10/7/22 9:34 AM - Lesezeit

For better or for worse

Robert Karas

Chief Investment Officer, Partner

Am I sure? Have you ever thought about this delicate situation? A worried client looks at me questioningly last week: "I'm thinking of selling everything. The war in Ukraine and the situation in Europe will only get worse." This resonates uncertainty and I understand the reasoning behind it well. A pause follows these words. The client now waiting to hear and feel my convictions about this potential action.

Tense investor psyche

Assuredly, the performance for first nine months of 2022 were the worst in decades as the two major asset classes, equities and bonds, were under constant pressure. Furthermore, the duration and depth of the setback is noticeably gnawing at the investor psyche as the fear of financial losses are increasing. At the bottom of the stock market, wherever that is exactly, the investor’s mood will be as dark as night.

We measure investor sentiment continuously; in fact, we are already in historically negative territory. The big unknown facing us: can the negative always become more negative? We are optimistic and positive for the next 12 months and especially for the next 5 years. However, no one can guarantee that the next few months will be better and ultimately, markets are not subject to physical laws that give hard limits. A cheap price can always become cheaper and just as in bull markets, an expensive valuation can always become more expensive.

A wise old stock market proverb, which also applies today states, an environment of negative sentiment brings favorable buying prices. Only those who act anti-cyclically will achieve attractive returns.

Sell to get back in lower?

Nonetheless, what is the alternative to invested assets in the financial markets? If rising mortgage rates lead to a 30% discount on the dream home, that may be a legitimate choice, but those who sell in the hope of getting back in even lower levels have chosen badly.

Philip A. Fischer was the author of one of the best-selling books in the field of private investment, "Common Stocks and Uncommon Profits". He argued back in 1958 that an investor should never sell because he is afraid of a bear market. If the company is good, the share price will see new highs in the next bull market, far above the current ones.

One in ten

It is theoretically possible to buy back a sold share at a lower price, but it almost never works. How do you, dear investors, know when exactly you should buy back shares?

Phil Fisher explains:

“Theoretically it should be after the coming decline. However, this presupposes that the investor will know when the decline will end. I have seen many investors dispose of a holding that was to show stupendous gain in the years ahead because of this fear of a coming bear market. Frequently the bear market never came and the stock went right on up. When a bear market has come, I have not seen one time in ten when the investor actually got back into the same shares before they had gone up above his selling price. Usually he either waited for them to go far lower than they actually dropped, or, when they were way down, fear of something else happening still prevented their reinstatement.”

The author clearly shows how low the chances of success are. Why is that? First, the investor thinks the price will fall even lower; then he sets an anchor at the lowest price and only sees what he has already missed from there. Then he waits for a second chance, which never comes.

First hesitate, and then sell

You should not part with your shares and bonds lightly. After all, what are the chances that now of all times is the right time to sell? How high is the possibility of getting in at better prices?

Bear markets are worrying and unnerving. Like a wild horse, the market first throws off short-term investors and in the end, little by little, the unsettled long-term investors as well. Only when they are all down does the market find a foundation and start to rise again. Then, of course, we as investors want to participate and not wipe the grime from our eyes in amazement, leaving us in the dust.

With conviction

Are we sure? For our Gutmann team of experts, I can answer that clearly: yes, we are convinced that good equities and bonds should always be part of the overall assets. Like in a marriage, this always means in good times and bad.

We are happy to talk to you about the details of your investment. We will show you the quality of your invested securities. We thus give you security.

Disclaimer: This is a marketing communication. Investments in financial instruments are exposed to market risks. Past performance or forecasts are not reliable indicators of future results. Tax treatment depends on each client's personal circumstances and may change in the future. Bank Gutmann AG hereby explicitly points out that this document is intended solely for personal use and for information only. Publishing, copying or transfer shall not be permitted without the consent of Bank Gutmann AG. The contents of this document have not been designed to meet the specific requirements of individual investors (desired return, tax situation, risk tolerance, etc.) but are of a general nature and reflect the current knowledge of the persons responsible for compiling the materials at the copy deadline. This document does not constitute an offer to buy or sell or a solicitation of an offer to buy or sell securities. The required data for disclosure in accordance with Section 25 Media Act is available on the following website: https://www.gutmann.at/en/imprint

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