The recipe for success on the stock market: patience
Over the past two months, equity markets have been mostly benign. Record here, record there. I read about one of the best starts to a year since 1991, elsewhere even since 1975. What's being glossed over: But we got them with sharp price declines in 4. Quarter 2018 "paid off". A good part of the declines suffered have now been recovered, sometimes even overtaken. The realization: patience pays off on the stock market.
The stock market year is relative
The 2018 stock market year was not bad for everyone, if you can make it up as you go along. I spoke with an acquaintance in whose family the stock exchange year ends on the birthday of the respective family member. Because the sister of my acquaintance had her birthday at the beginning of September, she was still able to finish "her stock market year" to some extent. He, however, with his birthday on St. Nicholas Day, was clearly at a disadvantage, similar to investors for whom the end of the year is the measure of all things.
Sit it out instead of getting hectic
The hectic movements of the last few months show the merits of a robust, long-term investment strategy. So it can be quite successful not to act with the herd. The facts proved those who held on to their investments right. And holding on had a good reason. Global corporate profits rose by over 15% while the MSCI World Index fell by nearly 10%. The discrepancy was simply too great to be explained by the fact that the stock market pays for the future and not for the past.
The uncertainty remains for sure
Profit growth like in 2018 is not expected for this year, but still solid growth. Only one thing can be stated for the upcoming months and quarters: The uncertainty will certainly not give way. The risks from the progress of Brexit, the unpredictable president in the U.S., Italian European politics and the upcoming European elections, to name just a few, are manifold and harbor substantial risks. While some talk about an uneven recovery in economic growth, others continue to see robust economic development.
"Broadly diversified – never before gritted"
"Broadly spread – never gritted", This strategy didn't work last year, but should prove useful in 2019. Even though there is no risk-free interest to be earned on the bond market for a long time, there is a lot to be said for solid and high-dividend stocks. In the first half of 2019, German companies will set a new dividend record and distribute the highest dividend amount ever to shareholders. In addition, there are other exciting and promising forms of investment for which we would be happy to provide you with information. Keywords may be microcredit, infrastructure and subordinated bonds in broad diversification.
However, patience will always be mentioned as the most important ingredient in your investment recipe in 2019 and also in the following years. Hopefully, the tastiest ingredients will be dividends and capital gains. Bon appetit.
About the author
Thomas Heinisch is a portfolio advisor at Braunschweig Private Bank. He has many years of experience in the banking business, with an emphasis on securities and private banking. He is also a board member of the Braunschweig Civic Award Foundation.