Good Morning Ladies and Gentlemen

“It’s warmer inside the herd; it can be very cold outside of it.“

Attributed to: Jean Marie Eveillard

Last week’s «Stefan’s Weekly»

Many thanks to all the readers who sent in their comments. It was overwhelming to receive so many positive emails full of compliments. Many thanks, indeed! Let me take my last week’s thoughts just a little further in today’s “Stefan’s Weekly”.

The effects of imprinting

Imprinting is a rapid and relatively permanent learning process that occurs during critical periods. It impacts an individual’s behaviour, relationships, and overall development. imprinting primarily relates to biological and cultural learning, yet it indirectly influences our ideologies. Cultural, political, and cognitive factors interact to shape our worldview, and early imprints play a significant role in this process. In other words, most of us should not overestimate our own ideologies, as they are usually the result of imprinting during critical periods in our lives.

Imprinting in asset management

In asset management, imprinting during critical periods may play a significant role, i.e., losses during a market crash, the Great Financial Crisis, or hypes of tech, biotech, meme stocks, or any other such past and possibly future scenario. Then, by definition, the most sensible allocation of available funds cannot be taken for granted. Fear and greed influence the way we think and act. Ladies and Gentlemen, it is not an appropriate attitude, yet we are not immune to it.

A good way to invest

You may ask, “What is a good way to invest, then?” That is a valid question! The answer is: “It depends!” It depends on your views, investment horizon, investment preferences, risk capacity, and willingness to take risks. I generally like the idea of a competition of ideas for the most sensible allocation of available funds because I believe funds should be able to achieve their maximum effect. Personally, I have always liked cash flow-producing investments, and you know what, when my partners and I started Incrementum in 2013, we went financially through challenging times because cash flows did not match costs during the first years of developing our business, and I probably got further imprinted with this idea of the importance of regular cash flows.

What we do for our private clients

We very much believe in long-term investing. Progress usually takes time, especially in asset management. A good portfolio takes time to develop, grow, and progress; we also think it needs some basic maintenance. For our private clients, we try to find cash flow-producing investments at sensible valuations within the defined investment universe across various sectors, intending to lead to sensible diversification. In those portfolios, we seek to avoid ideological and short-term thinking. It is a predominantly bottom-up approach, yet we always look at the macro environment for indications of the potential development of our investments. Still, we are deliberately not trying to call the market but rather stick to a company’s fundamentals in the expectation of gushing cash flows.

The effect of compounding

Compounding positively influences performance due to the regular reinvesting of cash flows generated in our portfolios. The pleasant side effect of this compound interest effect is its intrinsic inflation protection.

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 and the 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

Good Morning Ladies and Gentlemen

“It is the duty of the human mind to understand that there are things it cannot understand.“

Soren Kierkegaard

Ideology – general aspects

Liberal, democratic structures based on capitalism no longer seem to be desired by a considerable number of voters. Ideological views are advocated with a vehemence that leaves almost no room for other views. Black or white, no shades of grey or even colours seem acceptable. Yet, we humans are so incredibly individual by nature and definition that it never ceases to amaze me how we willingly allow ourselves to be pressed into a mould. I am aware that the psychological element of belonging consciously or unconsciously exerts a great influence on our behaviour, and yet this ideological groupthink frustrates me; in this way, I believe individual narcissism has taken on an unhealthy dimension and tolerant and broadly diversified community-building appears to become ever more difficult.

What is in it?

I sort of see what is in it for ideological leaders and why they want to push their ideology. For them, it is a question of fame, money, and power. However, what on earth is in it for the followers? Belonging to the “good” guys (because their opponents are always the bad guys), or maybe it is the feeling of grasping the “real” idea? It amazes me that even reasonably well-educated contemporaries seem to develop difficulties abstracting and, therefore, simply do not have the mental capacity to avoid being taken in by ideologies. Quite frankly, ideological leaders are not trying to convince you, me, us because they like you, me, us; they do not even know you, me, us. They just want you, me, us because every follower gives them more fame, more money, and more power.

Ideology in asset management

Yes, Ladies and Gentlemen, these thoughts of mine were, of course, just an introduction to the topic. I am primarily concerned with the influence of ideologies on your and our asset management efforts. The same structure as mentioned above applies to asset management. If the tendency to be ideologically blinded and the will to have seen it coming at some point is weighted higher than the need for regular and reasonably evenly distributed returns from a diversified approach, then in my opinion, the awareness to abstract and thus the capacity to pursue a sensible investment approach is lacking. This is where our responsibility as educated individuals in asset management comes in. We need to exercise critical thinking and not be swayed by the allure of ideologies. It is also true in asset management that ideological leaders primarily seek fame, money, power and probably even much more money just because more is more.

Are we fit enough?

Hmhhh, Ladies and Gentlemen, if ideologies become more important to us than the big picture, then we should not be surprised if the happiness of the moment takes precedence over the happiness of our personal “long-term balance sheet”. This, Ladies and Gentlemen, at least to me, would mean we are probably not fit enough to prosper in life in general or as in this working hypothesis in asset management.

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 and the weekend!

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

Good Morning Ladies and Gentlemen

 

“I’m afraid the masquerade is over…”

From the song “The Masquerade is Over” by Allie Wrubel & Herb Magidson

What if China

What if China, as suggested in a recent article in a biweekly Swiss financial newspaper, exports goods at subsidised prices to markets outside China due to sluggish domestic market activity just to keep Chinese GDP growth up?

Inflationary trends

While, as I did write in my “Stefan’s Weekly” for the last few months on several occasions, I was very cautious about the overconfidence in the markets about forecasted, or should I write hoped for, multiple interest rate cuts by Western central banks, today I feel the opposite. I now believe there is too much pessimism in the market. When I now read the first news coverage mentioning that the U.S. Fed will not reduce its base rates in 2024, I feel confident they will.

