Full Stop or the Road to Zero

Dear Ladies and Gentlemen

Today’s weekly “Full Stop or the Road to Zero” covers some of the thoughts I was sharing with our investors during the course of the week. I was writing two mails to our private clients this week. I tried to explain what had happened in financial markets and what my thoughts were.

Losses, even if only book losses, always hurt. I am convinced a cool head can help to some extent, especially in difficult times. Since the Second World War there have been around 25 – 26 stock market crashes. Each one of these stock market crashes was most likely associated with an extremely unpleasant experience for investors at the time, but despite all these stock market crashes we have been able to experience new highs in many indices over the past decades.

What conclusions can be drawn from this fact? In my opinion, the conclusion can be drawn that periods of great fear are followed by periods of confidence and with time investments in well-managed companies may again be considered attractive and rated accordingly by market participants.

But let us quickly see what has happened to financial markets so far this year? Here are some figures for 2020: Dow Jones: – 25.71%, EuroStoxx 50: – 32.04%, DAX: – 30.85%, SMI: – 22.1%, Crude Oil (Brent) – 46.33%.

The fear of a global recession is undrstandable and has risen sharply almost overnight, leading to major disruptions in stock markets around the globe. The entry ban imposed by President Trump on travellers from Europe, Switzerland, etc. has not helped the situation. This measure is evidence that the fear of the pandemic has now reached the US government. To me it seems the U.S. government has long been rather reluctant in accepting the importance of the virus.

In addition, a large proportion of the money under management today is invested in so-called passive instruments such as ETFs (Exchange Traded Funds) and other index-based instruments. In the event of a crisis, such instruments are thrown onto the market and find no buyers, which puts massive pressure on the prices of the individual shares they contain. This is the flip side of indexed products and it is also but not only for this reason that we do not use them in our portfolios. Nevertheless, our portfolios have also suffered greatly, albeit not to the extent of the indices or index products.

However, Covit-19 is a temporary and not a structural issue. Covit-19 reveals many weaknesses in the system, and I am convinced that governments and government-related organizations, global companies, local authorities and market participants will learn from it and that we as a global community can emerge from the crisis stronger than before. In China, there are already the first slight all-clear signals and in certain regions, everyday life (which is still reduced in most cases) is returning. Covit-19 should not be underestimated and be treated with respect. Nevertheless, every crisis is followed by a recovery and recovery often leads to a surge in consumption, people will be relieved and want to treat themselves.

A full stop generally comes before a restart and sooner or later all of us will be restarting again. I see absurd price movements in the markets and can’t imagine this full stop leading us into a closed end road to zero. If financial markets continue to fall like yesterday for the next 10 days, indices will go down to zero and if this happens, I promise, at zero I will “buy” every stock I can for all my clients and for myself as well.

Dear Ladies and Gentlemen I wish you a good start into the day and above all good health!

Please feel free to share your ideas and investment experiences with me, 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.

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