The best investment strategy: Investing money with your butt!

You should live your life sustainably and considerately. Don’t use nasty words and always be mindful. Nowadays, books are already being checked for sensitive passages by so-called “sensitivity readers” and children’s books and Ian Fleming’s James Bond novels are being rewritten so that no one is inadvertently traumatized. It’s unthinkable if a child stumbles unsuspectingly over words like “fat” or “short”. I wonder how long it will be before my column here is given a trigger warning?

You can probably sense it: moralizers are anathema to me. People who preach are generally suspect to me. But I don’t stand in the way of anyone who wants to lead a rigid, abstinent and vegan life (even if I find it bleak). Just don’t bother me with it. Why this discourse, you may ask?

The foundation for success in investing: Patience and discipline

Quite simply, you can’t do without virtue after all. And don’t worry, I’m not trying to persuade you to cut down on your alcohol consumption, smoke less or stop betting on horses. My only concern is investing money. Because a flighty investment strategy is the sure way to jeopardize your success. Back and forth empties your pockets, back and forth leads to bankruptcy… or something like that.

Right now I (and perhaps you too) are feeling a slight unease in the pit of my stomach. The war in Ukraine is not coming to an end; on the contrary, you get the impression that the Russians are slowly gaining the upper hand. China is continuing to join forces with Russia, and now Brazil and South Africa are also making moves to get on board. It seems that geopolitics is moving in an unfavorable direction. Inflation is not falling as quickly as hoped, the central banks are again threatening further interest rate hikes and quite a few companies have recently reported lukewarm results. Who can blame investors for thinking about reducing the risks in their investment strategy? Who wants to buy shares in the current environment?

Invest with your butt, not your head

And this is where discipline and patience come into play. “If you want to make money with shares, you don’t do it with your head or your gut, but with your butt, by sitting on them for as long as possible,” is one of my favorite stock market bon mots. Only those who buy shares for the long term will benefit fully from the upward trend on the stock markets. The Investment Returns Yearbook is enlightening in this respect. Don’t be put off by the fact that it is published by Credit Suisse. This study, which is updated every year, is a really good thing. It is packed with exciting facts and figures and presents long-term performance comparisons of various asset classes around the globe. Whenever I get nervous and am tempted to take a more defensive approach to my investment strategy – in other words, to sell shares tactically – I take a look at the long-term equity returns in the CS Yearbook. And it immediately warms my heart: since 1900, Swiss equities, for example, have returned an average of 4.5% every year (if you add the inflation rate on top of that, we are at almost 7%). Equities in the USA were even better: they yielded no less than 6.4% per year in real terms!

Investment strategy: equities beat bonds

And the past 123 years have by no means been short of crises – two world wars, the Great Depression, the Cold War, the dotcom crash, the Great Financial Crisis, corona, now the war in Ukraine, etc. – and yet equities have risen significantly over the long term. – and yet equities made significant gains in the long term. The 4.5% is all well and good, but what about the supposedly safe alternatives? In the same period, long-term Swiss bonds only yielded a meagre 2% on average. In no other country would you have done better on average investing in bonds than in equities. By way of comparison: with an annual return of 4.5%, your assets will double after 16 years; with a return of 2%, it will take 35 years!

Of course, the ups and downs of equities were much greater. There is also no guarantee that future returns will be as lavish as in the past. However, a look back clearly shows that the odds of success are heavily in your favor when buying shares.

With this in mind: pour yourself a glass of red wine, buy shares and prove you have the stomach for investing!

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.”