Chinese impact on global trade

One sign of the unloading of overcapacity is the marked increase in China’s export share of the global market. Compared to 2019, the eurozone recorded a significant decline in industrial exports in relation to global industrial production, while China achieved a considerable increase. U.S. Treasury Secretary Janet Yellen explained in an interview after her visit to China last week that new tariffs against China are possible because: “we are concerned about a possible increase in Chinese exports in sectors with large overcapacity.” Western consumers may welcome the low prices of Chinese products, but domestic companies and concerns about economic growth will pressure governments in industrialized nations. Tensions in global trade are, therefore, likely to escalate further. What would that mean for Western (and other) economies?

One simple conclusion

While inflation in many Western countries still exceeds central banks’ targets, China is currently threatened by deflation. A straightforward conclusion could, therefore, be that deflation will turn on stage again in Europe and the U.S.. If subsidised inexpensive products of relatively good quality from China enter global markets, they will displace more expensive products from Western manufacturers. The US and Western countries are criticizing “unfair trade practices” by the People’s Republic. It seems no measure is ruled out to combat the Chinese government’s “unfair practices” in international trade.

Second simple conclusion

And yet, I would not rule out economic growth in Western economies may stall, which could rein in inflation and lead to a reduction in base interest rates. We will see soon enough, Ladies and Gentlemen.

Sarah Vaughan

And now let’s listen to “I’m afraid the masquerade is over” interpreted by wonderful Sarah Vaughan: Sarah Vaughan – (I’m Afraid) The Masquerade Is Over (youtube.com).

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 and the 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

Good Morning Ladies and Gentlemen

“The stock market is a device for transferring money from the impatient to the patient”
by Warren Buffett

Inflationary trends

Inflationary trends are usually never just a monetary problem but an expression of long-term structural transformation processes. US central banker John Williams, head of the New York Fed, believes the Fed has made considerable progress in lowering inflation in the US. However, the uncertain outlook means that the central bank must monitor incoming data to determine its interest rate policy. I believe over the next ten years, we will see immense demand for investments in some very particular areas:

Investing in tangible assets

Well, Ladies and Gentlemen, this is nothing new to my “older” readers, of course. I still firmly believe in investing in tangible assets as they remain the best protection against inflationary trends. So, quite frankly, I remain optimistic about investing in equities in the long term. The question remains: What sectors should you invest in? Where can we find value?

Pharmaceutical, Biocare and more

Everything relating to longer and healthier lives will be essential, i.e., areas of biotechnology, life science, medicine, and pharmacy. I believe safety and security will also boom, from cyber security to security of supply with, for example, new storage technologies. Another major topic will most probably remain the data economy and digitalization, with artificial intelligence in, for example, so-called “clean” energy and mobility.

Challenges to the “old economy”

Therefore, ongoing changes seem imminent. They will continue challenging almost all “old” business models and simultaneously help many new ideas break through.

Very long trends

Trends are usually lasting deceades. When looking back over the last 200 years, we can see decade-long trends for sectors like finance and real estate, transportation, energy, natural resources and materials, information technology and communication and maybe soon enough, biotechnology, life science, medicine, and pharmacy. Looking at current demographic trends and at valuations, I would not be surprised to see such a shift.

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 and the 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

Good Morning Ladies and Gentlemen

“Hedonistic societies do not endure.”
by George Orwell

Extract from the quarterly reporting for our private customers

Today, I want to share some extracts from our quarterly report to Incrementum’s private clients.

Comparison of returns

What return would you have generated if you had invested in standard asset classes from 1900 onwards, i.e. in the S&P 500, in 10-year US government bonds and in gold? Interesting question, no? Well, there is no magic, Ladies and Gentlemen, just stats. Let us dig in:

S&P 500

The S&P 500 Total Return Index has generated an average annual return of 9.8% since 1900. This comprises price gains (5.5%) and dividends (4.3%).

US government bonds

With an average total return of 4.6%, 10-year US government bonds remain well below the S&P 500 mark. The best period for US government bonds was from 1980 to 2010. Falling yields in a disinflationary environment ensured high bond yields, averaging 8.9% annually during that time.

Gold

The price of gold only marginally changed until the end of the Bretton Woods system in 1971. As a result, gold is on the books, with an annual increase of only 3.8%. After the end of Bretton Woods (dissolution of the USD gold price peg), the performance was significantly stronger; since then, it has been 5.4% per year. Gold’s average total return has, therefore, also remained well below that of the S&P 500.

Dividends

For a few of our investments, I have compiled the number of years for which the respective companies have not lowered their dividends. For Nestlé, this has been the case for 38 years, for Novartis for 27 years and for Roche for 32 years. Rubis has also not lowered its dividends for over 20 years and, on the contrary, has increased its payout yearly for the past 13 years. Enel has been paying regular dividends for over 25 years and has increased them continuously since 2013. BMW has paid regular dividends for over 25 years but has adjusted them to fit its business performance. BASF has been paying regular dividends for over 25 years and, despite all the crises, has never reduced them since 2008 but has increased them a total of 12 times since then.

Hand on heart

I like companies that provide employment for their employees even during challenging economic, political and social periods (9/11, Asian crisis, financial crisis, bank collapse, Covid crisis, Russian invasion of Crimea and a few years later of other areas of Ukraine, energy crisis, elections of increasingly ideological political representatives, etc.), remain profitable and thus fulfil an essential economic task. If such companies are then able to generate positive cash flows with their intrinsic business and are also willing to share these positive cash flows with their investors, we tend to use them as part of our investment strategy for private clients in their portfolios.

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 and the 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