Tag: Money

Yield or how to receive cashflows in a negative yield environment

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

I received a few mails on my very provocative statement that house pets, farming and children produce an enormous amount of greenhouse gases. I was provocative on purpose. It was my intention to trigger some reactions.

I received two mails on the indirect financing of (nuclear) weapons via government bonds. It seemed most of my readers were never really looking at it that way. Fact is that you will never know what a government is doing with the money you pass on to them when subscribing to one of their bonds. They may buy weapons or build a children’s hospital with it – it is entirely up to them.

I generally receive several mails per month from readers asking me how they should invest their money to achieve the best possible results. As always, I can’t tell you and I am not allowed to give any advice to you just like that, but I am happy to elaborate quickly on what I think seems a decent strategy to still get some yield in a negative yield environment. You know, Ladies and Gentlemen, my goal always is to receive cashflow with limited volatility.

Some of my readers already know about my investment style. My investment style is real asset based and enjoys a rather large equity portion. However, the equity portion is limited to equities of companies producing positive net free cashflows and I like rebalancing the position in my clients’ portfolios from time to time.

This means I define a “normal” weighting, i.e. around 5% for any equity position in a portfolio and harvest the dividends or capital reductions the underlying company shares with its investors. If the price of an equities-position appreciates over time and thus the weighting within the client’s portfolio goes up, I will start cutting back the position down to its initial 5% weighting. If, however, the price of an investment goes down and I can’t find any dramatic change in the strategic and/or earnings perspective and the company still produces positive net free cashflows, I harvest the cashflows and increase the position until it reaches its intended weighting of 5%.

The result of this strategy is astonishing. Volatility decreases massively and performance increases.

When markets are moving up, we only capture a part of the positive performance, because we like to keep a large cash position at hand. But when markets are going down, we usually only lose a fraction of what the market loses. It is during the down moves that we generate alpha. You can have a look at the monthly development of one of our portfolios on our website.

https://www.incrementum.li/en/wealth-management/

It still needs the “right” equities and this is probably the most difficult part. Please let me know about your investment style and please share your investment experiences with me and my readers, 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,

Stefan M. Kremeth
Wealth Management
Incrementum AG

A simple calculation

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

If you belong to the people who pay their bills primarily in Swiss Francs and/or Euros you belong to a rather large cohort of a few hundred million people living most probably somewhere on the European continent.

Today, I would like to show you with a simple calculation why I prefer equities over bonds.

If you keep your money as liquid and as safe as possible in a bank savings-account (hopefully with a bank offering some sort of government guarantee or at least a bank not getting involved in investment banking and/or corporate debt) or you have it invested in Swiss and/or German government bonds, you, Ladies and Gentlemen, will most probably receive 0% interest. Maybe you will even have to pay a small interest for depositing your money at the bank or for investing it in government bonds of short maturity and in any case, you will have to pay some small banking fees here and there on a regular basis.

This means, in the case of you wanting to invest your money in a Swiss and/or German government bond for 10 years because of its relatively low volatility, you will have to accept 0% interest or in other words no income whatsoever from such an investment and even worse, you will actually lose small bits and pieces of your money (fees) over the entire 10-year period. This truly means that at the end of a 10-year period you have less money than when you started and in real money terms, which means adjusted to purchasing power, you may have lost 10% – 20% due to inflation over that period.

To me this seems not a very attractive investment.

On the other hand, if you invest your money over 10 years in some solid listed company that pays regular annual dividends of 4.5%, thanks to the effect of compounding you will receive some 50% return over the same period. True, you will most probably have to accept higher volatility, but doesn’t the proposed return deliver an incentive high enough to accept such volatility?

Ladies and Gentlemen, to me it does!

Now, I know this is a very simplified calculation but both examples are real and possible in today’s market environment. Solid company delivering 4.5% dividend yield on one side and 0% 10-year government bond on the other side.

Think about it!

As always, I encourage you to send me your feedback and/or questions 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

What’s next?

