Greetings from a Millennium Trader to the Millennial Traders!
CEO Mario Becker shares the invaluable lessons he has learnt from his investment journey as a a professional investor through the millenium and advice he has for millenials looking to embark on their investment journey today."Dare to trust the market overall, as it will always reflect realized and projectable profits of successful companies, not hoped-for profitability of great sounding ideas!" - Mario Becker
DFO Reflections Q1- 2022
We started 2022 with moderate expectations due to the generally good results in 2021. However, we would never have dreamed that by the end of the first quarter we would already feel as if a whole year was behind us:
Putin‘s invasion of Ukraine is currently overshadowing all other events and bringing unspeakable suffering to the peoples of Ukraine and Russia. But it also affects many people whose basic food and energy supplies have become considerably more expensive. For Germany and Europe, a new era has dawned that we, as witnesses of the fall of the Berlin Wall, would not have thought possible in this form. Putin is forcing us to take actions and investment decisions that are diametrically opposed to combating important problems such as global warming. Hopefully there is still a way back here!
DFO Reflections Q4 - 2021
2021 was the year for which we expected victory over Covid, as it seemed that successful vaccination programs could defeat the pandemic. However, as the year progressed, it became clear that new virus variants and sluggish vaccination campaigns would prolong the crisis. This led to a 'stop and go' economy in most countries in the second half of the year, after the 'logjam' of 2020 and the most pressing supply issues seemed to have dissipated in Spring.
Soon, there was a realisation that rising prices would probably not be temporary, but could last for a couple of years. Rising prices usually require central banks to adjust monetary policy, typically reducing money supply and/or raising interest rates. Rising interest rates, in turn, are poison for financial markets. Despite those new developments, both the 4th quarter and the full year 2021 produced very good investment returns for our clients.
DFO Reflections Q3 - 2021
The 3rd quarter largely followed the developments of Q1 and Q2. Depending on the vaccination progress of a given country we can see higher or lower levels of normalisation in the economic activity. But overall, it appears that the global economy is on a recovery path. Most recently we could witness a spike in energy prices as well as transportation costs, which in some cases went up ninefold versus 2020.
All the above triggered an adjustment in inflation expectations as well as overall interest rate levels. Especially medium to long term interest rates adjusted upwards from less than 1% at the beginning of the year to about 1.5%, at this moment (reference: 10 Year U.S. Treasuries). In March we even saw 1.75% for 10 Year U.S. Treasuries.
While falling interest rates means rising bond prices, rising inte- rest rates always means the opposite: falling bond prices! Currently there’s a big discussion whether recent inflation spikes are temporary and will revert to historic CPI averages of close to 2% p.a.; or whether we need to brace ourselves for a permanent rise in consumer prices. Unfortunately, we will have to wait for a few more quarters to draw the right conclusions.
DFO Reflections Q2 - 2021
The second quarter of 2021 continued much of the same trends as the first quarter: Equities of small and mid-sized companies, as well as more cyclical industries and slow-growth segments (keyword “value”), outperformed. Shares of developing countries saw a strongly differentiated development: Shares of commodity exporters such as Saudi Arabia and Russia saw strong price gains, whereas Chinese shares could not reverse the negative trend since February and selectively even traded in the red. Even the celebrations for the 100th anniversary of the founding of the Chinese Communist Party could not ignite any price fireworks here.
The “stay-at-home stocks” and shares of high-quality and less cyclical companies, which were neglected in the first quarter, saw strong price increases in May and June such that we can no longer speak of “hibernation” here. It would have been a big mistake to say goodbye to these stocks for short-term considerations, as they would now have to be bought back more expensively.
DFO Reflections Q1 - 2021
In many respects, the first quarter of 2021 followed the performance of the final quarter of 2020: shares of small and medium-sized companies as well as developing countries continued to outperform; shares of cyclical industries also rallied strongly, whereas so-called ‚stay-at-home stocks‘ or shares of companies with high-quality and less cyclical earnings underperformed. China and Hong Kong saw an exuberant bull market.
DFO Reflections Q4 - 2020
The final quarter of 2020 followed the good performance of previous quarters. Particularly corporate bonds (which were badly hit in the spring and whose returns were far behind those of government bonds) saw a massive recovery. This recovery was so strong that our investment components, which mainly contain corporate bonds, ended the year with higher total returns than those consisting mainly of government bonds. While this is quite normal, the crash in the spring of 2020 once again showed that corporate bonds should not be seen as „crash insurance“ – a fact that should definitely be taken into account when constructing quality investment portfolios.