Patience pays

Good Morning Ladies and Gentlemen

„Be fearful when others are greedy and be greedy when others are fearful.“
Warren Buffett

Difficult Market Environment

Liquidating stock positions when prices fall is generally terrible advice because it pays to remain patiently invested even in a challenging stock market environment.

History I

A look back shows that sharp price corrections and bear markets are a recurring feature in the financial markets. This was the case on Black Monday during the 1987 stock market crash, in 2001 after the bursting of the dot-com bubble, in 2008 with the great financial crisis, in 2020 with the stock market crash when the Corona epidemic broke out and also when Russia started its war on Ukraine last year. What all these events have in common is that prices went up again.

History II

All it takes is time, well, almost (it helps to implement a sensible strategy and invest in solid companies). Anyway, anyone who invested in the S&P 500 Index over 20 years always made a profit. During the 1987 stock market crash, it took 3.5 years for the S&P 500 Index to recover its losses. At the low during the financial crisis, it took five years until 2013 before the index rushed to a new record high. The fastest recovery was during the Corona pandemic when the S&P recovered a 25 per cent loss within five months. The losses from last year’s crash have yet to recover, but we are getting closer.

Dividends

While the markets go up and down, dividends are usually much more resilient. In our private mandates, we have raked in the highest cashflows ever for the year 2022, and it looks like 2023 will be no less successful in terms of the dividends expected from the companies we invest in for our clients.

Sitting out the bear market

Sitting out the bear market more than pays. Warren Buffett’s philosophy: buy shares in a well-performing company when the market is dumping them in panic and take profits when the whole world only believes in an eternally rising stock market statistically makes enormous sense. However, quite a few investors do the opposite of what Buffett recommends. They fall into panic mode when prices plummet or the mood on the stock market is terrible and sell everything when prices have practically hit rock bottom. Looking back, it is not only the realised losses that hurt. Far more severe is that one usually misses the right time to get back in. The consequence is to be underinvested at the beginning of the upswing.

Stats – 25 vital days

A study by Blackrock, the world’s largest asset manager, shows how much profit potential investors are giving away. Those who missed the 25 best days on the stock market in the last 30 years gave away a great deal of return potential. This is almost impossible to recover.

Holding period

In the long run, shares bring the most significant return if held in the portfolio over several decades. The successful investors Peter Lynch, Benjamin Graham, Jesse Livermore and Warren Buffett have done well to invest in solid companies in uncertain times or during crises, or as Warren Buffett put it, „our preferred holding period is forever“.

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 and a wonderful weekend!

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