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

I receive a fair number of messages asking about my view on the markets. As my regular readers all know, I still cannot foresee the future although I am trying hard but so far, I was totally unsuccessful.

However, if we take the core messages of my recent weekly mails about long-term investing into considerations and also what Mr. Andy Haeberli, Profond’s CIO, mentioned in last week’s interview, then – at least for me – there is not much room for investments outside the “real asset” bracket.

To make money with easy to understand, straight forward fixed income strategies seems difficult with current low interest rates. Either you accept elevated currency- or counterparty risks or you will not find decent yields on your fixed income investments. When it comes to real assets you may will have to accept higher volatility – as in equities and/or precious metals – but you get higher returns in the long run.

You may know, that we offer a cashflow based mandate for our private clients and while we cannot diversify those portfolio’s entire volatility away, we receive very decent cash returns on invested capital and interestingly enough, at least half of the companies whose equities we hold in those mandates, just announced dividend increases.

Now, Ladies and Gentlemen, what I want to say with this is, that if you are willing and capable of accepting volatility in your portfolio, you may appreciate rather stable cashflows on your invested capital and this should not to be neglected because the effect of compounding interests will help you to increase those cashflows even more (in theory exponentially) over time.

While I don’t know where markets or single investments are heading, I am confident that by following a strict investment process in seeking and harvesting positive cashflows, you may not get rich over night, but you will be able to steadily increase your capital over time.

There is no magic in this and crashes may occur at any moment. However most solid global companies keep paying stable dividends even during stock exchange crashes. This means if you do not have to sell a solid investment during a stock market crash and if you are patient enough to wait until stock markets recover, your loss potential is most probably going to be limited. However, it all comes down to picking the right stocks and this is hard work and involves a lot of research and number crunching.

As always, I encourage you to send me your feedback and/or questions 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

What would you do?

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Just imagine you were managing a multi-billion pension fund with thousands of policy holders expecting you to deliver sufficient returns in order to grant to them a pension that will allow them to pay their bills once will be retired.

What would you do? How would you allocate the money that was entrusted to you?

Ladies and Gentlemen, the largest investors on this planet are pension funds. They invest their policy holders’ money either directly or via mandates. Mandates means the pension funds give the policy holder’s money to banks, brokers, asset managers who then manage parts of the pension funds’ portfolios. Both approaches have their pros and cons but this is not part of today’s weekly.

Now, every month there is new money from pension fund policyholders’ (premiums deducted from salaries) arriving at the pension funds. Furthermore many economies still count growing working populations. This means new workers/employees joining pension funds, which again leads to more money to be managed. This money needs to be invested and it needs to yield a positive return over time. Frankly speaking, this is quite a challenge. In an environment of ultra-low or even negative interest rates, macro-economic uncertainty, and political threats, investors prefer to keep their powder dry before investing. However, eventually a pension fund manager needs to invest as cash on accounts may yield negatively, not to mention inflation, as low as it may be, it should still be that any sort of investment return covers at least underlying inflation.

I personally believe it is always interesting to think about where the largest investors, who not only manage unbelievable amounts of money but on top of that and by definition need to follow a very long-term approach, put their money.

I am curious and this is why I am asking you to let me know how you would invest your policy holders’ money, if you were a pension fund manager. I will consolidate your suggestions/ideas and then let’s see what comes out of it. Maybe we can draw conclusions from this for our own investment style.

Now, Ladies and Gentlemen, I encourage you to send me your concise ideas 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

Interview by Chris Marcus from “stockpulse” (How To Keep Making Money In Volatile Markets with Stefan Kremeth)

Posted on by Stefan Markus Kremeth

Dear Ladies and Gentlemen

Today I would like to share a 20 minutes video from an interview I gave to Chris Marcus from stockpulse (www.stockpulse.com). I hope you will enjoy it and if you do, I would appreciate if you did “like” the video on youtube.

Please do not hesitate to share your thoughts with me on the interview or on whatever seems interesting or bothering to you. 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