Financial Markets are Indifferent

Dear Ladies and Gentlemen
Welcome to 2019!
May this be a year of good health, interesting encounters and plenty of happy moments for you and your loved ones.

In this first weekly of the year, I would like to take up the issue of last year’s sell-off which occurred during the month of December. I was quite impressed and even more intrigued by what happened and the way it happened.

It was striking to see the media reaction to the sell-off, with comments and vocabulary referring to financial markets almost as if financial markets were humans, a bunch of nasty, mean and hostile guys taking away investor’s money. Quite frankly I believe the sell-off became a self-fulfilling prophecy created by media, financial experts, so-called financial experts and finally the man in the street.

Fact is, financial markets are neither hostile nor friendly they are just indifferent.

Because markets in general (including financial markets) are nothing more than places to exchange goods for goods and/or goods for money during defined times, that’s all. They were actually designed to make life easier for buyers and sellers and therefore with the comfort of humans in mind.

However, most of the market participants on the other side are real human beings  (only most because there are also algo-trading-programs)and as such they are biased, nervous, short tempered, greedy, anxious, happy, educated, uneducated everything you want. Market participants get influenced by noise, media, brokers and many other factors and create hypes and sell-offs. This, as fortunate or unfortunate it may seem (depending on ones perspective or personal positioning), is normal, it’s just the way we – humans – are. It is always interesting to see how quickly we can change from being confident to being anxious and that is not only true when it comes to investments. It is pure psychology and probably dates back to the time when homo erectus started to rover the grounds.

Why would I make a point of this, because I believe that during sell-offs, like the one we have just experienced in December 2018 but also many other sell-offs many times before, there is a mismatch between the fears of crashing financial markets and the real intrinsic risk of failure of the companies whose shares are actually traded on a given financial market (stock exchange).

If you are able to detect such a mismatch and if you have the courage to go against your own fear and step in to buy equities of companies you assessed in the past and considered worthwhile owning and thus always wanted and still want to own anyway, you may get them at interesting prices, possibly enjoying price appreciation over time. Pension funds are typically buying during and after sell-offs. With their very long-term investment horizon they are predestined to buy and hold and while holding, harvesting dividends.

Ladies and Gentlemen, please keep in mind that I can’t foresee the future and that I only try to apply some common sense and that whatever I am sharing with you in my weekly mails reflects my very own personal opinion and please keep on sharing your thoughts and ideas with me. 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