He who believes will be saved

A classic example: High growth brings high returns! 'China will grow much faster than the US in the next few years, so you should overweight Chinese equities!' was a regular refrain until recently. The reasoning is clear: if the economy grows, profits rise and higher profits mean rising share prices. Elementary, my dear Watson! This is precisely why many investors invest on the basis of economic forecasts. But is that really wise? There is no doubt that China has grown rapidly in recent years, and neither Europe nor the USA have been able to keep up. Congratulations if you predicted this development in 1997! My condolences if you aggressively bet on the MSCI China share index. Over the past 25 years, it has not given you any price gains apart from major fluctuations. In the same period, the Swiss SMI share index and the US S&P 500 have performed magnificently – despite less impressive economic growth.

Well, growth doesn't always help, but if you invest in quality companies, you can't go wrong, can you? 'Buy shares in solid companies with competent management, and investment success is guaranteed.' That also sounds plausible – and is wrong. Hardly anyone would dispute that Amazon is a great company, is well managed and offers convincing services and products. And yet the share price has practically halved within a year! But we always eat, don't we? The candidate has 100 points! And people probably didn't fast from May 2002 to March 2003 either. But that didn't stop Nestlé shares from losing almost 40% of their value during this period – perhaps an extra ration of Cailler chocolate eased the pain somewhat?

The warning about the current 'great uncertainty' or 'low visibility', which urges caution, is always nice – it sounds better than 'I have no plan' but is still a bit clumsy. The following argument is typical: 'I'm definitely not buying shares now. Inflation is high, the Fed is raising interest rates and there will soon be a recession. No wonder the stock markets are falling!' However, it is precisely when the economic outlook is gloomy and fear is breathing down your neck that the best opportunities to enter the market arise. Neither at the height of the financial crisis in March 2009 nor during the coronavirus crash did investors feel like investing, there was no sign of visibility. Save yourself if you can, was the motto! But were shares really riskier in 2009, when the (financial) world was on the brink of meltdown, than at the end of 2021, when everyone and their dog was optimistic? Hardly. However, keeping calm when everyone else is losing their heads is easier said than done. Without a clear strategy and – crucially – the will to stick to it, it won't work. If you wait until the 'visibility' and the mood of the market participants is good again, the train has already left the station.

With this in mind: Don't believe every fairy tale!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. 'I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.'