Because we are bad at predicting the future
Good Morning Ladies and Gentlemen
On Sunday June 19, 2022 I sent one of my regular updates to our private clients. I feel like sharing it with you. Enjoy the read:
„Dear customers
Last week, our portfolios also suffered from the financial market slumping.
The German stock index DAX stands at -18% for the current year, the European stock index EuoStoxx 50 at -20% and the Swiss stock index SMI at -19%. Unfortunately, the situation is even worse in the USA. While the most famous index in the world, the Dow Jones Industrials Index, is „only“ at -18% this year, the broader S&P 500 is at -23%, and the much-respected Nasdaq Composite is even at -32% in the meantime.
From time to time, I am asked by customers, acquaintances, and people who write to us how I see future development. Precisely because we are bad at predicting the future, we invest in solid companies that can generate positive cash flows and are willing to share these with their investors in the form of dividends. So nothing at all has changed in our strategy for private clients. We offer a product based on the benefits of positive cash flows. At times this strategy may seem tedious, but in most cases, it lets our clients sleep well and yields a respectable return on invested funds over the years. Even if the prices of individual shares are lower than they were a few months ago, dividends will continue to flow in most cases. This is because we are invested in companies with solid business models. In addition, we held significant cash positions in 2021 for tactical reasons, as the financial markets were somewhat too euphoric for us. This is now to our advantage, as our portfolios have slid less sharply into negative territory than the benchmark indices, and we can make additional purchases at lower levels. So it is highly likely that we will not hit the lows in the individual companies with our investments but will receive an acceptable purchase price over the months.
Dear customers, it will probably take some time before we get close to the highs of the financial markets of 2021 again. But, until then, it is vital to enjoy the dividends and, where possible, reinvest them so that more and more dividends bubble up in subsequent years, thus creating a compound interest effect over time. In addition, this strategy has the positive side effect of offsetting the current inflation rate of almost 2.4% (for the Swiss franc currency area).
In the past, our portfolios for private clients have always been less volatile than the underlying indices. We are confident that this will also be the case in the future. But, on the other hand, it is not possible to be invested and want to generate a return without accepting the market’s volatility. Thus, and in a figurative sense, dear clients, enduring market fluctuations is to be seen as the price to be paid for long-term investment success.
In this spirit, I wish you a sunny Sunday and send you my warmest regards.“
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 great weekend, and above all, peace!
Yours truly,
Stefan M. Kremeth
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
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