Equity culture catching on in Germany

I've written before about the hesitancy of German savers to buy stocks as a wealth-building strategy.  While more than 50% of Americans have at least some stocks or equity funds in their portfolio in Germany the number is below 20%.  That imbalance is (slowly) beginning to change for several reasons.  For one, bank savings accounts - traditionally the preferred investment product - now yield zero or even negative interest income thanks to the monetary policy of the European Central Bank.  Also, several mobile apps such as Trade Republic have launched that make it very easy to trade stocks at low or zero commission using a smartphone. And stocks in Germany - and internationally - have performed very well, even during the pandemic.

"Risk-averse Europeans have embraced share trading during the coronavirus pandemic, encouraged by soaring stock markets, rising household savings and the popularity of low-cost trading platforms. The number of people in Germany who own shares directly or via funds rose by 2.2m to 12.4m last year — with the sharpest rise among those aged under 30, according to a recent report by the Deutsches Aktieninstitut, which represents German publicly traded companies. This is a significant shift for a country with relatively low levels of share ownership and where people are traditionally conservative with their money — often preferring to earn meagre interest on bank deposits rather than invest in shares."

To be sure, much of the growth in new investors has come from younger Germans (under 30 yrs old).  Some question whether these young traders will have  a long-term commitment to the market, or if they are just following a fad.  We've seen this also in the US with the rise of Robinhooda commission-free mobile app that has gamified stock trading. Young traders - driven by a Reddit sub-forum, have piled into questionable trades with little or no understanding of stock fundamentals. The concern is that many Robinhood users are more gamblers than investors and will abandon the market once they experience significant losses.  There is the same concern in Germany that the young users of Trade Republic or JustTrade are "Zocker" - gambling on risky trades and are bound to lose money.  But there is no such thing as risk-free stock trading, and most of these new investors will see the long-term benefits of having a portfolio of stocks:

Nur ein kleiner Teil der neuen Generation Börse fällt unter die Kategorie der Zocker. Sicher, der Großteil der jungen Wilden wird Anfängerfehler machen, aber man muss den Neulingen die Freiheit gewähren, auch schmerzhafte Erfahrungen zu machen. Wer mag von sich behaupten, bei seinen Investments stets fehlerlos gewesen zu sein? Auch maximale Routine an der Börse schützt nicht vor dramatischen Fehlgriffen – Stichwort Wirecard. Viel wichtiger ist es, daraus die richtigen Lehren zu ziehen. Der größte Lerneffekt tritt ein, wenn es um das eigene Geld geht.Nur auf diese Weise können aus Amateuren irgendwann erfahrene Investoren werden. Diese Trader bleiben langfristig. Die Zocker nicht. Sie werden sich verspekulieren und anschließend „den Markt“ dafür verantwortlich machen. Die Folge wird eine Art Selbstauslese sein, bei der am Ende deutlich mehr Aktionäre übrig bleiben als zuvor. Und das wird der deutschen Aktienkultur sehr guttun.

Comments

[Koogleschreiber]

Do you remember the Nikkei in the 80ies? When interest rates at the Kabuto Cho were at record lows? The Nikkei will rise to 100,000 they said, when it hit the all-time high of 40,000. But the Nikkei crashed and hasn't reached a new high since that.

What will happen when the interest rates in the US and the EU rise again? The central banks are flooding the markets by printing money. The currency should fall, do they? Compared to which hard currency? Rubl? Swiss franks? Gold? Bitcoins?

Me, I'm on the bullish side with my ETFs. They are balanced quite well, NASDAQ, China, Russia, World, Gold Mines as a back-up. Last question: Do you know an ETF that's short on bonds?

And please: Give me a call the day before the bell tolls...

[David]

What, no Bitcoins?

I own several bond ETFs. If you are worried about rising interest rates you might look into the Blackrock Strategic Income Opportunities Portfolio (Symbol:BASIX) which uses derivatives to protect against interest rate volatility.

I personally think that short/medium term inflation fears are overblown.

[Koogleschreiber]

The Bitcoin reminds me of the tulip mania in the Dutch Republic. A monetary system that needs no banks sounds interesting, but how long will the financial authorities and the central banks turn a blind eye to this phenomenon?

[Koogleschreiber]

Nevertheless I will try to find out how to deal with crypto currencies now. The first thing to do is to buy a hardware wallet, probably the Ledger Nano S. I think we'll see nice buying opportunities in the next weeks and my favorite would be ICP: https://dfinity.org/

[David]

Let us know how it works out for you!

[Koogleschreiber]

If you have little money, you mustn't speculate. If you have a lot of money, you can speculate. If you have no money at all, you must speculate!
- André Kostolany

[Koogleschreiber]

ICP was launched on May 12th 2021 and the token shot up from zero to 700 US dollars. After that, Internet Computer prices leveled off at around $ 370.
Now the price is well below 50 $ and I've just transferred some money to a cryptocurrency exchange today. I do hope that money will be added to my account...

In a bear market, never try to catch a falling knife, I've heard...

On the other side: Let the dice fly high! (Gaius Julius Caesar)

[Koogleschreiber]

For the record: I'm in with 22 ICP tokens now.