around since the hyperinflation in Germany one hundred years ago. The topic and the fears arising from it are played repeatedly from different sides in never-ending catastrophe rhetoric. Last year, global concerns about the crisis were rife even in the reasonably sensible media. War, inflation, stock market collapses, recession, lockdowns in China, supply chain problems, etc., were too much for the beleaguered journalists and were seen as reasons for a total and all-doom mega polycrisis. However, for now, it seems such a crisis has been cancelled. At least, I do not recognise it.

Facts

The fact is, the companies we invest in have delivered reasonable numbers under the circumstances and over the whole year of 2022. Dividends on average across the portfolios are very likely to be higher than last year and the year before, and a recession in many G20 countries will not be as severe (if it happens at all) as analysts predicted. Patience, serenity and confidence have helped those who have not allowed themselves to be driven crazy.

Karl Popper

Karl Popper pointed out more than 80 years ago that science can never produce absolute truths but rather approaches the truth in constant processes (also thanks to trials and errors), i.e. every theory is only considered good until it can be replaced by a new and better and tested one. Why do I mention Karl Popper, firstly because I see him as a great thinker and secondly also because I have the feeling that many people would like to see a fully insured society in total equilibrium, which on top of everything, is tailored to the individual needs, fears, etc. of each individual? But, unfortunately, this, Ladies and Gentlemen, is not realistic. Just as we cannot always expect perfect solutions from science, we cannot expect our society, the state, monetary policy, individual politicians, fellow human beings, doctors, teachers, gurus, family members, friends, and acquaintances always to have the adequate and tailor-made solution ready for any individual problem of each individual.

Complex systems

Societies are pretty complex systems, and complex systems are, unfortunately, only sometimes in balance. I think it is even the case that societies in their normal state tend to be in disequilibrium, and any equilibrium is the exception.

Gloomy pictures

In the 1970s, the members of the Club of Rome painted a very gloomy picture for the next 50 years. However, I believe that not a single one of the horror scenarios of that time has come true. So much for people’s ability to forecast.

Conclusion

Long story short, do not let yourself go crazy, enjoy life and do not be afraid. Patience, serenity and trust are essential companions in life, and I would venture to say that during our lifetimes, we will not have to experience the demise of the Euro, the U.S. dollar and, if you want, the Swiss franc.

Please feel free to share your ideas and thoughts with me, but please remember (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, joy!

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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

Good Morning Ladies and Gentlemen

Last week I did send you a quote from Burkhard Varnholt. The quote was, «Stamina is the hidden secret of successful long-term investors».

18% of Germans wear bicycle helmets

Investment Principle

I speak to investors a lot, which is what I appreciate most about my job. Because investors often show me different perspectives, which teaches me to respect their views and not underestimate their emotions, and quite frankly, they are forcing me to question our investment styles and stay reasonably humble. However, because complex systems (financial markets are complex systems) behave non-linearly, counterintuitively and are difficult to control, some investors tend to throw their initial investment principles overboard in situations of stress. This amazes me because it is far from being rational.

Psychology

Our brain resolves an inner contradiction by somehow convincing ourselves out of the unpleasant situation. This is a protective measure because we do not like to see ourselves as idiots. Nevertheless, this is unfortunately not always the best solution. For this reason, many smart people use coaches, consultants and investment advisors (yesssss, Ladies and Gentlemen like us), i.e. people they trust, people offering comfort and help during challenging moments.

91% of Germans use a protective cover for their mobile phone

Heads versus mobile phones

If 18% of Germans wear helmets while riding a bicycle but 91% of Germans use protection for their mobile phones, one could argue that mobile phones are more important to the German population than their brains. I know this is bold, but it also shows that people do not always behave rationally. I like to think of my partners and myself belonging to both cohorts, the ones wearing a helmet on the bicycle and seeking protection for their mobile phones. I am convinced many of the non-helmet-wearing cyclists would change their behaviour if they knew about this comparison. (By the way, the behaviour is probably the norm also in other Central European societies. As it happens, I just had the statistical data for Germany at hand).

Strategy; a piece of advice or two

Now, when you follow a strategy, especially if it is someone else’s strategy, i.e. your coaches’, consultants’ and investment advisors’, ensure you thoroughly understand it. If markets move in the right direction and the strategy works, start questioning it (ex-ante), imagining a potential turn in the market and how your strategy would work long-term. If you feel uncomfortable with it after that, you may want to change it. Most people start questioning their investment strategy once the market has already moved against them for some time (ex-post). If you think about changing the strategy, once the market has moved against you, you have probably already paid the price. At that moment, you would rather have to think about a potential rebound; you may, of course, still want to ask yourself if your strategy is the right one to take advantage of a rebound.

Critical success factors

So what are the critical success factors, you may ask? There are probably many; however, at Incrementum, we only offer one type of mandate for our private clients. We are entirely geared to cashflows. You know, Ladies and Gentlemen, if you ask successful entrepreneurs and private investors about their secrets of success, they will all mention at some point that they look very closely at net free cashflows, which is precisely the principle we follow with our private clients. Short-term volatility is much less critical and scary if the portfolio yields regular cashflows that can be reinvested, regardless of the performance of the underlying stocks. Warren Buffett loves value and cashflows. This may be boring but very effective in the long run. Why would anyone choose a different strategy since it has proven to be successful for such a long time? Anyway, besides finding the right companies to invest in, investors must stay invested. Because If one is not invested, one is, of course, not subject to short-term volatility, but this comes at the price of not receiving any cashflows and not taking advantage of any potential price appreciation.

Yes, Ladies and Gentlemen, investing needs a small quantity of stamina.

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!

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

Yours truly,

Stefan M. Kremeth
CEO & Head of Wealth Management
Incrementum AG – we love managing assets

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