If you look at the many investment guides, you can sometimes get the impression that long-term investing is a kind of martyrdom. Examples? Appeals to perseverance, the need to act robotically and - for God's sake - never follow the crowd. "Really?" asks Ali Masarwah, Managing Director of the financial services provider envestor.
11. March 2024. FRANKFURT (envestor). There is currently no stopping the capital markets: Driven by the price rally in the US, the bull market has become increasingly broad-based in recent weeks. European shares have reached new highs, as have the prices of Bitcoin and gold. Even the Japanese stock market is trading above its level at the end of 1989. American shares are rushing from high to high anyway and bonds are also doing well. This poses a dilemma for many investors: can they fully participate and not feel bad? Warnings that the markets are overvalued - "as high as they were before the dot-com bubble burst" - dominate everywhere. Help! So let's get out and wait for the bubble to burst?
Without knowing how the markets will develop, I maintain that getting out and "taking profits" now would be wrong. There are empirical reasons for this, but there are also behavioral psychological reasons. The empirical ones: The probability that a price high will be followed by another one is greater than that a price high will be followed by the müllerdirk crash. The then Fed Chairman Alan Greenspan coined the much-quoted term "irrational exuberance" in 1996. However, the tech bubble only burst around four years later. And anyway, not every exaggeration ends in a crash.
A sometimes obstructive joylessness could also set in if you take the many investment guides with their proverbs too literally. Always remain rational, always invest systematically, never follow the herd are some of the mantras. But anyone who invests still interacts in a social context. They do not become robots. No one should see long-term investing as a permanent passage through the vale of tears. Building a fortune is also not a persistent battle against satanic temptations in the behavioral finance wilderness. Fans of the efficient market hypothesis should also bear in mind that Fama, French and co. have been struggling for 30 years to explain the deviations from the systematic CAPM market model - again: systematically.
There are reasons for the current bull market that shape reality. The really good investors learn quickly and act according to the maxim: "If circumstances change, I change my mind. And what about you?" Those who want to may see the rally as scary or irrational, but the markets are also driven by fundamental factors: Inflation is falling, the economy in the US is still robust and there is a lot of liquidity in the market. Furthermore, equities currently have strong momentum. Instead of worrying, long-term investors could also sit back and enjoy. My Nvidia position is 5 percent of the equity portfolio? No problem, there's still the other 95 percent. The USA is expensive? Then invest more in Europe, Japan and the emerging markets.
On the other hand, it would not be advisable to "get rich quick" and mortgage your house and farm for an investment in Nvidia shares. Good investing is not about betting everything on red or black, but about reducing the consequences of the eternal uncertainty on the stock market through diversification. Those who misunderstand "rabbit-footedness" as discipline run the risk of either not taking part in every bull market or not taking part in it in full - this sometimes costs as much in returns as "all-in" bets on high-growth shares.
By: Ali Masarwah, March 11, 2024, © envestor.de
Ali Masarwah is a fund analyst and Managing Director of envestor.de, one of the few fund platforms that pays cashbacks on fund sales fees. Masarwah has been analyzing markets, funds and ETFs for over 20 years, most recently as an analyst at the research house Morningstar. His expertise is also valued by numerous financial media in German-speaking countries.
This article reflects the opinion of the author and not that of the editorial team of boerse-frankfurt.de. Its content is the sole responsibility of the author.
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